The baked goods market in china by Daxue consulting

1. TO ACCESS MORE INFORMATION ON THE KOL ECONOMYIN CHINA, PLEASE CONTACT DX@DAXUECONSULTING.COM dx@daxueconsulting.com +86 (21) 5386 0380 April. 2019 HONG KONG | BEIJING | SHANGHAI www.daxueconsulting.com 1 By DAXUE CONSULTING THE BAKED GOODS MARKET IN CHINA

3. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baked goods are becoming more popular in China’s market The baked goods market is booming 3 Young consumers prefer smaller packages and varied flavors Western brands are focusing on offline sales channels Chinese brands mainly target the mass market KOLs can easily influence people’s purchasing decisions

4. Market drivers for international brands in China 1. 2. 3. 4. 5. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baked goods are increasingly popular among young people New flavors are being created and explored Many people trust foreign brands for their high quality Coffee shops and supermarkets are willing to have international suppliers Social media and KOLs are effective ways of promotion 4

6. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED History of baked goods in China 6 1980-1990 1990-2000 2000-2010 After 2010 The modern baking industry started to rise in China from 1980, but most brands were from Hong Kong and Taiwan. China’s baking industry strode into the fast developing period, more types of baked goods entered the market and became popular among consumers. Foreign brands entered China’s market, many of them built factories in mainland China such as Mankattan, since China had low labor costs. The industry further expanded to tier-4 cities and rural areas, baked products were purchased by more people as breakfast and snacks.

7. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED The main baked goods in China  China’s baked goods market generally includes bread, cakes, biscuits/cookies, different pastries (such as pies, tarts, quiches, croissants, etc.), muffin, doughnuts, etc.  Among them, the most popular categories in China are bread, cakes, biscuits/cookies and pastries. 7 Bread Cake Biscuits / Cookies China’s pastries Western pastries

8. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Consumption and market size in China Source: http://www.chyxx.com/industry/201903/725118.html, https://baijiahao.baidu.com/s?id=1589982018878166834&wfr=spider&for=pc 8  The market size of China’s baked goods industry has been growing very fast in recent years, with more than 10% YOY growth rate.  The per capita consumption of baked products is still relatively low (6.9 Kg), comparing with the worlds average level (18.7 Kg per person). 152.72 174.69 179.73 187.89 217.00 0.00 50.00 100.00 150.00 200.00 250.00 2014 2015 2016 2017 2018F Market size of the baked goods industry in China (billion RMB–2014-2018)

9. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Consumer analysis: the main consumers of bread and cakes  Cakes and bread are the most common baked goods in China’s market.  Chinese women are more interested in bread and cakes than men. Most sales came from those born in the Post-80s and 90s. 9 Source: http://www.sohu.com/a/226657250_100093301 35% 65% Consumers of bread and cakes in China by gender (2017) Man Women 27% 55% 18% Consumers of bread and cakes in China by age (2017) Post-90s Post-80s Others

10. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Consumer analysis: consumers’ preference for baked goods  Nowadays, it is common for Chinese people to have baked goods as snacks and breakfast.  Young consumers and aging people have different preferences, however, both of them pursue healthy and delicious baked goods. 10 Old peopleYoung consumers (Post-90s and 80s) • Purchasing Preference Young consumers like baked goods with various tastes and small packages that are easy to carry and put in offices. In big cities, young consumers are more attentive to healthier baked goods with less sugar. • Purchasing Channels Bakeries, coffee shops, convenience stores. • Purchasing Preference Old people prefer baked goods with bigger packages since they like sharing baked goods with their family as snacks. Most of them like soft baked goods with less sugar. • Purchasing Channels Supermarket and hypermarket

11. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baidu index analysis- Interest trends (1/2) Baidu index of bread Baidu index of cake • The search index of bread fluctuated around its average number in past one year and reached low points in June 2018 during the Dragon Boat Festival and February 2019 during the Spring Festival. • When people search for bread on Baidu, they usually browse the definition of bread and websites of popular bread stores/brands. Data from 2018.5 – 2019.5 11 Baidu is the #1 search engine in China. The volume of search (more than ¾ of the total search made on Chinese Internet) exhibits the market digital trends • The search index of cake reached the highest peak in February 2019 during the Spring Festival. • When people search for cake on Baidu, they usually browse cake brands’ websites and online cake stores on Taobao/Tmall. Data from 2018.5 – 2019.5 The 2018 Dragon Boat Festival The 2019 Spring Festival China 2019 Spring Festival

12. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baidu index analysis- Interest trends (2/2) Baidu index of biscuit Baidu index of muffin • The number of searches of biscuit fluctuated around the average index, but in February the search number declined and reached its the lowest point because of the 2019 Spring Festival. • When people search biscuit on Baidu, they usually browse the definition of biscuit and biscuit recipes. Data from 2018.5 – 2019.5 12 Baidu is the #1 search engine in China. The volume of search (more than ¾ of the total search made on Chinese Internet) exhibits the market digital trends • The number of searches of muffin reached the highest point during the July and August 2018, because muffin was listed as one of the most popular desserts on the Internet. • When people search muffin on Baidu, they usually browse the definition of muffin and muffin recipes. Data from 2018.5 – 2019.5 The 2019 Spring Festival Muffin was listed as a very popular dessert on the Internet

13. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baidu Index – Semantic analysis (1/4) The most related keywords to “Bread” are “Bread with milk flavor”, “Cake”, “Old-fashioned bread”, “Bread websites” and “Learn to make bread”. 13 Bread Bread with milk flavor Cake Learn to make bread Specialized bread websites Bread with bean pastes Old-fashioned bread Learn to make cakes Learn to make bread and cakes Oven French bread Learn to make bread Bean pastes Search index: low High Search trends: rising trend declining trend

14. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baidu Index – Semantic analysis (2/4) The most related keywords to “Cake” are “Learn to make cakes”, “Birthday”, “Steam cakes by a rice cooker”, “Bake cakes”, “Bread” and “Oven”. 14 Cake Learn to make cakes Birthday Bake cakes Steam cakes by a rice cooker Bake cakes by oven Bread Oven Cream Barbie doll cakes Making strawberry cakes Search index: low High Search trends: rising trend declining trend

15. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baidu Index – Semantic analysis (3/4) The most related keywords to “Pastry” are “Cakes”, “Baoshifu” (a popular Chinese pastry brand), “The Chinese pastries”, “Baking”, “Short-term baking lessons”, “Cake baking schools” and “Western pastries”. 15 Search index: low High Search trends: rising trend declining trend Pastry Baking Baoshifu Baking lessons Cake baking schools Short-term baking lessons Western pastries baking schools Cakes The Chinese pastries Short-term baking lessons Western pastries Training

16. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baidu Index – Semantic analysis (4/4) The most related keywords to “Biscuits” are “Cranberry biscuits”, “Biscuits brands”, “Pocky” (a Japanese snack brand), “Original cookies” and “The biscuit recipes”. 16 Biscuits Pocky Original cookies Search index: low High Search trends: rising trend declining trend Cranberry biscuits Biscuits brands Biscuits with eggs Cream Cakes Cookies Chocolates Oven The way of making biscuits

17. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Consumers’ questions on Zhihu How do beginners make cakes? What baked goods are easy to make? As for beginners, some baked goods with fewer materials and steps are good options. Only need a few materials, simple steps and no skills, people can easily make the food like the following: 1. Egg tart without cream 2.Milk and soda biscuits 3. Banana cakes 4. Muffins with jam The classic breads of the world. Baguette, the most classic French bread, every baguette has 250g, 50cm and 5 to 7 incisions. Croissant, the crisp and sweet French bread, it can be the standard breakfast with a cup of coffee. Bagel, a kind of leavened bread, low oil and low sugar. Zhihu is the first Q&A website. in China, and has transitioned to a social media sharing platform gathering more than 100 million answers on various topics. The platform is especially relevant to reach higher-, well-educated social classes 17Source: sample of posts on Zhihu On Zhihu, the most common questions and posts about baked goods consist of the following: • How to make baked goods at home? • What are delicious and healthy baked goods? • Where to buy /how to pick good and healthy baked goods ?

18. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Consumers’ positive perceptions The nutritive value of baked food People love baked food because it is nutritious, most types of baked food are made by nutritious materials. Baked food’s main material is a wheat meal, its protein is 3 times of rice and twice of corn flour. Its calcium is 4 times of rice and 8 times of corn flour. Baked food’s advantages, comparing with traditional Chinese food 1. Baked food is easy to store and carry. Common baked food can be stored 3-6 days, easily packed and carried. 2. Baked food usually has quite varied tastes by using different ingredients, such as nuts, fruit and chocolate. Wechat is the #1 social media in China and an absolute must-have for a market entry promotion. It accounts for over 1 billion active users 18Source: sample of posts on WeChat/Weibo On social media (Weibo and WeChat), positive feedback about baked good focuses on the following:  They are delicious and nutritious, they have many different flavors  Many of them have nice appearance (including packages and goods themselves)  Easy to store and carry for most consumers

19. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Consumers’ negative perceptions Be careful! The harm of baked goods Cookies/biscuits, pies, doughnuts, fries and other baked goods or fired food have a large number of trans-fatty acids, which can easily cause weight gain, impair memory, hinder growth (for kids) and cause cardiovascular diseases. The possible healthy and safety issues of baked goods 1. Colorings: Chemical pigments aren’t totally inedible, but many stores usually add lots of food colorings 2. Fragrances and preservatives: Many baked products sellers use preservatives to extend shelf-life. Wechat is the #1 social media in China and an absolute must-have for a market entry promotion. It accounts for over 1 billion active users 19Source: sample of posts on WeChat/Weibo On social media (Weibo and WeChat), negative feedback about baked goods focuses on the following aspects:  A large amount of trans-fatty acids, which will cause cardiovascular diseases.  Too many colorings and preservatives.  Some of them contain lots of sugar

20. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Context of consumption in China The picture has been taken from a consumer’s home and shared on Weibo. In the picture, the consumer is going to have biscuits as breakfast with coffee and fruit. The picture has been taken from a birthday party and shared on Weibo. In the picture, the consumer is celebrating his birthday with friends and sharing the birthday cake. 20 Source: sample of posts on WeChat/Weibo Based on information from Weibo, WeChat and other Chinese social media platforms, the most common purposes of buying baked goods among Chinese customers are: 1. Eating by themselves in breakfast, lunch and dinner. 2. Sharing with friends and family during some occasions, such as birthday parties. 3. Eating as snacks during work and travel.

21. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Online trends : consumer perception The package of cookies is easy to carry and its design is cute. The cookies gave me an appetite and the taste of their filling is strong enough. The cake is very delicious and it is much cheaper than the same one from the supermarket. The delivery is very fast, there are two different tastes of cookies, both tasty, crisp and having faint scent. The discount activity of cookies is fake, the seller increased price before the discount activity. The cookies are not tasty at all, they are not authentic South Korean cookies. The product is not good, cookies stick together and many of them broken into pieces. The taste of cookies is not strong enough. I feel they don’t like cookies. Positive feedback on Tmall/Taobao and JD Negative feedback on Tmall/Taobao and JD 21  On Tmall/Taobao and JD, other than good tastes, other positive feedback includes cost-effective food, nice- looking packages, nutritious food, easy to carry, reasonable price and fast delivery;  Negative feedback focuses more on bad taste, the quantity is not enough, broken packages, expired products and high price.

23. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Competition analysis: Bread Brands Domestic vs International Sales on Tmall/Taobao in April 2019 Top seller price on Tmall Price range on Tmall/Taobao (RMB) Dali Food (达利园) Domestic 669,027 items 59.8 RMB 9.9 to189 HORSH (豪士) Domestic 738,955 items 49.9 RMB 13.5 to 173 BreadTalk (面包新语) International 27,234 items 29.9 RMB 11 to 148 Jason (捷森) International 21,252 items 56.9 RMB 19.9 to 210 Source: taosj.com 23  On Taobao/Tmall, the sales of domestic bread brands are higher than foreign brands, since Chinese brands are better at appealing to local tastes.  Besides, many international brands put more emphasis on offline channels (to be suppliers of bakery shops and coffee shops) instead of e-commerce platforms (like Taobao/Tmall and JD).

24. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Competition analysis: Cake Brands Domestic vs International Sales on Tmall/Taobao in April 2019 Top seller price on Tmall Price range on Tmall/Taobao (RMB) Holiland (好利来) Domestic 108,653 items 78 RMB 28 to 6,999 GANSO (元祖) Domestic 14,942 items 198 RMB 10 to 1,258 Mcake International 2,081 items 198 RMB 53 to 1,000 Maruto (玛露托) International 629 items 26.8 RMB 8 to 168 Source: taosj.com 24  Chinese brands also have much more sales than international brands on Taobao/Tmall even they have high prices. The possible reason is that domestic brands can offer goods better fit Chinese people’s needs (tastes and packages).  International brands mostly come from France, Japan and South Korea.

25. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Competition analysis: Biscuits and Cookies Brands Domestic vs International Sales on Tmall/Taobao in April 2019 Top seller price on Tmall Price range on Tmall/Taobao (RMB) Three squirrels (三只松鼠) Domestic 673,799 items 17.9 RMB 5.08 to 149 Haochidian (好吃点) Domestic 418,821 items 5.8 RMB 4.8 to 120 Oreo (奥利奥) International 583,075 items 13.8 RMB 1.48 to 219 Pacific (太平) International 133,042 items 26.9 RMB 2.8 to132 Source: taosj.com 25  Most biscuits brands built official stores on China’s e-commerce platforms (Taobao/Tmall and JD) to attract more consumers and raise their sales.  Large Chinese and International biscuits brands both have high sales on Taobao/Tmall, since they both provide tasty biscuits with reasonable price.

26. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED E-commerce landscape of bread 26 On Tmall, the price range of bread with the same weight (such as 500g) is small (around 40 RMB). Popular products are usually about 30RMB.  In addition to the price, the flavor is another important criteria for purchasing bread online. And milk-flavored bread is the most popular one. Top seller SKU Brand: Three Squirrels Price: 29.9RMB Most expensive SKU Brand: Hanszen Price: 51.6RMB Cheapest SKU Brand: Qiansi Price: 9.9RMB Source: Tmall.com

27. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED E-commerce landscape of biscuits 27 On Tmall, the price range of biscuits is large. Popular biscuits are at a relatively low price (about 10RMB-30 RMB) and usually packed in small bags.  Thus, both the price and the package are important criteria for purchasing biscuits online. Top seller SKU Brand: Tango Price: 19.9RMB Most expensive SKU Brand: Jenny Bakery Price: 279RMB Cheapest SKU Brand: Youmaijia Price: 9.8RMB Source: Tmall.com

28. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED E-commerce landscape of cakes 28 On Tmall, the price range of cakes is between 9.9RMB and 225.2RMB. Popular cakes are relatively cheap. Imported cakes are usually expensive and with less quantity.  Thus, the price is an important criterion for purchasing cakes online. Top seller SKU Brand: Hongyi Price: 19.9RMB Most expensive SKU Brand: Tokyo Banana Price: 225.28RMB Cheapest SKU Brand: Denner Price: 9.9RMB Source: Tmall.com

29. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Baked goods brands need adapt China’s market  French-style baked goods are very popular in China, many brands (domestic and foreign) devote to imitate French baked goods. However, most of them localized their goods to match the flavors of Chinese people.  Many consumers are willing to buy those baked goods for their beautiful appearance and good tastes. 29 Leverage French culture for marketing Attractive appearance and localized tastes to adapt local market Reasonable prices with good quality to target mass market The authentic French baked goods are not favored by Chinese people

30. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Business cases – Paris Baguette (巴黎贝甜) Digital activity Paris Baguette is a South Korean bakery that entered China in 2003. The official website of Paris Baguette shows its main products (bread, cakes and pastries), store locations, events and brand stories.  Paris Baguette is focusing on offline sales channels (bakeries) instead of e- commerce platforms. It has more than 200 shops in China. The brand uses French culture for marketing by imitating French baked goods.  In order to attract children, teenagers and young women, the brand launched cakes with the Mickey Mouse design by working with Disney. http://www.pbchina.cn/ 30Source: Taobao/Tmall and brand website Platform Presence Official account Volume (sales, product reviews or traffic) Pbchina.cn Yes Yes 64,672 visits per month Taobao/Tmall No No The brand mainly sells vouchers on Taobao/Tmall JD.com Yes No Around 1,000 comments, the brand only sell a few of goods on JD. Kaola No No The brand isn’t selling on Kaola Pinduoduo No No The brand isn’t selling on Pinduoduo

31. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Business cases – Paris Baguette (巴黎贝甜) E-reputation in China The most related keywords to “Paris Baguette” are “Cakes of Paris Baguette”, “The official website of Paris Baguette”, “Purchasing goods from Paris Baguette’s website” and “The price list of Paris Baguette’s cakes”.  On social media platforms (Weibo and WeChat), Paris Baguette mainly releases info about its new arrivals in China, discount activities and other important events (such as lucky draw activities). Platform Presence Followers Posting frequency in May 2019 Wechat Yes 177,624 5 Weibo Yes 816,783 30 31 Each week, Paris Baguette will launch a promotional activity. Designated types of bread or cakes will be sold at a relatively lower price in that week. Franchise Paris Baguette Cakes of Paris Baguette Cakes Price Purchasing goods on Paris Baguette website Paris Baguette The price list of Paris Baguette’s cakes The official website of Paris Baguette Ordering cakes from Paris Baguette's website Cakes from Paris Baguette's website Search index: low High Search trends: rising trend declining trend

32. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Business cases – Breadtalk (面包新语) Digital activity Breadtalk is a popular bakery from Singapore and entered China in 2003. Its official website is mainly composed of its products (bread and cakes), brand stories and company events.  The brand has built offline bakery shops in more than 50 cities in China, it also sells products on e- commerce platforms (Taobao/Tmall and JD).  Breadtalk devotes into developing baked goods made by all-natural raw materials to adapt the increasing demands for healthy lifestyles among Chinese people. http://www.breadtalk.com.cn/ 32Source: Taobao/Tmall and brand website Platform Presence Official account Volume (sales, product reviews or traffic) Breadtalk.com.cn Yes Yes 28,209 visits per month Taobao/Tmall Yes Yes 30,559 sold items in April 2019 JD.com Yes No More than 10,000 comments Kaola No No The brand isn’t selling on Kaola Pinduoduo Yes No Daily sales are 0

33. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Business cases – Breadtalk (面包新语) E-reputation in China The most related keywords of “Breadtalk” are “The official website of Breadtalk”, “Cakes”, “The price list of cakes from Breadtalk”, “Ordering Breadtalk’s cakes online” and “The franchise fees of Breadtalk”.  Breadtalk usually posts info about promotion activities (luck draw, free gifts, etc.) and its popular goods on social media platforms. The brand also launches goods with the design of popular movie characters, such as the yellow Minions. Platform Presence Followers Posting frequency in May 2019 Wechat Yes 166,950 3 Weibo Yes 182,101 8 33 Breadtalk cooperates with Glam Ever to improve its sales of cakes. People who purchase any cakes over 8 inches in offline stores (only in Shanghai, Beijing and Changsha) can get a ring that is sponsored by Glam Ever. Breadtalk Search index: low High Search trends: rising trend declining trend The price list of cakes from Breadtalk The 10 types of bread from Breadtalk CakesThe official website of Breadtalk Paris Baguette Ordering Breadtalk’s cakes online Breadtalk’s logo Official website The franchise fees of Breadtalk

34. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Business cases – Mcake Digital activity Mcake’s official website mostly shows its main products (cakes, pastries and cookies), discount activities and important events.  Mcake is focusing on well- designed French cakes and pastries. Except for offline brand stores and e-commerce platforms, consumers also can directly purchase/order cakes from the brand’s website.  The brand’s French-style goods have colourful appearance and localized tastes (such as less sweet), which attract many Chinese consumers. http://www.mcake.com/shop/110/index.html 34Source: Taobao/Tmall and brand website Platform Presence Official account Volume (sales, product reviews or traffic) Mcake.com Yes Yes 56,506 visits per month Taobao/Tmall Yes Yes 2,081 sold items in April 2019 JD.com Yes No More than 10,000 comments Kaola No No The brand isn’t selling on Kaola Pinduoduo No No The brand isn’t selling on Pinduoduo

35. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Business cases – Mcake E-reputation in China On Dianping.com (a review web, where Chinese locals rate local businesses and share their reviews), positive feedback consists of nice tastes, good quality, wonderful designs and friendly services. Negative feedback focuses on high price.  On social media platforms, Mcake usually releases info about its new arrivals and promotion activities, such as free gifts, lucky draw, limited-edition cakes, etc. The brand also promotes its goods in Chinese movies and TV series by providing custom cakes to their opening ceremonies. Platform Presence Followers Posting frequency in May 2019 Wechat Yes 187,524 5 Weibo Yes 89,176 12 35 Mcake promotes its new ice-cream cakes by randomly awarding gifts with a total value of 800RMB to 5 followers who made comments and shared this post with others. Nice taste Very good pastries Friendly services Refined food Very nice soft drinks High value for money Wonderful appearance High price

36. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Comparing online interest for leading brands  On Baidu index, 21cake showed the highest search frequency and Breadtalk had the lowest search index during the past 90 days.  On WeChat index, Breadtalk showed a significant high search frequency in April 2019 because the brand launched some new arrivals in China. 36 The search brands are Paris Baguette Breadtalk Mcake 85°C 21 Cake The search brands are Mcake Paris Baguette Breadtalk 85°C

37. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Brand advertising case study  The chef is around by children who are snatching the bread.  All of the children snatch the bread successfully and enjoy their time having the bread with lots of joyful laughter.  Detailed shootings on bread which is portable, convenient, fluffy and tasty.  Demonstrate bread's whole package and company logo. 37 Only for the audience in China https://tv.sohu.com/v/dXMvNTc0Nzk3Mi80NDQ 5MTk2LnNodG1s.html Firstly, the video well utilizes the child's position to show the product's safety. Secondly, eating with joyful laughter implies the audience that the brand’s products are tasty. And then, detailed shootings on the product will increase the audience's interests and stimulate their purchasing desire. Finally, the advertising invites a celebrity, which is a good way to increase the company's value and improve its influence.

38. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Brand naming – case studies The Chinese names of baked goods brands can make consumers directly associate with baked goods and they generally contain two meanings: • The baked goods are French-style products or directly from France. • Their baked goods are delicious enough to attract local consumers. 38 巴黎贝甜 (Paris Baguette) • “巴黎” is the Chinese translation of Paris, “贝” implies scalloped designs on baked goods and “甜” means “sweet”. • The Chinese name shows the brand provides French baked goods and most of its products are sweet. 面包新语 (Breadtalk) • “面包” is the Chinese name of “bread”, “新” means “new” and “语” means “words/language”. • The Chinese name implies the brand is focusing on bread and developing more new baked goods, designs and favors. 拿破仑系列 (Napoleon series, Mcake) • “拿破仑” is the Chinese translation of Napoleon and “系列” means “series”. • The Chinese name highlights the product series are French baked goods and implies they will conquer consumers with their wonderful flavors.

40. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Distribution and promotion in China  International baking brands are used to taking offline shops as their distribution channels in China, such as bakery shops/coffee shops and supermarket.  E-commerce platforms, such as Taobao/Tmall, have been the most important channels for Chinese brands since they are effective ways of promoting new arrivals and increase sales. 40 Baked goods suppliers Online E-commerce platforms operated by baking brands The third party e-commerce platforms (such as Tmall/Taobao and JD) Offline Bakery shops / coffee shops (such as 85°C and Starbucks) Supermarket and convenient stores Imported food stores Specialized snacks stores

41. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Online retail coverage in China  The number of selling baking brands on JD is far more than Tmall/Taobao, mainly due to the higher requirements and deposit from Tmall for those brands want to enter the platform.  Most Chinese brands have built official stores on those e-commerce platforms (such as Taobao/Tmall and JD), which increased their sales in the market. 41 Market segments Number of brands selling on Tmall/Taobao Number of brands selling on JD Bread 199 590 Cake 152 603 Cookies 194 652 Pies 189 108 Pastries 159 640 Baked goods Baked goods Main brands Main brands Way of ranking: general, popularity, new arrivals, sales and price Way of ranking: general, sales, number of comments, new arrivals and price

42. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Offline retail: Coverage in Shanghai Stores Number of stores in Shanghai Bakery shops 927 Pastry shops 750 Starbucks 741 Imported food stores 536 Baidu Map: 806 results Dianping: 741 results 42 Baked goods are mainly sold in the supermarket, bakery shops, pastry shops, part of coffee shops, convenience stores (such as Family Mart), imported food stores, etc. We use them as examples of distribution channels for baked goods in Shanghai. Bakeries Starbucks

43. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED On-the-shelf: representation of the category in stores 43 Source: pictures from stores in Shanghai  In China, young consumers (post-80s and 90s) usually buy baked goods from bakery shops, coffee shops and convenient stores. Old generations are used to purchasing baked goods from the supermarket and hypermarket.  In those stores, different types of baked goods are separately placed on shelves.  Many brands are using smaller packages to make baked goods be easily carried and they are trying to have more different favors to increase sales.

44. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Online sales: volume assessment Source: taosj.com Western pastries and Chinese pastries had similar sales in April 2019 (western pastries were slightly higher). It showed more Chinese people accepted foreign pastries. On Taobao/Tmall, biscuits showed significantly high sales in April 2019, since biscuits are the most common snacks among Chinese people. 44 1.18 3.61 15.65 Cakes Bread Biscuits Sold items of baked goods on Taobao/Tmall (million –April 2019) 15.98 15.92 Western pastries Chinese pastries Sold items of baked goods on Taobao/Tmall (million–April 2019)  The Chinese pastry is made from rice, or different types of flour, with fruit, sweet bean paste or sesame-based fillings.  The Western pastries often incorporate more cream-like fillings.  Some western-influenced Chinese pastries are essentially identical to their western counterparts, whereas others differ subtly (for example, by being less sweet).

45. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Promotion channels to leverage for international brands in China Dedicated Websites/Apps  Gmx91.com (桂美轩) / Gmx91.com app  Hongbei.21food.cn (烘焙食品网) / Hongbei.21food.cn app  Gaodian.com (中国糕点网) / Gaodian.com app Specialized Magazines  Café & Gateaux (亚洲咖啡西点)  Modern Bake (现代烘焙)  Baking in China (中华烘焙)  Hongbei Jingxuan (烘焙精选) Gmx91.com (桂美轩) is a specialized bakeries website, it mainly provides different types of baked goods, such as pastries, cakes and cookies. Café & Gateaux (亚洲咖啡西点) is a popular magazine focusing on coffee and western pastries. It shows different kinds of pastries and from western countries and their culture background. 45

46. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED KOLs related to baked goods-Weibo  For international brands, KOLs are a huge part of modern Chinese bakeries promotion, and baked goods consumers are influenced by KOL’s shared opinions and experiences.  China’s KOLs, who usually post content about baked goods on Weibo, mainly consist of food/ dessert KOLs, health KOLs and tourism KOLs.  This is a well-known food KOL’s Weibo account. The KOL mainly posts info about different countries’ food on Weibo and baked goods are important parts of his posts.  This is a well-known dessert designer and food KOL’s Weibo account. He usually posts info about dessert and snacks on Weibo and baked goods are one of main parts in his posts. 1,749,742followers 230,178 followers 46 Source: Sina Weibo

48. © 2019 DAXUE CONSULTING ALL RIGHTS RESERVED Trends Young consumers (post-90s and 80s) are the main force of baked goods consumption. In order to adapt their tastes, International brands are developing baked goods with more different flavors. They also work with Chinese celebrities and TV series to promote brand popularity among young people. Except for tier-1 and tier-2 cities, China’s lower-tier cities also have great market potential for baked goods. Thus, many baked goods brands are trying to build more bakery shops in those places and launch marketing campaigns. Due to the fast developing baked goods market, more and more large foreign brands are trying to access the country. They have better quality, designs and reputation, which is a big challenge for domestic brands. In order to have more market shares, both of them will take considerable efforts to attract consumers. I. II. III. Young consumers Lower-tier cities More competitive market 48

The baked goods market in china by Daxue consulting

Daxue Consulting

The baked goods market in china by Daxue consulting