The latest company figures reviewed this month show Mengniu has fallen some distance behind Yili – it is currently clearly at the more difficult end of the duopoly which dominates China’s dairy industry. We also cover its lower spend on marketing communications in comparison with Yili. As ever this is something of a vicious circle: its sales have been hit but boosting its support spend will obviously impact its gross margins, which are lower than those of its arch-rival.
This situation does at least underline the importance of addressing food safety in China (as if that were needed – witness the recent “Golden Rice scandal”). Mengniu’s problems certainly reflect the cumulative issues which it has run into – Milk Basic Protein, aflatoxins, the issue of altered production dates in August. Yili has also had similar problems but seems to have been less impacted.
The Government move to promote the installation of chief quality officers is another timely step in the right direction. President Hu is often seen as having been more focused on maintaining the status quo than making changes. If president-in-waiting Xi Jinping does indeed reappear to take over the leadership after the 18th Party Congress next month – let’s hope food poisoning isn’t behind his current low profile – one must hope that he continues to drive forward the country’s reform agenda. Anything less could act as brake on China’s industry making the progress it needs to in areas such as this – not what is required, especially given the latest economic figures which show production up but imports down as demand in key export markets has eased.
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