Nestle blinks in China.
Reports in the Chinese business press indicate that Nestle SA is closing its ice cream plant in Shanghai, one of three ice cream factories it has been operating in Mainland China. The reports note that the decision was made in response to increased competition from domestic ice cream producers combined with rising ingredients costs. A Nestle representative confirmed the plant to close the facility noting that the Shanghai plant had failed to meet internal expectations. The representative further indicated that the company would be making changes in its business model in light of the changing competitive environment.Nestle is reported to have around a three percent share of China's ice cream market, less than half of the 7.5 percent of its global rival Unilever. Both companies trail the top domestic marketers, which include Inner Mongolia Yili Industrial Group Co. Ltd., with a 17.3 percent share and China Mengniu Dairy Co. Ltd. at 15.2 percent.
The Chinese companies are said to have an advantage over the international player in terms of supply logistics and distribution as well as in their ability to beat the internationals in terms of pricing. Industry observers in China also point to the fact that the domestic companies have a much clearer idea of what customers want in terms of the taste, texture, and shape of their products.
Nestle's other two factories, in Tianjin and Guangzhou, are to remain open despite concerns from local sources that they might also be closed. For the time being Nestle has indicated it intends to stay in the ice cream business in China. The company currently earns about a third of its global revenue in China and plans to increase that by 50 percent through the next decade.
But even if Nestle were to close all of its ice cream plants in China it would likely still remain in the market there through the use of co-packers or by the acquisition of a local manufacturer. This is the model Nestle is following in the confectionery market where Chinese regulators have this month approved its $1.7 billion acquisition of a 60 percent stake in the candy maker Hsu Fu Chi International. In April China's Ministry of Commerce approved Nestle's acquisition of a 60 percent stake in Yinlu Food Group, which makes a wide variety of popular food products and which was already a co-packer of Nestle-branded foods for the Chinese Market.
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| Publication: | Ice Cream Reporter |
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| Geographic Code: | 9CHIN |
| Date: | Dec 20, 2011 |
| Words: | 403 |
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