Bottles of cooking oil produced by Sinograin Oils Co Photo: CFP

State-backed China Grain Reserves Corp (also known as Sinograin) recently announced an ambitious plan to increase its share of the retail cooking oil market.

Sinograin announced during an edible oil exhibition in Guangzhou, capital of South China's Guangdong Province that it aims to take over more than 10 percent of the domestic small-package edible oil market with its Jinding oil brand within five years, Guangzhou-based dayoo.com reported June 17.

The company, which has 415.4 billion yuan ($67.8 billion) in assets, currently holds 2.5 percent of the country's small-package cooking oil market.

According to statistics compiled by US market research firm Nielsen, the top five brands - including the big three, Arawana, Fulinmen and Luhua - control nearly 80 percent of the small-package oil market.

As the competition intensifies, both the established players and the new challengers are coming up with their own novel strategies for the Chinese market.

A 1 billion yuan bet

To exploit such a mature oil market, the cash-rich Sinograin plans to spend 1 billion yuan on TV advertising to boost market awareness of its Jinding oil, Guangzhou-based Nandu Daily reported on June 5.

"We have already advertised on several channels of CCTV [the largest TV company in China], and we have signed agreements with quite a few major Cantonese-speaking TV channels in Guangdong Province for prime-time ads," the newspaper quoted Wang Haijiao, deputy general manager of Sinograin Oils Marketing Co, as saying.

Sinograin's rival, Singapore-based Wilmar International, was the first to market small-package oil, a low-margin commodity in overseas markets, in China in 1991.

Thanks to its first-mover advantage, Wilmar has become the top cooking oil company in the country, and its Arawana oil is one of the most recognizable brands in the Chinese oil and grain market.

"The Chinese edible oil market is undergoing a revolution," Chen Bo, chairman of Yihai Kerry Foodstuffs Marketing Co, one of Wilmar's Chinese subsidiaries, told the Global Times on June 7 in Chengdu, capital of Southwest China's Sichuan Province.

In most of the major cities in China, it is estimated that over 70 percent of families are using brand-name cooking oil packaged in small plastic bottles, Chen said during an interview on the sidelines of the 2013 Fortune Global Forum in Chengdu.

However, in remote rural areas, nearly 90 percent of the households are still buying bulk rapeseed oil that is stored in iron drums, and this market is estimated at up to 700 million people, Chen noted.

The major change in the next 10 to 20 years will be selling branded small-package oil, which requires better quality control during production, to these 700 million people, Chen noted.

In 2012, Yihai Kerry produced about 3 million tons of cooking oil in China, the most in the industry, Guangzhou-based Nanfang Daily reported on June 8, citing Sinograin Oils Co's deputy general manager Wang Qingrong.

COFCO Corp, owner of the Fulinmen brand, produced about 1.1 million tons of oil last year, or about 15 percent of the total national production, and Shandong Luhua Group Co, owner of the Luhua brand, produced about 500,000 tons of oil, or around 7 percent of the total, the report said.

Sinograin sold just 150,000 tons of oil last year, but it expects to reach annual production of 1.5 million tons by 2017, growing by nearly 60 percent a year, Wang told Nanfang Daily.

To boost its production capacity, Sinograin started the construction of two new facilities in Zhengzhou, Central China's Henan Province, and in Chengdu this year, the report said.

Sinograin currently has three core production bases in Dongguan, Guangdong Province, Zhenjiang, Jiangsu Province and Tianjin.

Demand diversifies

It is expected that not only will there be a rise in packaged oil consumption in China, but also that the types of oil demanded by consumers will continue to increase.

In large Chinese cities, the richness of oil product diversification and innovation leads the world, and Wilmar has its largest R&D center in China, Chen said.

Wilmar has designed a blended product for the Chinese market that involves eight different kinds of oil, Chen said.

Sinograin has already developed some flavor-enhanced peanut and rapeseed oils for the South China market, and it is scheduled to release another new rapeseed oil product targeting migrant workers in the region, Wang told Nanfang Daily.

"Blended oils are rare in foreign countries, and their blending is not so sophisticated as in China, because the eating habits in China vary a lot from one place to another," Teo Kim Yong, an executive director at Wilmar, told the Global Times.

Middle class tastes

Chen predicted that the future trends in blended cooking oil in China will be influenced not only by eating habits, but also by the health demands of China's rising middle class.

"Senior people with heart problems may want to consume more corn oil; parents who want to help their children's brain and vision development would probably choose oils mixed with deep sea fish oil; and pregnant women will be inclined to choose camellia seed oil," Chen explained.

Meanwhile, as the younger generation's food consumption is increasingly Westernized, there will be business opportunities in producing more of the oils required for making Western food, Teo said.

Wilmar has also leveraged the popularity of its Arawana brand to branch out into other food sub-markets in China, such as rice and flour, in response to the increasingly heated competition in the cooking oil market.

Wilmar also formed last year a 50/50 joint venture with US-based cereal maker Kellogg Company to exploit the nascent breakfast cereal market in China.

The venture will make and sell Kellogg-branded cereal products using Wilmar's low-cost production facilities and widespread distribution networks, according to Teo.

Along with increasing urbanization, Teo believes that a growing number of Chinese families will choose milk for breakfast, as fast-paced urban life gives them less time to cook traditional Chinese breakfasts.

Both Chen and Teo forecast that as in the US, the consumption of cereal in China will also rise with that of milk, and they hope to duplicate Arawana's success as a first mover in the cereal market as well.