Yihao Classroom
Analysis of China's Baking Industry
In 2008, 85°C surpassed Starbucks in the Taiwanese market. In less than three years, 85°C, with over 300 stores and sales exceeding 100 million cups of coffee, significantly outperformed Starbucks, which had been in the Taiwanese market for eight years.
In 2009, less than a year after its establishment, Hilai Community received venture capital from Zhiji Venture Capital. Within a year, it opened 9 stores in Shanghai.
In 2009, Wuhan Qianji, in collaboration with the renowned marketing agency, Jinhui Tong, achieved sales exceeding 200 million yuan, becoming a powerful brand in the baking industry. Through this collaboration, Qianji's bakery grew from a single store to over 40 directly-operated chain stores, becoming the only bakery brand in Xintiandi, a symbol of Wuhan's style.
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In recent years, the baking industry has flourished. The rapidly developing baking industry has reached a critical point of intensified competition and brand transformation, on the verge of a major wave of brand transformation.
For numerous Chinese baking brands, how can they seize the opportunity and successfully break through during this period of profound industry transformation? What lessons and insights can be learned from the successful case of Jinhui Tong and Qianji's brand planning?
Industry Review: Fragmented Market, Low-Level Competition
From following the trend of Hong Kong-style bread in the early 1980s, to the influx of numerous Taiwanese baking manufacturers in the 1990s, and to the recent emergence of domestic baking enterprises, the Chinese baking industry has undergone over 20 years of development. Today, when we review the development of the baking industry, we find that the growth trajectory of the young Chinese baking industry has diverged into two distinctly contrasting lines, exhibiting two prominent characteristics.
1. Characteristic One: Fragmented Market
With the rise of the market economy and changes in consumer habits, baking products have flourished in the Chinese market since their introduction in the 1980s.
According to authoritative surveys, China's baking industry has maintained a growth rate of over 10% in recent years, reaching an industry scale of 71.8 billion yuan in 2008. Relevant institutions predict that the baking industry will reach a scale of 130 billion yuan in 2013. Experts even predict that the baking market will continue to grow for the next 30 years, with the growth rate of the baking market capacity in secondary and tertiary cities approaching 30%.
The baking industry has shown vigorous vitality, and the huge market cake has attracted numerous participants.
In recent years, although the branding and scaling advantages of baking chain enterprises have been established, they are still largely limited to regional markets. Truly branded chain domestic baking enterprises are few and far between. Although the annual sales of Haolilai and Christine are around 2 billion yuan, Haolilai is absent from the southern China market, and Christine is hard to find in the north. Up to now, there is still no national leading brand with absolute dominance in the national market in the baking industry.
Currently, a large portion of China's baking market is occupied by numerous smaller brands. In China's 70 billion+ yuan baking market, the sales volume of some leading baking brands is insignificant compared to the huge market capacity.
This fully reflects that: the current Chinese baking industry presents a typical fragmented industrial characteristic, with many enterprises competing, and no single enterprise holding a significant market share; nor does any enterprise have a significant impact on the development of the entire industry.
2. Characteristic Two: Low-Level Competition
The baking industry has a huge market capacity and development prospects. At the same time, due to the relatively low entry barrier, small and large "front-shop, back-factory" bakeries have sprung up all over China, filling the streets and alleys, with more and more brands entering the market.
The market is divided among numerous small and medium-sized brands, with different levels of brands occupying different market segments. The competition among brands mainly manifests in product competition, channel competition, and price competition. Few truly rely on brands to drive sales, resulting in the baking market remaining in a primary, low-level competition era.
Industry Turning Point: Upgrading Competition and Brand Transformation
The development of an industry must go through a turning point test. As a young industry, the Chinese baking industry has always had an upward trajectory, without any significant setbacks. Consolidation is inevitable. The Chinese baking industry has reached a critical point of competition upgrading and brand transformation.
The industry is constantly maturing through upgrading and transformation. Competition upgrading and brand transformation will become the future trend of the Chinese baking market.
1. Upgrading from Low-Level Competition to Brand Competition
As mentioned earlier, competition in the Chinese baking market has long been at a low level. Weak brand awareness and the lack of brand operation are common problems in the current Chinese baking industry. Many companies' understanding of brands is limited to designing and registering a trademark, or finding attractive packaging for their products, believing this constitutes a brand.
A brand is intangible assets such as consumer trust, loyalty, satisfaction, and value. It is the brand owner's commitment and reputation for product quality and service. The "ignorance" of brands has led to the lagging development of domestic baking enterprises, narrow profit margins, and consumer loss, among other problems.
Brand Breakthrough: Seizing Market Opportunities During the "Turning Point" Period
The "turning point" period in the development of the baking industry is a major trend, with the industry moving towards upgraded competition and brand transformation, a process that will involve brutal reshuffling.
For many companies, the turning point has arrived, and the deadline is near. Companies lacking brand power and low added value will find it increasingly difficult to survive, will be marginalized, and will eventually exit the central stage of the market. On the other hand, the turning point period also brings new opportunities, and some companies will use the turning point as a new starting point for rapid growth.
For the many Chinese baking brands, how can they turn the turning point into a new starting point and successfully break through during this period of profound industry transformation?
1. Grasping the Overall Trend: Understanding the Characteristics of a Fragmented Market
Only those who grasp the overall trend can achieve great success.
The demand for baked goods will continue to exist alongside economic growth, ensuring a large survival space for baking businesses. This is an era of 'anything is possible.' A fragmented market means everyone has market opportunities. The diversification of consumer demand in the baking market allows everyone the potential to become a leader in a specific category or even the entire industry.
Therefore, businesses must examine themselves from the perspective of the entire industry, make effective strategic decisions based on their own resources within the current competitive landscape, and establish their product positioning, market positioning, target consumer group positioning, and brand positioning around these strategic decisions. They should also flexibly utilize capital operation methods and business models, seizing opportunities and acting decisively.
The baking industry is a typical example of discretionary fast-moving consumer goods. With China's rapid economic growth in recent years, the per capita GDP in large and medium-sized cities has approached that of more developed countries. Hygienic, healthy, and nutritious, middle-class breakfasts have gradually replaced the filling-focused breakfasts of the past (youtiao, porridge, pickles), becoming the preferred choice for middle- and upper-income groups. From this perspective, the market's future prospects are optimistic.
Industry characteristics of the baking industry: desserts and pastries are leisure foods with a strong sense of fashion and trends. They can be positioned as mid-to-high-end foods, primarily targeting young fashion enthusiasts and children. There are two main business models in today's market: single-store operations by small shops and franchised chain stores. In addition, the industry has strict raw material requirements, emphasizing product taste and appearance design, and technological innovation. There are also special requirements for store decoration; it must have its own style and highlight individuality.
Opportunities (O) for the baking industry: a safe and stable political environment; increased per capita income and improved living standards, with an emphasis on leisure lifestyles (changing consumption concepts), resulting in a vast market; rapid updates in science and technology, with more advanced machinery and equipment being used in production, and more nutritious and affordable raw materials being incorporated into products; easy exit if a business fails (low exit costs); for large star-rated hotels, there are only a limited number of well-known dessert companies that can meet their requirements, so large-brand companies have strong bargaining power with these clients.
Threats (T) to the baking industry: high taxes, which increase costs when distributed across products; some female consumers avoid desserts to maintain their figure, reducing market share; for large-brand companies, strict raw material requirements mean they only have a few well-known suppliers, giving these suppliers strong bargaining power; intense competition, with numerous domestic and international companies vying for market share, and many new shops entering the market; numerous substitutes.
Since food is a highly substitutable commodity, companies in the baking industry are advised to clearly define their main consumer market segments. This will help establish brand image, increase market recognition, and maintain a competitive advantage.
Functionalization
The results of the China Nutrition Enterprise Climate Survey released in 2008 by the Public Nutrition and Development Center of the National Development and Reform Commission's Macroeconomic Research Institute showed that functional foods, nutrients, and nutritional fortifiers are operating at a high level. This indicates that nutritious and functional foods are one of the mainstream development trends in the food industry.
Currently, in the food market, more and more food companies, such as those producing candies, beverages, dairy products, convenience foods, edible oils, flour, soy sauce, and vinegar, are developing many functional products and using product functionality as a marketing advantage for promotion. The sales of functional foods in the current market are also very promising. For example, Uni-President Fresh Orange Juice consistently emphasizes "More C, More Beautiful," locking in healthy living, and many more examples exist. The baking industry is also catching up, with products moving towards functionalization. Many bread manufacturers have added new varieties, such as the popular calcium milk bread and vitamin bread.
Fashionable
Improvements in people's living standards have led to significant changes in consumption concepts. Consumer demand for food has shifted from simply eating enough to eating well and eating for enjoyment and show. More and more consumers are pursuing avant-garde, alternative, and personalized consumption methods. In their view, life is not complete without fashion. In their eyes, drinking coffee is fashionable, chewing gum is fashionable, and having bread and a yogurt drink for breakfast is also fashionable.
Today's food market is full of fashion, especially leisure foods. In the past, snacks on coffee tables were mostly melon seeds, peanuts, and other fried foods. Now, more and more families are focusing on the fashionableness of leisure foods. People increasingly enjoy opening a bag of potato chips while watching movies or sporting events.
From these trends, it is not difficult to see that food marketing in 2007 will continue to develop in the direction of leisure and fashion.
Entertainment
Fashion and entertainment are like twins. Due to the abundance of people's material lives, food has become a vehicle for fashion, sentimentality, and entertainment. While enjoying material consumption, people also enjoy the spiritual satisfaction brought by entertainment. Foods targeting young people and children are a stage for entertainment. Food should not only be delicious but also fun. For example, Oreo's advertisement promotes the concept of "Twist, Lick, and Dunk," making it fun and delicious. Therefore, this entertainment-based marketing has become a clear trend.
Segmentation
The food industry has a relatively low barrier to entry, leading to fierce competition. The food market has also transitioned from an era of mass consumption to an era of segmented consumption, with consumption becoming increasingly diverse and personalized. This requires businesses to be more targeted in their marketing, segmenting the market to provide specialized products, becoming experts and leaders in a particular category or for a specific group of people, preemptively occupying limited mental resources in consumers' minds, and thus strengthening and expanding their businesses.
Branding
How should businesses deal with increasingly fierce competition and highly homogeneous products in the market? Build a brand! Competition in the food industry has shifted from product and technology competition to brand competition. Many businesses have realized that competing on products, prices, channels, terminals, and advertising is a dead end. After years of hard work, food companies have recognized the importance of brand management. As a result, many companies have begun to focus on brand management. According to the author's understanding, more and more food companies, including some large companies, are actively seeking "external brains," such as Mengniu and Niansi, and are moving from phased cooperation to full-process cooperation, expanding service content from marketing consulting to brand strategy planning. This shows that companies recognize the value and significance of brands, which is an important shift in the upgrading of competition in the food industry.
II. Investigation and Analysis Results of the High-End Bread Market in Beijing
Many baked goods are becoming homogenized in terms of variety, ingredients, and taste. In terms of variety, the innovation speed of the Chinese baking market is relatively slow. Currently, most baked goods on the market are mainly cakes, bread, and pastries, with seasonal products such as mooncakes and fruit mousse at most. There is a lack of products designed according to consumers' physiques and ages, and according to different regional characteristics. In terms of ingredients, most baked goods on the market mainly use milk, flour, and eggs as raw materials. The monotonous ingredients result in monotonous nutritional components, and baked goods are far from achieving nutritional enrichment and refined production. In terms of taste, more than 2/3 of the baked goods on the market are sweet, and less than 1/3 are original or salty flavors.
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