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English>>China Business

Foreign firms ready to gulp up dairy industry

By Song Liang (Global Times)

13:31, September 07, 2012

Recently, two of the world's biggest food and beverage companies, US-based General Mills and New Zealand-based Fonterra Co-operative Group, announced their intentions to develop their dairy businesses in China.

For years, foreign food companies have struggled to break into the Chinese market. But now, after developing their sales and sourcing chains within the country and a spat of high-profile product safety scandals involving their domestic rivals, established overseas dairy makers are well-situated to build their brands in China.

Over the past year, three of China's largest producers of dairy items were blamed for selling milk tainted by contaminated production lines. These events tarnished the entire Chinese dairy industry, which had already been thoroughly dragged through the mud thanks to the infamous scandal in 2008 involving melamine-laced milk.

What's more, a lack of disclosure in China's dairy industry as well as the slap-on-the-wrist consequences placed on dairy makers found to have committed irregularities has allowed industry players to take risks with their quality and safety standards, to the detriment of the public's interest.

In comparison, foreign dairy firms are viewed by local consumers as much more trustworthy and reputable. Indeed, many overseas makers of dairy products will voluntarily recall their own products when questions of safety arise in order to preserve their positive brand image and promote efficiency.

Under these circumstances, foreign companies can easily win over consumers who may be looking for an alternative to homegrown dairy products.

But while their charm offensive in China gains traction in the minds of local shoppers, foreign dairy companies are also well on their way to resolving their long-standing inabilities to integrate themselves into retail and supply chains in China. For example, a growing number of these firms are opening online store fronts on China's wildly popular shopping websites rather than just focusing on physical stores and seeing their sales in the country soar as a result.

As foreign dairy makers develop a better understanding of the Chinese market and make stronger inroads among the country's consumers, local manufacturers of dairy products must either clean up their acts and get serious about building trust with the public or risk getting put out to pasture.

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