Branding vital in Asian dairy sector

4 November 2014

SHANGHAI: The market for premium dairy products in China is growing faster than the overall category, as concerned consumers seek the reassurance of quality brands in the wake of a series of food scandals.

Six children died in 2008 after dairy companies added melamine to infant formula, and over the past three years there have been incidents involving the presence of aflatoxin and mercury, as well as issues relating to recycled cooking oil and infected pork, leading the government to strengthen its food monitoring system.

Consumers, however, are putting their faith in international brands able to promise their products are all imported, while local brands have sought to stress the impeccable sourcing of their ingredients.

WeiQuan, for example, helped create the premium segment for liquid milk in China with its claims of superior traceability.

One consequent trend has involved a shift towards greater vertical integration in order to control all aspects of production, Campaign Asia-Pacific reported.

For example, Nestlé, the Swiss food group, is investing in its own farm, with 11,000 cows, in northern China. Local brand Mengniu is following a similar path, having set a target of running 30 farms with 150,000 cows.

An equivalent pattern is emerging across Asia, with examples from Vietnam, where dairy company Vinamilk is aiming to expand its own farms "at an industrial scale", to Indonesia, where AustAsia Food, the distributor of Greenfields fresh milk, intends to invest in a farm to meet local demand.

While foreign brands tend to have higher awareness and a better reputation, some observers consider that local and regional rivals could usefully promote the advantages of their products in terms of freshness and speed to market. Nor is it necessarily the case that foreign brands are always better quality.

But in the Chinese market, according to Ellen Hou, group managing director at McCann Worldgroup China, fears of another scandal mean shoppers are likely to pick an imported brand if they can afford it.

"The majority of families will invest [in high-quality milk for their children]. For the rest of the family, they would choose the lower priced range."

Data sourced from Campaign Asia-Pacific, BBC; additional content by Warc staff