Executive Summary
The Bakery Products and Bread Manufacturing industry has developed rapidly over the five years through 2011. In 2011, industry revenue is expected to total $7.45 billion, up 18.1% from 2010. This is slightly below the annualized growth rate of 26.7% over the five years through 2011. The high growth is due to substantial demand for bakery goods, which has grown by an annualized 26.7% over the past five years. In 2011, there is expected to be about 745 enterprises operating in this industry, employing 122,868 workers with a payroll of $496.5 million.
Despite weaker economic conditions in China since late 2008, demand for bread and bakery products remained steady and substantial. These products have become daily necessities for many people, particularly students and workers in urban areas.
The high level of foreign investment and large number of foreign-funded enterprises in the industry has resulted in technological improvements for bakery product manufacturers. Alongside strengthening government food regulations, these trends have helped increase consumer confidence in the industry. Demand for high-quality products will increase as consumers become more aware of the quality and nutritious attributes of bread and bakery products. The industry has a low concentration level, with the top four players accounting for a forecast 13.3% of industry revenue in 2011. Most firms in the industry are small- or medium-sized with low market shares. Barriers to entering the industry are low, especially in low-end markets.
With a further increase in domestic demand, industry revenue is expected to increase by an annualized 11.6% over the next five years, to reach a forecast $12.91 billion in 2016.
Key External Drivers
The key sensitivities affecting the performance of the Bread & Bakery Product Manufacturing industry include: Domestic Goods Prices - Agricultural - Crops - Wheat High prices for wheat and other bakery ingredients will lead to greater costs for bakers. However, some cost increases can be absorbed by bakeries or passed on to consumers in the form of higher prices. Household Income Increases in household disposable incomes allow consumers to purchase a greater range of products, including bread and bakery goods made by this industry. Industry Competition - Bread mfg Increased competition among bread manufacturers can result in price pressure, which will reduce industry profit levels. Industry Systems and Technology - Food Processing Machinery mfg Improvements in food processing technologies can improve the efficiency of firms operating in this industry.
Current Performance
The industry has developed rapidly and steadily over the past five years. Revenue is expected to increase at an annualized rate of 26.6% over the five years through 2011, with an 18.1% increase to $7.45 billion in 2011. The rapid development has been driven by rising household income and consumption levels, which have increased demand for bread and bakery products; high levels of foreign investment and large numbers of foreign-funded enterprises that promoted technological improvements in the industry;
WWW.IBISWORLD.COM.CN Bread & Bakery Product Manufacturing in China November 2011 4
strengthening government food regulations, which standardized operations and maintained consumer confidence in food safety; and consumer preferences for high-quality products, which increased product quality and prices.
In 2009, challenging economic conditions hindered growth for many industries. However, demand for bread and bakery products continued to be strong as these items have become daily necessities for many consumers, especially in urban areas. High industry output, strong demand and steady prices in 2008 resulted in revenue increasing by 52.9%. Strong industry conditions in the previous year fuelled substantial growth as domestic demand increased rapidly.
Output, profitability and trade
Bakery output increased from 429,300 tons in 2005 to 1.5 million tons in 2010, representing annualized growth of 28.5%. In 2011, bakery output is expected to increase by 21.5% to 1.83 million tons. This growth was stimulated by strong domestic demand and the entry of foreign and private investment. Foreign competitors promoted product diversification in terms of variety, packaging, quality and flavor. Relatively low entry barriers and high profitability attracted many new entrants to the industry over the past five years, which contributed to increased output.
Industry profitability varies according to the size and product type of industry firms. The profitability of some large enterprises, especially foreign-investment enterprises, is higher than smaller manufacturers. Profitability for foreign bakeries tends to be greater than traditional Chinese bakeries. Profit is also influenced by raw material prices, which have been increasing. Intensifying competition between enterprises and high input prices has weakened profit margins.
The share of exports and imports is small in this industry. Exports increased rapidly before 2006 due to greater production capacity. Many foreign companies set up production facilities in China during this time, with the aim of developing the nation's large potential market for the future; these enterprises sell to the domestic market and export bakery goods. In 2008, an incident involving the illegal use of melamine in milk products caused a rapid fall in consumer confidence for food exported from China. Melamine was added to products to give the appearance of increased protein. The organic base causes renal and urinary problems, which affected an estimated 300,000 people, many of them children and babies. Due to this incident, exports as a share of revenue are expected to decrease from 8.2% in 2007 to 3.4% in 2011.
Imported industry products are mainly high-end bread and bakery goods. Imports satisfy only a small share of domestic demand due to the growing ability of local manufacturers to produce items domestically. Imports increased at an annualized rate of 23.6% during the five-year period, with very strong growth in 2008 and 2009. However, due to a combination of more enhanced manufacturing capabilities of domestic firms, import growth is expected to slow in 2011.
Despite positive growth trends over the past five years, the industry did face some important challenges, including an imbalance in the geographic spread of manufacturers across the country, especially between the eastern and western regions; technology and management levels that lag behind the industry's advanced international competitors; and a lack of development of traditional Chinese products.
