Breakfast or Building Material?

“Why has China’s Bright Food just bought a controlling interest in Weetabix?”

On The Daily Show, in 2011,United States satirist Jon Stewart joked that Weetabix wasn’t a breakfast, it was a building material. It may seem a little indigestible to some but it has been rather successfully sold as a breakfast cereal ever since it was invented in Australia in the 1920’s by Bennison Osborne. Bright Food of Shanghai, one of China’s largest food groups, has just bought 60% of it from it’s venture capital owners in a deal that values it at £1.2bn including debt.

Whilst Chinese breakfasts have traditionally been congee, rice gruel, and Yu Za Kuei literally “deep fried devils” made of dough, the country’s economic success and the growth of the middle classes is driving change and demand for western food brands. According to Euromonitor, the Chinese breakfast cereal market is still quite small but it has been expanding at double-digit growth rates for several years and that is expected to continue.

However, there is more to the deal than just satisfying the changing breakfasting habits of upwardly mobile Chinese. There are food safety concerns in China and Bright was implicated in a scandal in 2008 when six babies died after baby formula was contaminated by industrial chemicals.  No wonder then that Chinese consumers still distrust domestic food producers and associate foreign brands with higher safety standards.

Bright Food is state owned and it has been on a buying spree for foreign food brands in recent years.  Of course the brands are themselves valuable financial investments with utility characteristics.  But they also bring access to foreign management that, along with perceived greater safety, bring proven operational management and brand marketing expertise that a rapidly emergent global business must value highly.

Many Chinese ventures have underperformed.  In fact, the acquisition trail is littered with deals that sound good at the high concept stage, as this does, but fail on implementation. Private equity group, Lion Capital, that sold 60% of the business to Bright Food, have been looking for a buyer for a while but none came along until now with deep enough pockets. It will be interesting to see if the “concept” works out and Weetabix can evolve to make this deal seem cheap in retrospect.

To make a significant impact in China Weetabix may have to be very different to what we all know and love in the UK. I’m imagining deep fried Weetabix in a congee soup on Chinese breakfast tables and Weetabix fortune cookies for dinner flavoured with vanilla and butter. But that’s just my wild imagination getting the better of me. It will be interesting to see how it goes.

The deal brings the potential for economic, competence and positioning benefits to Bright Food in addition to the opportunity to significantly increase penetration of the rapidly developing Chinese market for breakfast cereals. While Jon Stewart may not like Weetabix in a way he is right about it being a building material.  For Bright Food it has potential to make a significant difference on many fronts, using Weetabix as a building block in its much bigger government-funded corporate construction project

 

Mark

 

 

 

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