Rectangle Oreos and cucumber gum, made in China for China

SUZHOU, China (Reuters) - There are no bad ideas inside Kraft Foods’ biscuit research lab in China, according to director Maggie Wang. Not even the chewing gum Oreo cookie that a colleague asked her to bite into one day.

Instead of creamy white “stuff” in the centre, a glob of gum was sandwiched neatly between a pair of Oreo’s iconic dark chocolate biscuits.

“The taste was ok. The problem was that you could not swallow it,” said Wang, a Kraft food scientist with two decades of experience in the biscuit industry.

Investment may be powering the Chinese economy but experiments like the gum cookie - which, for better or worse, never made it to store shelves - are a reminder that consumption is rising sharply. That means it is vital for food companies to get the right products into the market, particularly with demand dimming in the United States and Europe.

A survey published earlier this year by the American Chamber of Commerce in Shanghai, the largest foreign trade group in China, showed that for about three in five of its member companies, the top priority here is producing or sourcing goods in China for the Chinese market.

“The stereotype is we’re exporting jobs and everything’s being manufactured with cheap labor and sent back, and that’s not the case at all,” said Kent Kedl, Managing Director of China and North Asia for the consultancy Control Risks, which collaborated on the AmCham survey.

China, with its 1.3 billion people, overtook the United States as the world’s biggest new car market three years ago and became the top grocery market last year. The Boston Consulting Group said in a report this week that it expects China to be the world’s No. 1 market for luxury goods by 2015.

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KFC, a Yum! Brands chain and one of the first Western fast food restaurants to hit China in the 1980s, has long been recognized as a pioneer, with offerings like rice porridge with preserved egg along with fried chicken.

But many Western companies resisted going local when they first came to China, in part because they mistakenly believed their well-known international brands would automatically succeed there. That mindset has changed, and companies now routinely tailor products or marketing campaigns.

“It’s probably quite hard to find examples of people who don’t localize,” said Paul French, chief China analyst at market research firm Mintel.

BMW developed stretch sedans in China because the wealthy like to sit in the back and be chauffeured. Wrigley’s sells cucumber-mint flavored sticks of gum and Haagen Dazs mooncakes have been a hit since their introduction in 1997.

At the Kraft R&D facility, which is half science lab, half kitchen, researchers in white coats dabble with seasonings such as “California Cheeseburger” and “Chicken Feet With Pickled Chili”.

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About 95 percent of the ideas that are floated never make it to market, Wang said. Some notable misfires: a red bean paste Oreo (kids didn’t like it) and a Ritz cracker flavored like fish boiled in spicy Sichuan peppercorn oil (too local).

But the trial and error can pay off, sometimes beyond China’s borders.

Blue jeans giant Levi Strauss & Co introduced its Denizen brand, launched in Shanghai in 2010 and designed to fit Chinese body types and trends, to the United States last year, for example.

In 2006, Kraft created a rectangular Oreo wafer cookie that soon became the best selling biscuit item in China, said Shawn Warren, President of Kraft Foods China.

Now it’s being spiffed up for a return to the country where the famed cookie sandwich got its start 100 years ago.

“We’ve done some tests in the U.S. and still think they need to optimize and tweak it but stay tuned and maybe we’ll see it in the U.S., maybe in the not so distant future,” said Warren.

Some day the gum-cookie concept may even resurface, but it would probably be flipped on its head as gum that tastes like an Oreo, Wang said.

Editing by Emily Kaiser