SHANGHAI May 23 The rolling green hills and
gurgling blonde toddlers in the ads for Yashili International
Holdings Ltd underscore how keen China's biggest milk
powder producers are to appear global to emerge from the shadow
of a fatal baby formula scandal.
The 2008 incident, which involved melamine-tainted milk
powder, soured China's $12.5 billion infant formula market for
local firms and helped multinationals with established safety
records to nearly double their market share in the past five
years. Foreign brands now account for about half of total sales.
Armed with global partners and slick marketing, Chinese
firms such as Yashili, Biostime International Holdings
and Zhejiang Beingmate Scientific Technology Industry and Trade
Co Ltd now want to challenge the dominance of
international brands with "100 percent imported" brand labels
and competitive prices.
"We're an international Chinese firm in exactly the same way
that Coca-Cola or McDonald's are international U.S. companies,"
said a Yashili spokesman, adding that the company sources all
its raw products from New Zealand.
China's infant formula market is expected to grow to $25
billion by 2017, Euromonitor data shows, as more mothers join
the workforce and spend less time breastfeeding. Food safety
concerns have so far played in favour of global firms like
Nestle SA, Danone SA, Abbott Laboratories
and Mead Johnson Nutrition Co..
Local companies are now fighting back by espousing foreign
safety standards - Bright Dairy and Food Ltd, for
example, sources the raw materials for its Pure Canterbury brand
from New Zealand, while China Mengniu Dairy Co Ltd
this week struck a deal with Danone.
"I wouldn't underestimate the power of Chinese brands to go
upmarket and gain the trust of Chinese consumers, but forging
these international ties is key," said Shaun Rein, managing
director of China Market Research Group.
"They can have the best of both worlds - the safety and
quality of the product, but also the local know-how, marketing,
sales and distribution."
HAPPY COWS, HIGHER PRICES
Domestic milk powder brands want to appeal to the rapidly
growing number of middle-class working mothers who can afford
the pricier baby formulas made by their international rivals.
China's middle class currently stands at around 300 million
people or over one-fifth of the 1.3 billion population, a
proportion which could rise to over a half by 2030, consultants
KPMG said in a recent report.
At supermarkets in big cities like Shanghai, a 900 gram tin
of infant formula made by an international firm costs between
175 yuan ($29) and 275 yuan ($45), compared to about 100 yuan
($16) for domestic milk powder in lower-tier cities in China.
To distinguish themselves from the local crowd, milk
producers boasting foreign ingredients have hiked prices to the
same range as global brands.
Beingmate also plays up ties with Swiss foodstuff group
Hochdorf Holding AG while Biostime's website lists Arla
Foods as a partner. Then there are the Yashili TV
adverts, featuring lush green fields studded with contented
dairy cows and a blonde-haired mother playing with her child.
These marketing strategies are winning over consumers.
Yashili's turnover last year was more than 40 percent higher
than 2009, the year immediately after the tainted milk scandal,
while Beingmate's revenue was up 65 percent over the same
period. Biostime saw its revenue grow six-fold to 3.4 billion
yuan in 2012 from 559 million yuan in 2009.
Li Chuan, a teacher who buys Yashili milk powder for her
4-year-old son, said more friends now recommend Chinese brands.
"There are still some problems with some Chinese milk powder
brands, but I think established brands like Yashili will
undertake strict checks before they enter the market," she said.
EXORCISING THE MELAMINE GHOST
Foreign partners may help Chinese milk powder producers
improve their reputation, but few parents will ever forget the
six infants who died and the more than 300,000 who fell ill from
local formulas that were tainted with melamine, a toxic chemical
used to boost milk protein scores in tests.
More than 20 Chinese companies were implicated in the
scandal, resulting in a spike in demand for imported brands.
Some Chinese still risk prison by smuggling in formula from
Hong Kong, where prices are lower. Others travel as far as
Europe and Australia to buy milk powder in bulk.
Dissident artist Ai Weiwei highlighted public concerns over
milk safety at his latest exhibition, a collection of formula
tins arranged in the shape of China.
"A country like this can put a satellite into space but it
can't put a safe bottle teat into a child's mouth. I think it's
extremely absurd," Ai told Reuters at his studio in Beijing.
Some experts say China's milk powder companies can
eventually soak up market share from international companies if
they avoid further scandal and maintain safety standards.
"In the premium sector it will be a long time before foreign
firms are seriously challenged," said David Mahon, Beijing-based
managing director of Mahon China Investment Management Ltd.
"But in the middle of the market we'll see considerable
change in the years to come."