Friday, February 22, 2013

Going global: tough for food companies - Paul French

paulfrench
Paul French
Globalization might be high on many corporate agenda's, but food products offer special challenges, as tastes and eating habits vary. Retail analyst Paul French illustrates in CKGSB Knowledge a few strategies by Chinese food companies. 

CKGSB Knowledge:
For the investors, it was all backwards. In early 2011, Chinese dairy producer Bright Food convened a meeting with outside investors and consultants. The company had mountains of cash, priceless connections and Beijing’s blessing. Having grown to become China’s second-biggest food and drink company, it was now looking to expand into the UK market. All it needed was something to actually sell there. 
“We asked them, ‘So you’re planning to sell Guangming milk [the company’s flagship milk brand] in Manchester?’” says Paul French, founder of market research firm Access Asia and one of the consultants at the meeting. Bright Food executives responded that yes, they were. “We just said, ‘Well then, good luck with that one.’”... 
Yet for all the clever and counter-intuitive reasons Chinese firms choose to go global, few are as unexpected as that of Bright Food. After the meeting with investors last year, the company announced in May 2012 that it would purchase a controlling stake in Weetabix, an iconic UK cereal brand, in a deal that valued the company at nearly $2 billion. 
Breakfast cereals are a fast-growing market in China, particularly in the muesli category (in which Weetabix owns the valuable Alpen brand). Besides distribution opportunities in China, Weetabix could lend Bright Food some brand cachet. 
But cereals (and foods of any kind) tend to be unique to certain regions, and it will be tough to transplant Weetabix’s offerings to the China market, say analysts. While these are still early days, neither Bright Food nor Weetabix has yet announced any plans to make major changes to their product line-up or distribution. French of Access Asia says he’s spoken with executives at Weetabix, who report that Bright Food has taken a hands-off approach to the company. 
Rather, the acquisition probably had a much more mundane purpose. “The logic [to the takeover] is that you’ve got a lot of cash in a very high currency that you need to do something with,” says French. With asset prices in the US and Europe at record lows, Bright Food reckoned it was a good time to go shopping for Western food brands. 
If the British economy improves it could yet prove a smart buy, especially considering the alternatives. “What else are you going to do with the money? Maybe buy a chain of hotels in Hainan or something,” French muses.
More in CKGSB Knowledge.
Paul French is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Localizing products for the China market is not easy, noted Ben Cavender last summer in a hangout. He illustrates the cases of B&Q, IKEA, Dunkin Donuts and Gap. Cavender is also a speaker at the China Speakers Bureau.
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