American Dairy claims head-start over multinationals
milk powder and soybean products, has said that it is well poised
to expand into China's emerging dairy industry, claiming that it
has succeeded where many of the multinationals have not because of
better market knowledge.
So far China's increasing consumption of dairy products as part of the nation's daily diet has led many companies to try and increase their foothold in the market. All the big multinationals are now present - including Danone, Nestle and Fonterra - but American Dairy points out that many of the multinationals have had difficulties ensuring a smooth market entry.
The attractions to the China dairy market are obvious, particularly as industry experts continue to predict the growth of Chinese dairy consumption as the society becomes increasingly health conscious and prosperous.
"In the next five years, the dairy market will maintain an average two-digit growth every year," said Chen Yu, an industry expert from the China Dairy Market Consultancy in Beijing.
But despite several attempts, American Dairy claims that foreign producers have been unsuccessful at taking a firm position in China's growing milk market. Historically such firms have had to resort to 'Plan B', purchasing equity interest in market leaders.
Citing further evidence from Yu, American Dairy says that the multinationals are now trying to re-enter the rapidly growing China market through mergers and acquisitions, after shying away from direct attempts to penetrate the market following poor results.
American dairy points to the fact that Danone has recently become the third largest stockholder of Shanghai-based Bright Dairy. It also drew attention to the fact that New Zealand-based Fonterra, is in final talks with Shijiazhuang Sanlu Group, to buy a 39 per cent stake in the firm.
According to China Marketing and Media Study, foreign dairy giants have failed for a number of reasons. The first of these is that multinational have fewer dairy farms in China due to the sensitivity of land issues. This has put them at a comparative disadvantage because it limits the potential for fresh dairy produce. The organisation also points out that advertising on television and newspaper has not proved to be the best marketing strategy, as the dairy industry remains highly fragmented and localised. On top of this multinational companies have focused on high-end products such as yoghurt and cheese which are still not aligned with Chinese consuming habits.
It is clear that the Multinationals have changed course from their earlier entries onto the China market. But lessons have been learnt and now many of the multinationals are on course for considerably improved future success in the China dairy market. Indeed companies such as Fonterra are poised to become one of the biggest players on the China market, while Danone is now achieving double digit growth there.
Bearing all of this in mind, it proves that there is no substitute for thorough market research, but with many of the multinationals now back on track it is clearly not a time for domestic dairy players to rest on their laurels.
