Tailored for success
Updated: 2012-08-17 08:45
By Wang Chao (China Daily)
Daniel Lutz, senior vice-president of Nestle, Greater China, says it is important to have different strategies in different regions of China. Wang Chao / China Daily
Foreign brands stay ahead of competition with innovative marketing mantras
Tailoring exclusive brands for specific regions is a popular strategy that is being adopted by multinational companies to stay ahead of the domestic competition in China.
Swiss food major Nestle is no exception to this rule and has already made heads turn with its rather unique coffee product called Smoovlatte. The coffee blend is unique in the sense that it has lots of milk and sugar, quite unlike any other known coffee brand, and is currently available only in China.
"If any of my Swiss friends taste the product, they will say that this is not coffee, but Chinese coffee," says Daniel Lutz, senior vice-president of Nestle Ltd, Greater China region. Lutz also looks after the ice cream division of the company in China.
Unlike most of the other foreign companies that put extra emphasis on their European heritage when selling products in China, Nestle prefers to use the "made fully in China" strategy.
"We are not here to tell people that Nestle is a Swiss company. Food is a local commodity and should have local taste and flavor," he says.
In a huge country like China, where some of the regions are almost as big as Europe, Lutz says it is important for companies to have different strategies for different regions.
"There is a huge difference even in products like ice cream. The ice cream we sell in Northeast China's Harbin is different from what we sell in South China's Shenzhen."
Lutz says consumers in the hot southern regions prefer refreshing types of items, while people in the colder northern regions tend to go for heavier ice creams topped with chocolate, cream and other ingredients.
To cater to the different tastes, the company has set up production lines in the respective regions to ensure that its products are ready to reach the market without any delays.
"Localization doesn't just mean developing products for China, but also means developing products for different regions," he says.
Nestle entered China in 1990, and has since gone to make different products like milk powder, ice cream, packaged food and cooking materials in China. It also employed more than 45,000 people in China last year.
The southern regions still continue to be the mainstay for Nestle and the company had nearly 25 percent of the ice cream market in the southern regions.
Mike Bastin, a researcher from the School of Contemporary Chinese Studies at Nottingham University, says food is a culture-sensitive issue, and companies need to do proper research before entering the market. In most cases, localization is key, he says.
"For instance, the Coca-Cola that is available in China is sweeter than what it is in the UK, while the Diet Coke tastes almost as sweet as the regular Coke available in the UK."
While localization efforts have brought companies like Nestle profits in China, it has also had a drag down effect in some sectors. During the 2008 milk scandal in China, the whole dairy industry suffered and so did Nestle in terms of sales.
According to Lutz, it is also important for foreign companies with a sizable presence in China to pay more attention to government policies and announcements. He says that he scrutinizes the government policies carefully, as well as the government's 12th Five-Year Plan (2011-15), to identify new market opportunities for Nestle in China.
"According to the five-year plan, the government is encouraging domestic consumption, and the most basic form of consumption is food and drink," Lutz says. "That provides huge opportunities for food and beverage companies like Nestle."
"If you look at packaged foods, there are still many new markets, especially outside the coastal regions," he says.
"When people get wealthier, they often look for more convenience. We are looking to capitalize on this in foods by offering a wide range of convenience products," he says.
The market for ice cream is also fast expanding in China. Hung Ming-kei, the franchisee for the US-based Dairy Queen ice cream brand in China, says that ice creams are no longer just a refreshing product, but also a daily snack.
"In the next five years, the market will embrace a new round of growth, and more varieties and flavors will appear on the market," Hung says.
Besides its localization efforts, Nestle is also reaching out to mass consumers with a complete product chain that has everything in it from premium to low-price products.
Movenpick, the premium ice cream product of Nestle, costs 45 yuan ($7, 5.8 euros) for a scoop, and is available in select hotels and restaurants, while the popular product Moji has a sticker price of 2.5 yuan.
The market is further segmented into groups by age and life stage - students, just married, or just had a baby, and so on - since different ages or life stages can lead to completely different consumer behavior, the company says.
"But the essence of food is always the mass market," Lutz says. "If the country has the need and the money to go premium, we can certainly offer the products; but not necessarily at the same time everywhere."
Bastin agrees. "The Chinese market is relatively new for most Western brands, and many Chinese people don't know their history and credibility," he says. "So branding as a premium product may not necessarily be a wise choice."
Another issue that affects multinational food companies is the duplicating of the flavor and packaging by local companies, Bastin says. So once the local companies sell a similar product at lower prices, the foreign brands may find the going tough.
To remain competitive, Nestle has to do blind quality tests for its ice creams vis-a-vis competition every year. The tests, called the 60/40 tests, involve 10 to 20 people sitting around a table to taste a Nestle product and other products made by competitors.
"If 60 percent of people like the Nestle brand, it's fine; if not, we work on the recipe and do the blind test again until we achieve that benchmark," Lutz says.
"We have to keep tracking our quality against the competitors, because some local competitors are also improving quickly," he says.
Lutz says Nestle's biggest competitor in the ice cream sector is still Yili and Mengniu, which have a combined market share of about 40 percent.
According to Lutz, there are about 3,000 ice cream manufacturers in the country, mostly regional.
"They are everywhere, but they produce only entry-level products," he says. "People have more money and want to move up to Nestle and Unilever, but not yet to Haagen-Dazs and Dairy Queen."
(China Daily 08/17/2012 page6)