Kellogg Takes on Congee With New JV 凯洛格成立合资企业对峙热粥
As inventor of the western-style breakfast cereal that is typically eaten cold with milk, Kellogg (NYSE: K) is a household name in the US and many European markets. But it has yet to find the right formula for Asia, where rice porridge and soy milk served hot still dominate the breakfast market. Now the US breakfast giant is preparing to try to change Chinese tastes through a joint venture with a Singaporean company that will sell Kellogg brand products, presumably including its trademark breakfast cereals, to millions of Chinese.
The timing and choice of partners for this particular joint venture look particularly interesting to me, as both seem like wise selections for reasons that I’ll explain shortly. For those reasons, I would give this venture a strong chance of success and would add that cold breakfast cereals could have a bright future in China’s rapidly modernizing major cities.
Let’s take a look at this latest news from the US, which has Kellogg, the maker of Corn Flakes and Rice Krispy cereals, pairing with Singaporean palm oil producer Wilmar International (Singapore: WLIL) in a 50-50 joint venture that will make Kellogg and Pringles brand products for the China market. (English article) Wilmar will mostly contribute distribution and other infrastructure to the venture, while Kellogg will provide expertise in its core area of developing and marketing snack and breakfast foods.
Kellogg previously entered the China market through its purchase of a local cracker and cookie maker called Navigable Foods back in 2008. But despite its mobile name, Navigable Foods didn’t go anywhere and Kellogg ended up disposing of its stake in the company earlier this year.
Some analysts are saying Kellogg is late in coming to China, but I personally think this new initiative looks well timed if the goal is to make a serious play for the breakfast cereal market. As China’s prosperity grows, time is becoming a more precious commodity for its increasingly busy middle class who have to juggle work with family responsibilities and leisure activities.
That kind of transformation helped to boost cold breakfast cereals in the west early in the 20th century, since such cereals are typically much faster and easier to prepare and require less cleaning than more traditional hot fare like porridge and fried eggs. Thus Kellogg should find receptive consumers for its products in big cities like Shanghai and Beijing if it can market its cereals properly, which is an area where it has rich expertise. The big potential of cold cereals was in the headlines earlier this year in May when Shanghai-based food giant Bright Foods purchased a controlling stake of Weetabix, one of Britain’s biggest makers of breakfast cereals, for more than $1 billion. (previous post)
I also like Kellogg’s choice of partner in this latest joint venture, since Wilmar, as a foreign company with an established presence in China, should be able to provide necessary infrastructure without the added burdens that often come when working with an inexperienced local Chinese partner. For all these reasons, I’m optimistic that Kellogg may finally find a formula for success with this new joint venture, which could become a major force in China’s breakfast and snack food markets over the next decade.
Bottom line: Kellogg’s new China joint venture looks like a smart move, pairing with an established foreign partner as the Chinese market looks ripe for introduction of cold breakfast cereals.
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