The global baking industry is growing steadily, with market size exceeding $300 billion. Baked goods originated mainly in Western countries, and consumption contributions come primarily from Europe and America. However, with continuous industry development, product普及, and rising consumption levels, baked goods have also seen significant growth in many developing countries. According to Euromonitor's statistics on global baked goods consumption, the global baked goods market has grown steadily, surpassing $300 billion in 2016, with a compound annual growth rate of 3.54% from 2002 to 2016.
China's baking industry is growing rapidly. According to Euromonitor, in 2016, China's baking industry ranked second globally with a market size of $25.182 billion, second only to the United States. Moreover, China's baking industry has grown rapidly in recent years, with a compound annual growth rate of 11.93% from 2011 to 2016, leading the other four countries in the top five market sizes.
1 The Bread Industry Has Great Potential China's bread industry has maintained double-digit growth for several consecutive years, with growth rates stronger than most industries. The bread industry is a sub-sector of the baking industry. In China, baking products are diverse, including traditional Chinese desserts, Western cakes, bread, and biscuits.
In 2016, the bread market accounted for 17% of China's overall baking industry. According to Euromonitor data, in 2016, China's bread sales volume reached 2.1087 million tons, with sales revenue of 28.585 billion yuan. From 2010 to 2016, the compound annual growth rate for sales volume was 6.91%, and for sales revenue, it was 11.58%. Although the overall industry growth is gradually slowing, compared to other sub-sectors of the food industry, the bread industry still maintains relatively high growth, leading most sub-sectors in the food and beverage industry, and is a young, growing industry.
Compared to international per capita bread consumption, China's per capita bread consumption has significant room for improvement. Although China's bread industry market size ranks among the top globally, per capita consumption remains at a low level. According to Euromonitor data, Chinese people consume only 1.5 kilograms of bread per capita annually, far behind the United States' 14.6 kilograms and the United Kingdom's 31 kilograms. Japan and Hong Kong, which have similar dietary habits to China, have per capita bread consumption exceeding 7 kilograms, about five times that of China. In terms of baked goods consumption expenditure, China's per capita expenditure is only one-tenth that of Japan and the United States. This shows that China's bread industry still has significant growth space.
Central Factory Wholesale Model Is More Suitable for Nationwide Expansion, and Toly Bread Is Expected to Benefit Continuously. Currently, Chinese bread enterprises can be divided into two categories based on their business models: the central factory wholesale model and the chain store operation model.
The central factory wholesale model, represented by Toly Bread, Mankattan, and Bimbo, features significant economies of scale and strong profitability. In contrast, the chain store model, represented by 85°C and BreadTalk, excels in consumer experience and product freshness but has higher management costs, making it suitable for first-tier cities but not conducive to nationwide expansion.
The industry is highly fragmented, and concentration needs to be improved in the future. As a relatively young and growing industry, China's bread industry has a chaotic competitive landscape. According to China Food News, there are already tens of thousands of bread production enterprises with food production licenses. However, data from the National Bureau of Statistics shows that in 2015, only 703 bread enterprises had main business revenue exceeding 20 million yuan. The overall industry structure is still somewhat fragmented, with no clear leading enterprises and low market concentration. The highest market share, held by Daliyuan Bread, is only 5.56%, and the CR10 for the bread industry is only 16.28%.
Industry Channels: Large Supermarkets Dominate, Emerging Channels Worth Attention. China's bread sales channels mainly include large supermarkets, traditional bakery workshops, convenience stores, and the emerging e-commerce channels in recent years. According to Euromonitor data, currently, bread sales mainly reach end consumers through large supermarket channels, accounting for 58.6% of total sales. Traditional bakery workshop channels account for 32.7%, while convenience stores and e-commerce channels, which have developed for a shorter time, account for 4.5% and 3.7%, respectively. Convenience store and e-commerce channels, as emerging sales channels for bread, are worth attention.
Unpackaged bread sales account for nearly 60% of total sales. The consumer-side statistics for the bread industry are diverse and difficult to compile. Besides common fresh bread sold in chain stores or packaged bread sold in supermarkets, bread products also appear as side dishes in catering and other settings, making it difficult to obtain detailed data on bread consumption categories. Euromonitor divides bread consumption terminal data into two categories: packaged bread and unpackaged bread. Unpackaged bread is characterized by on-site baking, freshness, and short shelf life, including bread sold in workshops and chain stores, as well as bread used as side dishes in catering and other channels. In 2016, China consumed 797,500 tons of packaged bread and 1.3111 million tons of unpackaged bread. In terms of market size, packaged bread sales reached 11.83 billion yuan, while unpackaged bread sales reached 16.755 billion yuan.
2 Terminal Consumption Upgrades and Channel Downward Expansion Will Become Core Drivers of Industry Growth Bread has good taste and is easy to carry, making it one of the important choices for breakfast. As a Western "import," bread has some differences from Chinese dietary culture. As a food industry, whether the bread industry can achieve long-term sustainable development is influenced by consumers' dietary concepts and habits. Bread, with its unique baking aroma, soft texture, and ease of storage and carrying, has quickly integrated into the daily diet of ordinary Chinese consumers. In recent years, with continuous improvements in production technology and logistics, as well as consumers' increasing pursuit of taste, the variety and freshness of bread have also improved, gaining consumer favor. Especially in the breakfast sector, bread has become an important choice, with over 11% of Chinese people choosing to eat bread for breakfast, second only to those who choose traditional Chinese steamed buns.
3 Channel Downward Expansion Still Has Significant Development Space Channels Are Becoming More Diverse, and the Share of Emerging Channels Has Increased Significantly. The traditional sales channels for bread mainly relied on large supermarkets and traditional grocery stores. In 2002, 68.4% of bread sales in China relied on grocery store channels, and 30.9% relied on large supermarkets. However, the logistics system of grocery store channels is relatively backward, unable to meet consumers' increasing demands for bread freshness, and the management of goods is not perfect, which is not conducive to industry development. Large supermarkets are often concentrated in large cities, making downward expansion difficult, so bread products cannot effectively reach second- and third-tier cities or rural areas, which restricts industry development.
With the rise of convenience stores, the share of convenience store channels in bread products has gradually increased, especially in recent years. In 2013, the convenience store channel accounted for only 1.2%, while in 2016, convenience store sales accounted for 4.5% of the overall bread market, an increase of nearly four times. After 2010, the rise of e-commerce channels further facilitated the popularization and downward expansion of the bread market. In 2016, e-commerce channel sales accounted for 3.7%, up from 0.3% in 2010. As mentioned earlier, bread products are easy to package and transport, and with the gradual improvement of logistics, the freshness of bread products sold through e-commerce channels is also guaranteed to a certain extent. Bread's convenience, ease of packaging, and long-lasting taste make it more suitable for convenience store and e-commerce channel operations compared to many other staple foods or snacks.
Compared with Japan, China's Bread Industry Has Significant Space History can teach us about rise and fall. As fellow East Asian countries, Japan has a much longer history in the bread industry compared to China. While China has only about 30 years of development, Japan's bread history can be traced back to the mid-16th century when Portuguese introduced bread to Japan. However, Japan's rapid development period for bread began after World War II. As a defeated nation, Japan's economy was severely damaged, and domestic food supply was insufficient. The United States provided wheat flour as material aid for Japan's post-war reconstruction, so Japan adopted bread as a main staple food at that time. After the 1960s, many excellent bread enterprises emerged in Japan, including Yamazaki, which continued to develop, and industry concentration continued to rise, writing the golden age of Japan's bread industry development.
Focusing on Japan's bread development from after World War II to the 1980s, we believe it can be divided into two stages:
After World War II, Japan underwent post-war reconstruction. Domestic food supply was insufficient, and the United States provided wheat flour aid. Japanese schools provided student bread sticks made from wheat flour, and bread thus became the second staple food after rice in Japan. The 1964 Tokyo Olympics also stimulated bread consumption in the short term and catalyzed Japan's bread industry into a new stage. We believe that the growth drivers for Japan's bread industry in this stage mainly came from the policy background of bread as a staple food and the short-term stimulus of major events. For immature emerging markets, the driving effect is relatively significant.
The 1960s to 1980s were the most golden period for Japan's bread industry. In 1963, the average bread consumption expenditure per household (2-3 members) was only 3,855 yen, while in 1980, it reached 20,789 yen, more than five times higher, with a compound annual growth rate of 10.42%. At the same time, bread prices also grew rapidly. According to the Statistics Bureau of Japan, in 1963, the price of white bread was only 87.9 yen per kilogram, and by 1980, it had increased to 316 yen per kilogram, a growth of 259.5%.
Currently, China's bread development is similar to Japan's level in the 1960s-1980s. Comparing the development of the bread industries in China and Japan, we believe that China's bread industry is currently in a situation similar to Japan's bread development in the 1960s-1980s, and the golden age of Chinese bread may be gradually approaching.
4 Future Trends: Short Shelf Life + Integration of Business Models The bread industry has low concentration, and increasing concentration is an inevitable trend. Currently, China's bread industry has no absolute leading enterprise like Japan's Yamazaki Bread, and industry concentration is relatively low compared to Japan. In 2016, the market share of China's top four bread enterprises was only 11.6%, far behind Japan's CR4 of 40.4%. Currently, the highest market share in China, held by Daliyuan Bread, is only 5.6% of the overall bread market, while Yamazaki Bread's market share has been stable at over 22% for four consecutive years. With fragmented industry concentration, Chinese bread enterprises still have significant opportunities.
In recent years, with continuous industry development, China's industry concentration has gradually increased. Compared to the CR4 of 10% in 2011, the current concentration has improved. Referring to the development process of Japan's bread industry, we believe that China's bread industry concentration will continue to increase with the development of enterprises such as Daliyuan and Toly Bread.
Short-shelf-life bread better meets future consumer demands. Consumers' overall demand for food is trending toward healthier options and higher taste requirements. The demand for bread is no exception. Euromonitor data shows that consumers' demand for fresh bread has increased year by year, with a compound annual growth rate of 11.9% from 2011 to 2016. The overall growth rate in the past five years is also higher than that of packaged bread with longer shelf life. Due to the accelerated pace of life, consumers' consumption of bread has become faster, and the shortening of the overall consumption cycle and the improvement of taste requirements have prompted the development of bread toward short-shelf-life products.
The two major business models are expected to deeply integrate in the future. The central factory processing and wholesale model and the chain store operation model each have their own merits. We believe that the central factory wholesale model, with its high profitability and significant economies of scale, is more suitable for the current development stage of Chinese bread enterprises, which are still in the national expansion period. Compared to chain store representatives such as 85°C, BreadTalk, and Christine, the central factory wholesale model, represented by Toly Bread, has significantly lower expense ratios and higher net profit margins. Relying on diversified channels such as supermarkets, convenience stores, and e-commerce, the central factory wholesale model is easier to penetrate into second- and third-tier cities, achieving nationwide expansion. The bottleneck of the chain store model lies in high management costs and rental and labor costs. To meet profitability needs, chain store products are generally priced higher, mainly targeting first-tier city consumers, which also poses a challenge for brand promotion and awareness.
In the future, through the central factory wholesale model to achieve nationwide expansion, occupy higher market share, squeeze out weaker competitors in the industry, enhance corporate awareness and brand power, and increase industry concentration. Subsequently, chain stores can be opened in central areas to meet consumers' demand for high consumption experience. Referring to the development process of Japan's leading enterprise Yamazaki Bread, it also went through the process of central factory layout nationwide, followed by opening chain stores domestically and internationally. Therefore, we believe that the deep integration of the two models is a guarantee for future industry leaders to dominate the bread industry.
Source: Business Circle -END-