Got Milk? The New Craze In China Is Dairy Drinks
online.wsj.com
Higher Incomes Spark Fitness Craze,
Creating Potential for a Huge Market
By KATHY CHEN
Staff Reporter of THE WALL STREET JOURNAL
Kellee Tsai girded for some heavy drinking when she arrived in China recently to research a book. From past experience, she expected the usual rounds of grain alcohol between courses of Chinese delicacies. But this time, her hosts held up glasses filled with an unusual white liquid.
"Milk!" says Ms. Tsai, a political-science professor at Johns Hopkins University, who is lactose intolerant and doesn't like the taste of the stuff. "Everywhere I went, I was toasted by people with milk mustaches."
China is starting to get milk, a basic change in the national diet that reflects larger shifts in the surging Chinese middle class. Production of milk in China nearly doubled during the five-year period ended last year, according to government estimates. While its total milk production is still small compared with the West, with a population of 1.3 billion, China "is one of the fastest-growing markets in the world, and probably the fastest in absolute terms," says Thierry Vappereau, head of planning for Nestle SA's China division.
Behind the milk movement is a fitness craze sweeping Chinese consumers. With increasing purchasing power, they are flocking to health clubs, reading health magazines, downing vitamins and drinking milk in record numbers. As China plays economic catch-up with the developed world, authorities are also seeking to improve the country's health. In the last two years, China has launched a subsidized milk program for school children, while state-run television has aired programs on the benefits of milk drinking.
"This is important for the future of the Chinese people," says Lin Diansheng, a vice director at the Ministry of Agriculture. "A lot of Chinese die at a young age, not because of illness, but because they don't know what kind of exercise to do or what constitutes a healthy diet. We want to develop scientific eating habits from a young age."
Mr. Lin says that soccer players representing soccer-crazy China generally can hold their own against European teams in the first half of games, but can't keep up in the second half. "That's because they don't drink enough milk," he says, only half-joking. He proudly notes that China's annual milk production has finally caught up to that of its grain alcohol.
The potential market is huge. Americans drank about 24 gallons of milk per person in 2001, according to the National Dairy Council, compared with less than one gallon per person in China. (In addition, U.S. consumers each ate about 380 pounds of cheese and other dairy products that year, the council says; comparable figures aren't available for China).
While a glass of milk may be part of the daily routine for people in developed countries, Chinese have long turned up their noses at it. Part of the reason is economic -- milk costs more than water or tea. Many also find the taste disagreeable or lack the enzymes needed to digest it. Milk was rarely found in home refrigerators, and certainly never on restaurant menus.
To lure new customers, companies are now hawking everything from peach-mango milk drinks to aloe-flavored yogurt. Beijing Sanyuan Foods Co. sells a "Gold Brand" milk that it touts as being from special cows whose milk contains a higher fat and protein content. At nine yuan ($1.08) for a small carton, it is about three times as expensive as most milk. Nestle markets milk drinks beefed up with calcium or iron, while others offer malted milk aimed at kids. Dairy companies are hiring newspaper boys to drop off milk with the daily paper or postmen to bring milk with the mail.
Shanghai Bright Dairy & Food Co., China's biggest dairy producer, delivers two million bottles of milk to customers each day, compared with 1,800 bottles a day five years ago when the service was launched. The company also operates a 24-hour hotline to field questions about milk (many about upset stomachs) and take orders. In 2001, the company's after-tax profit surged by more than 50% over the previous year, to 162 million yuan ($19.5 million).
Most of the world's top dairy companies have entered China, with mixed results. Local companies have an advantage because many have locked up contracts with farms to supply them with raw milk, says Sandy Chen, a Shanghai-based analyst for Rabobank International. Some Chinese companies are even investing in their own farms. In contrast, many foreign companies, which entered the market later, are hard-pressed to find local suppliers that provide hygienic, reliable sources of milk. Foreign companies also lack the networks that allow local rivals to offer door-to-door delivery.
Nestle, which operates 20 factories in China, says it is seeing double-digit growth in sales of dairy products there, including milk powder and ultra-high-temperature processed milk, which doesn't need to be refrigerated. Italy's Parmalat, one of the world's largest dairy companies, is appealing to young and relatively well-to-do urbanites with fresh and UHT milk that is pricier than other brands, but "tastes better," says Alberto Ferraris, Parmalat's regional director for Australia and Asia. "Milk is cool in China because it's not in the normal diet," he says. China's entry into the World Trade Organization should give foreign companies a boost, as Beijing cuts tariffs on imports of fresh milk and milk powder.
Among the hurdles all companies face is the fact that many Chinese can't stomach milk. There aren't official estimates for how many people in China are lactose intolerant, but the percentage is thought to be high. The National Institutes of Health estimates as many as 50 million people in the U.S. have an inability to digest lactose, a natural sugar found in milk. Certain ethnic groups are more widely affected than others; some 90% of Asian-Americans are lactose intolerant, the NIH says.
To build up a taste and tolerance for milk, Chinese companies are selling yogurt-based drinks, which some people find easier to digest. One of the most successful campaigns has been waged by auto repairman-turned-dairy king Miao Changqing. Traditionally, alcoholic drinks -- from the fiery sorghum maotai favored by China's late leader Deng Xiaoping to the more recently popular red wine -- have dominated China's highest Epicurean experiences, with male diners tossing back shots to flaunt both their machismo and their wealth.
Mr. Miao, a stocky 37-year-old who sports a crew cut, says he often downed beer on such occasions. But when he acquired a small dairy plant as part of a land-purchasing deal to expand his auto shop in 1995, he spotted a niche: a dairy-based drink to go with banquet food. After doing research, his team came up with "Miaoshi," a slightly sweet yogurt drink, with a thicker consistency than milk, packaged in a fancy white-and-green carton.
It wasn't an easy sell. Mr. Miao plied his friends with the beverage when they ate out and gave away free cartons to diners at restaurants. Most were incredulous. "What? Drink milk at the dinner table? No way, no way,"' he recalls them saying. But a few adventurous diners tried it, and soon Miaoshi took off -- boosted by the company's claims that it helps offset the effects of alcohol.
Today, Miaoshi Dairy Corp. is among the country's top producers of yogurt drinks, with revenues of about 200 million yuan ($24 million) a year. Competitors have piled in with their own versions.
China's dairy companies claim their products are a panacea for everything from aging to feelings of inferiority. Miaoshi, for one, can "fight bad germs, improve your skin, let your eyes shine brighter, keep your teeth healthy and prevent your cells from aging," boasts Gao Hui, Mr. Miao's aide. A spokeswoman for Shanghai Bright contends that consuming more milk will lead to faster growth rates among China's citizens and help make its men taller. "One cup of milk can strengthen a nation," she says.
Consumers are lapping up the message. "It's not just trendy, it's healthy," says Zhang Houyi, a social scientist at the Chinese Academy of Social Sciences in Beijing, who says he first tasted milk at a dinner when his host suggested it in lieu of grain alcohol or soft drinks. Mr. Zhang says he now has milk every morning with breakfast. "I don't feel good if I don't drink my one glass of milk a day."
Others see social benefits. Chen Wenke, a 58-year-old economist, says he orders milk or yogurt drinks at banquets instead of alcohol to play his own small part in China's fight against official abuse. "Many (Communist) Party and government cadres drink too much," he says. "That affects work and it's linked to corruption."
While there are clear benefits to milk, there are potential downsides to drinking too much, especially whole milk, which is high in saturated fat. Derek Yach, executive director for chronic diseases for the World Health Organization in Geneva, notes the older generation of Chinese have benefited from a diet high in vegetables and fruits and low in saturated fats. A move to too much dairy "could undo the benefits and gains of the good parts of the Chinese diet," he says.
He adds that while some Chinese -- such as rural residents -- would benefit from an increase in dairy, many appear to have been getting calcium from plant sources. According to the WHO, life expectancy in China is 71, compared with 77 in the U.S.
Most milk demand is in urban areas, where distribution channels exist and consumers have more income; rural residents, who make up the majority of the population, drink only about one-third of a gallon of milk a year, estimates the Dairy Association of China. While there are cows in some rural areas, most farms in China are tiny plots tilled by one family. These farms, which may raise chickens or pigs, don't have enough room or income to raise cattle.
So milk companies are targeting China's city dwellers -- and their kids. Among Shanghai Bright's strategies: chocolate milk, cartoon-festooned milk cartons and a national ad campaign featuring China's Olympic diving champion Tian Liang. "We're developing future customers," says a spokeswoman. President Enterprises Corp., one of Taiwan's top dairy companies, is focusing on malted milk, with toy giveaways at supermarkets. This year, the company plans to roll out "milk tea" and "milk coffee" for the parents.
Some foreign rivals have stumbled in the market. The big French food group Danone, which lost money on its yogurt operations in Guangzhou and Shanghai for nearly a decade, sold the plants to Shanghai Bright two years ago for a 5% stake in the profitable Shanghai company. (The stake was diluted to 3.9% in August 2002, when Shanghai Bright listed on the Shanghai stock exchange.) Danone has also invested in other successful Chinese dairy and beverage companies.
In 2001, Kraft Foods Inc. sold its 85% stake in Beijing Kraft Foods Co. to Beijing Sanyuan. Executives at Beijing Sanyuan said Beijing Kraft, which produced yogurt and UHT milk, lost money since its establishment in 1993. Arjun Gupta, a vice president for Kraft Foods International in Beijing, declined to comment on the venture's profitability. He says it was sold because the company wanted to concentrate on Nabisco-brand biscuits, Tang and other products. He adds: "Maybe sometime in the future, we'll get into cheese" in China. |
