Business

Fast-food chain McDonald’s will continue to invest in developing innovative products for the China market this year to stimulate consumption, according to a top official.

The company plans to launch around 15 new products this year, the same as last year, but in the affordable range for Chinese consumers.

Starting the lineup would be McCafe, the company’s newly developed coffee made from Arabica coffee beans, which will debut on Wednesday in seven major Chinese cities. It is also McDonald’s first new product in the nation this year.

The Chinese fast food industry has been hit severely by the financial crisis, especially during the last quarter of 2008 due to the relatively high prices, especially for customers in the third-tier cities and other regions.

“McDonald’s has no plans to reduce its spending on research and development (R

Days after traces of cocaine were detected in a widely popular energy drink, its Beijing-based producer Monday assured the product was “safe for consumption” on the Chinese mainland.

Zhang Lei, the spokesman of Red Bull Company’s Beijing branch, told China Daily: “Our products, which are made on the Chinese mainland, do not contain cocaine and other ingredients banned under the Chinese food safety regulations.”

He said the Red Bull energy drink, which is produced in the mainland, has an “independent formula completely different from the one used overseas”.

“And we don’t sell any imported Red Bull products on the mainland,” said Zhang.

Last week, the Taiwanese local authorities confiscated nearly 18,000 cases of Red Bull imported from Austria after slight traces of cocaine were detected in the drink.

The cases, worth around NT$25 million (US$772,500), were removed from the local importer’s warehouses, Taiwan media reported on Saturday.

The shipment had arrived on the island from Austria in April.

Authorities in Taiwan ordered the drinks removed from the market pending an investigation.

Six German states also banned retailers from selling Red Bull Cola on Friday after a test found traces of cocaine in the drink.

However, Germany’s Federal Institute for Risk Assessment said the level of cocaine was “too low to pose a health risk”, AP reported.

Red Bull spokesman Zhang said: “Immediately after hearing the news, we contacted our colleagues in Austria, who rechecked the cases produced with the batch shipped to Taiwan but found no hints of cocaine.”

He also said their Beijing office would apply for a clean check from the Ministry of Health to protect the product’s market reputation.

Shops and supermarkets on the Chinese mainland continue to sell the energy drink.

Sun Ye, a communications officer at the Shanghai-based Lotus Super market, said the volume of sale of Red Bull had “not been affected” yet.

“We will continue to have Red Bull on our shelves until we get an order from the authorities to remove them,” she said.

Chen Bo of Carrefour in Shanghai, also said they were waiting for word from the authorities.

“As of now, we haven’t received any official report or notice about Red Bull products,” said Huang Yushuang, a salesman at C-Store in Tianhe district, Guangzhou, Guangdong province.

Red Bull set up the China Red Bull Vitamin Drink Co Ltd in Shenzhen, Guangdong, in 1995, and three years later moved the manufacturing unit to Beijing.

(China Daily June 2, 2009)

Food lovers will have a chance to whet their appetites at the eighth edition of the FHC Beijing 2009, the country’s only international food and hospitality trade event.

The event, to be held from June 9 to 11, is expected to feature niche cuisine and products from over a dozen countries and will capitalize on the growing demand for international cuisine in China.

FHC Beijing 2009 is expected to attract members of Beijing and North China hotels, restaurants, bars, supermarkets, importers, distributors, retailers and traders. It will also provide 7,000-plus attendees a chance to rub shoulders with 120 global exhibitors selling imported food, beverages and other related products.

“(FHC Beijing 2009) will not only bring in international companies, but also offer a variety of products to cater to the growing demand for imported food,” said Justin Pau, project manager, FHC Beijing 2009. “With national pavilions confirmed from Argentina, Greece, Italy, the Republic of Korea, Spain, Sri Lanka and the US, as well as local companies selling imported foods, it will offer trade visitors the best business opportunity this year.”

China is set to become the world’s largest importer of food by 2018 and the three-day event will see the presence of nearly every major food-producing nation, said Pau.

“The market here is huge,” he said. “The consumption of imported foods ranging from commodities products like meat, flour, cheese, and finished products like jams, chocolates, and convenience foods like high-energy snacks and cereals, are all growing every year. In addition, demand for wine is also growing exponentially.”

The exhibition will not only feature international products already in China, but also showcase several new ones, like Spanish ham, Korean dairy and Argentinan wines.

Another attraction will be the exhibit’s first-ever Green Pavilion, which will focus on Green Food Standards products, produced according to “green” Chinese government regulated practices. Essentially, a notch below organic foods, these Green Food Standard products, mainly vegetables, are roughly 20 to 25 percent more expensive than normal ones and approximately 60 to 75 percent less costlier than organic ones.

The “green” element was added to the show this year due to the increasing consumption of green products by hospitality and retail buyers, said Pau.

“They are more aware of this standard as their customers look for this apart from the vast quality difference,” he said.

Other highlights include the 5th annual International Culinary Arts Competition, which will give the city’s chefs, mostly local western food chefs, the opportunity to compete against one another using a variety of different techniques and international ingredients.

An American-led seminar on food safety will also be part of the exhibition, that would be held at the New Hall of the China National Agriculture Exhibition Center.

(China Daily May 29, 2009)

Hong Kong signed on Wednesday a memorandum of understanding (MOU) on cooperation in wine-related businesses with Hungary, the latest effort by the Asian city aspiring to become a regional hub for wine trading and distribution.

The MOU is the first trade-related agreement that Hong Kong has signed with Hungary. Under the agreement, the two sides will strengthen cooperation in the promotion of wine-related trading, investment, tourism and education and in the fight against counterfeit wine.

Speaking at the signing ceremony, Hong Kong’s Permanent Secretary for Commerce and Economic Development Yvonne Choi said the agreement “further extends Hong Kong’s network of co-operation with wine-producing countries on the promotion of wine-related businesses.”

“Hungary produces quality wines. Wine exports from Hungary to Hong Kong increased by as much as 78 percent by value in 2008. We expect this trend to continue as Hungarian wines become more widely known and enjoyed here,” she added.

The HKSAR government abolished import duties on wines and beer in February 2008.

According to official figures, during the one-year period after duty exemption, wine imports to Hong Kong grew to 3 billion HK dollars, representing a year-on-year increase of 83 percent. A total of 12 wine auctions, with a total sales of 360 million HK dollars, have been held in Hong Kong since then.

In addition to the MOU signed with Hungary, Hong Kong has since August last year entered into similar deals with five other wine producing countries or regions, namely France, Bordeaux, Spain, Australia and Italy.

(Xinhua News Agency May 28, 2009)

It’s hot, dry and dusty. The temperature is hovering at around 35 degrees Celsius. In short, it is a perfect day for 20-year-old Hou Jianqin.

Sweating profusely in the tiny space that is his family’s newsstand kiosk at one of Beijing’s busiest bus terminals, Hou is raking in cash dispensing cold drinks to the thirsty crowd. Pointing to the two 2-meter-tall coolers that take up more than half the space at his kiosk, Hou said he keeps stock of at least 50 different varieties and brands of soft drinks to satisfy the very diverse tastes of his customers.

That diversity hasn’t gone unnoticed by the soft drinks producers. In this high-volume, low-profit-margin business, producers know that they must grab market share or perish. To do so, they must constantly come up with fresh ideas and products to get a leg-up on their competitors in the advertising sweepstakes.

“This season, our suppliers added more than 10 new flavors to test-market,” Hou said. Of course, not all of them will turn out to be instant hits. Only a few can survive into the next season, Hou observed.

Hou’s 24-hour shop sells, on average in summer, over 600 bottles of soft drinks. Over 30 percent of sales come from juice beverages and tea drinks.

As usual, the top contenders in China’s fiercely competitive soft drinks market are US behemoths, Coca Cola and Pepsi, and a few domestic players such as Huiyuan, Wahaha and, Nongfu Spring, which tend to specialize in either distilled water or fruit-juice-based drinks.

Market research house Euromonitor International’s report showed that the total sales of soft drinks in China amounted to about 283.6 billion yuan last year, up 14.5 percent from 247 billion yuan a year earlier.

Non-alcoholic drinks

Neither the global financial crisis nor the domestic economic downturn seems to have dented soft drinks sales in China. The total output of all non-alcoholic drinks in the first quarter of 2009 amounted to 15.17 million tons, up 15 percent from the year earlier period. During that period, production of non-carbonated drinks, including fruit juice, surged 332.9 percent, compared to a 3.49 percent decline in soda production, according to the National Bureau of Statistics.

Summer is the best time to test the brawn and smarts of soft-drinks producers.

This year’s highlights are mixed drinks with around 10 percent juice, and a variety of tea-based drinks, according to Chen Jing, beverage researcher at Beijing Orient Agribusiness Consultant Ltd, an agriculture and food markets research house.

“These non-carbonated beverages are supposed to be, or marketed as, healthier than traditional soda drinks, and Chinese consumers are expected to opt for low-concentration juice because of their lower price, especially during these economically challenging times,” said Chen.

International giants Coca-Cola and PepsiCo have also entered the fray in the low-concentration juice market with their respective brands. Coca-Cola is heavily promoting its reformulated Minute Maid juices and PepsiCo has introduced more choices under its Tropicana brand, the top juice brand in its home market in the US in terms of sales.

After regulators thwarted its high-profile bid for Huiyuan, Coca-Cola announced in March that it would invest a total of $2 billion into the Chinese market in the next three years. The budgeted investment in new manufacturing facilities and the expansion of its existing sales network exceeds the company’s total investment in China during the past 30 years.

Part of the new investment, amounting to 90 million yuan, has been earmarked for the establishment of a research and development center in Shanghai, which will be devoted exclusively to non-carbonated soft drinks.

Indeed, Coca-Cola moved to the top among non-carbonated soft drinks vendors in the Chinese market last year. China is now the world’s second largest market after the US for the company’s Minute Maid brand of juice.

The local soft drinks vendors are putting up a stiff fight though. Nongfu Spring, for instance, began pushing its Lemon C 100, a mixed drink with 12 percent concentrated lemon juice, last summer. The company claimed that it was a success, with total sales of 100 million yuan by year-end.

Market shares

Early this year, Hangzhou-based Wahaha launched a similar product, which it called Happy C. Even the packaging looks similar to Nongfu’s original.

Huiyuan Juice Group, the largest juice producer in China with a 44 percent market share, announced on April 15 that it would focus on sales of low-concentration juice this year. The campaign kicked off with a product named Lemon Me, which the company claims contain 15 percent raw lemon juice sweetened with honey.

“The three lemon drinks all come in white bottles and in similar shapes and patterns; they also do not taste much different. Even the prices are all fixed at 4.5 yuan. I don’t know why these companies copied each others’ designs instead of creating their own products,” said Wu Jia, a 27-year-old accountant in a foreign company, adding that she preferred Lemon C 100, as it was the original version.

“Soft drinks consumption in China is still at an affordable level in general, and Chinese consumers prefer the light taste of low-density juice. Moreover, the profit margin of low-density juice is higher than that of 100 percent juice and others, including soda, tea drinks and water,” Chen Jing said, explaining the reasons for producers’ keenness on the low-concentration juice market.

The price of low-concentration juice is, in general, 30 percent higher that that of other soft drinks.

Any profit-driven business is not likely to ignore the huge potential of the low-concentration juice market and will try its best to grab more market share, analysts said.

Chen Chen, food and beverage analyst at China Investment Consulting said foreign behemoths in China are developing new flavors in a bid to stay on top of competition and avoid intellectual property problems.

“Minute Maid’s cold orange flavor, combining orange and a Chinese herb, and the tropical fruit mix by Tropicana are distinctive ideas,” said Chen Chen.

He pointed out that low-sugar and fresh flavor tea drinks with traditional Chinese cool herb ingredients, such as wild chrysanthemum and peppermint, are also the new favorites this year.

Beverage seller Hou had the last word, of course. He said Cha’er Pishuang was the most creative drink he had ever come across. “Combining the taste of beer with healthy tea, but without any alcohol content, it is really great and is the bestseller in my shop this month.”

(China Daily May 27, 2009)

A customer enters a McDonald’s store in Wuhu, Anhui province. [Xinhua]

McDonald’s has expanded its 24-hour delivery service to other cities in China after a one-year trial in Shanghai. This is part of the company’s efforts to win more customers and offset the impact of the economic downturn.

The McDelivery service has been extended to six other cities – Beijing, Guangzhou, Shenzhen, Wuhan, Nanjing and Tianjin. McDonald’s has promised that each McDelivery would be completed within 30 minutes. There is no requirement for a minimum order amount, and each McDelivery will be charged 7 yuan.

Kenneth Chan, chief executive officer of McDonald’s China, said the service might be further expanded into second- and third-tier cities, and even nationwide, in the future.

Chan said the trial in Shanghai, which started last May, had been an “overwhelming success”.

The McDelivery service “has been extremely popular in Shanghai and represented a big part of the growth (in McDonald’s Shanghai business)”, Chan said. This makes McDonald’s believe “it can do a great job in delivering the service in more cities”, Chan, who refused to give out the revenue breakup from the Shanghai McDelivery service, said.

“It will become another powerful driver in our China business,” he added.

The financial crisis has dealt a bigger blow to China’s fast food market than other regions globally, as fast food is viewed as a luxury by quite a number of Chinese consumers, especially those in smaller cities.

When asked if there was any signal of recovery in China sales for the first quarter, Chan refused to elaborate. “The figure is within our expectation given the economic recession,” Chan said.

During the first quarter, McDonald’s global sales revenue grew by 4.3 percent from a year earlier. The markets for Asia, Middle East and Africa cumulatively grew by 5.5 percent year-on-year. The growth figure for the China market had been in double digits before 2008.

Jeff Schwartz, former CEO of McDonald’s China, told China Daily in February that its country sales for December last year and the last quarter of 2008 were “soft”.

KFC, McDonald’s chief fast food rival in China, said sluggish growth in the country had driven down the share price of its parent company Yum Brands Inc.

Last July, KFC, which owns the largest fast food network in China, launched a round-the-clock delivery service covering five cities, including Beijing, Guangzhou and Shenzhen. The company had said the service would be extended nationwide. KFC charges 6 yuan for each delivery.

KFC and McDonald’s expect their 24-hour delivery services to help improve business performance and enhance their brand awareness in the country.

(China Daily May 19, 2009)

Beijing Sanyuan Group, the parent company of Sanyuan Food, is transforming itself into an agricultural group by acquiring two Beijing poultry product enterprises.

That represents a move by Sanyuan, which was unscathed from a melamine scandal last year, to diversify its business and strengthen its competitiveness.

Corporate executives said there was a possibility that the quality assets of the two poultry businesses would be “injected into Sanyuan Food”, the only listed company under Beijing Sanyuan Group, “at an appropriate time”.

Under the agreement signed among the three sides, Beijing Sanyuan Group will obtain the assets of Beijing Huadu Foodstuff, a leading chicken chain in the capital, for free, and the business of Beijing Dafa Group, a top 50 leading chicken chain nationwide for management.

The new entity, which is being renamed as Beijing Capital Agricultural Group, will own assets worth 15 billion yuan, and generate annual sales revenue of 10 billion yuan. It covers a whole package of businesses ranging from breeding and processing of poultry to dairy food processing, bio-pharmaceuticals and logistics.

“We plan to build it into the leading agricultural group in China. We are working on the detailed strategies,” said Xue Gang, general manager, Beijing Capital Agricultural Group.

Zhang Fuping, chairman of the group, told China Daily that the “restructuring project is expected to be completed soon”.

The corporate restructuring will eliminate the competition between Huadu and Dafa, and transform the new group into a powerful livestock chain, said YinYanxun, chairman, Beijing Dafa Group.

When the integration of the two businesses is complete, the new company will produce half of the chicken products in Beijing, about 200,000 tons annually, and export 30,000 tons of prepared food every year.

In the long run, the new entity will also “help assist Sanyuan Food grow stronger, enhance its capability in research and development and expand its assets”, said Zhang, also chairman of Beijing Sanyuan Group.

Sanyuan Food is one of the few dairy firms that emerged unscathed in the contaminated milk scandal of last year. Top firms like Mengniu and Yili ran up huge losses for 2008, while Sanyuan’s profits surged 87.2 percent year-on-year to 40.75 million yuan.

The company also became a national brand after it bagged the core assets of troubled milk producer Sanlu for 616.5 million yuan in early March.

Compared with its archrivals, Sanyuan is still smaller in size, having posted a first quarter profit of just 32.32 million yuan, compared with Yili’s 113 million yuan in the same period.

“We are not powerful enough to be the leading player, but we expect to be a quality national dairy brand,” said Zhang.

(China Daily May 19, 2009)

 Edible oil prices are set to go up in China following the surge in the prices of imported soybean from the US, reflecting how domestic prices are dependent on external factors.

Most of the major edible oil processing companies have announced plans to raise the prices, according to media reports. Yihai Kerry Group, the country’s largest edible oil processing company, will increase the price of its products, including the leading brand Arawana, by 10 percent, according to the Beijing News.

People with the company were quoted as saying that the company is under growing pressure as raw material prices have gone up by over 10 percent in the recent weeks.

The company did not respond to inquiries yesterday, but analysts said edible oil prices are indeed increasing in the domestic market due to the high cost of raw materials in the international market.

Soybean futures in the international market have been on the uptrend in the last two months. They rallied to the highest levels in over seven months on May 14, when the May soybean contract rose 12.5 cents to US$11.50 a bushel on the Chicago Board of Trade, and the most-active July soybean contract climbed 10.5 cents to US$11.28.

The price increase is largely due to fears of a shortage in supplies this year. The shrinking forecasts for Argentina’s soy crop due to a damaging drought are expected to keep world importers looking to the US for soy supplies.

That has led to an increase in cost for domestic oil processing companies as over 80 percent of China’s imported soybeans are from the US. The domestic output of soybeans was 16.5 million tons in 2008, and it imported over 37.4 million tons from the US, a record high in history, according to Customs figures.

China imported over 10 million tons of soybeans during the first quarter of 2009, up 30.4 percent over same period last year. Over 80 percent of the imported soybean, or 8.41 million tons, are from the US, up by 44.4 percent.

“We are getting too dependent on the soybean imported from the US. Therefore any price change there will influence the domestic market,” said Wang Xiaoyu, a soy products analyst based in the northeastern Heilongjiang province.

Zhu Tingju, who owns a small edible processing business in Shandong province, said the oil prices have risen during the past weeks. The US market prices play an important role in the domestic oil market. The Chicago Board of Trade is the first thing we look at in the morning,” said Zhu.

Edible oil prices were in the limelight when it surged to a historic high last year, mainly due to inflation and rising raw material prices. Some people even stocked several bottles of oil at home for reserves. But analysts say a price surge like that is very unlikely now.

“The price change has a lot to do with the macro economic situation,” said Zhang Jianwei, analyst, Haitong Futures. “The price surge last year was mainly due to short supply and inflation, but that will not happen this year.”

Wang said the government’s policy could also be part of the reason for the price increase. The government has been purchasing soybeans from the market at a price much higher than the market price, according to Wang. He said the government is doing this to protect the interests of domestic peasants and encourage them to keep planting. It purchased about 5.53 million tons of soybeans from the domestic market this year.

Wang said the price increase could be good news for the producers in the southern part of the country, who purchased large volumes of soybean when the price was low.

(China Daily May 19, 2009)

China’s food export reached US$2.62 billion in March, up 8.9 percent from a year earlier, presenting the first year-on-year growth in the last five months, said General Administration of Customs (GAC) here on Monday.

Export of fruit led the growth, rising 23.5 percent in March. Seafood was up 16.2 percent year on year.

Food export totaled US$7.17 in the first quarter, down 5.5 percent year on year.

The country’s food export had been falling since October 2008, affected by the global financial crisis and the baby milk scandal that left six infants dead and almost 300,000 ill, said the GAC in an online analysis on food export posted on Monday.

The situation improved as governmental and industry efforts to strengthen food safety supervision and expand export began to pay off, according the analysis.

The overall demand for food was still there, said the GAC.

However, the shadow of the global economic downturn and concerns over food safety could still be felt, reflected in the year-on-year drop of the food exported such as vegetable and fruit juice, canned mushrooms, meat products and live poultry, according to the administration.

(Xinhua News Agency May 11, 2009)

Coca-Cola is set to abandon any attempt to take over Huiyuan Juice Group.

Shares in the leading juice maker recently rallied 22 percent on hopes that the Atlanta-based US company was set to take a compromise minority shareholding after a full US$2.5 billion takeover was blocked by Chinese regulators.

But, according to a source close to the company, Coca-Cola, the world’s largest beverage drinks maker with more than US$28 billion worldwide sales, wants complete control of the company or no involvement at all.

“They are now going to give up the deal. They are not interested in Huiyuan anymore. There might have been market excitement about a minority shareholding but Coca-Cola wants full control. Buying a small stake with no decision power is not what they want at all,” said the source.

The comments from the insider close to the controversial deal is the clearest indication yet of Coca-Cola’s standpoint.

Official statements from the company have so far been ambiguous, leaving the door slightly ajar on the prospect of a last minute deal.

A recent official announcement just said that Coca-Cola does not comment on speculation.

“We were disappointed, but we also respect the Ministry of Commerce’s decision not to approve our proposed purchase of the Huiyuan Juice business. We are now focusing all of our energies and expertise on growing our existing brands and continuing to innovate with new brands, including in the juice segment. Beyond that, it is our policy not to comment on speculation,” said the statement.

Where the collapse of the acquisition leaves China’s soft drinks market, estimated to be worth 283.6 billion yuan in 2008, up 14.5 percent from 247 billion yuan in 2007, according to market research organization Euromonitor International, remains to be seen.

Some believe, however, that the Ministry of Commerce’s decision could backfire on Chinese companies in the short term, leading eventually to a loosening of the rules on foreign takeovers.

Michael Deng, who specializes in the soft drinks market at management consultants AT Kearney in Shanghai, said it could actually open the market up in the longer term.

“I think many of the leading brands from overseas will question the objectiveness of the decision. I think they would feel that the proposed deal was not anti-competitive but just an excuse from the Ministry of Commerce,” he said.

“I think it could hurt many of China’s ongoing mergers and acquisitions activities and that in the near future Chinese regulators may loosen the bar here. That ultimately could be good news for the foreign brands.”

Coca-Cola wanted to take over Huiyuan because of its 44 percent share, according to research firm AC Nielsen, of China’s pure juice sector.

Juices, along with canned tea drinks, sports drinks, soda and dairy drinks are set to be a key battleground as Chinese consumers look to more healthy alternatives to sweet carbonated soft drinks.

“Acquisition was a very easy way to get into the juice market for Coca-Cola,” said Joy Huang, research analyst at Euromonitor International, based in Shanghai.

“Huiyuan dominates the 100 percent juice market and Coca-Cola just has its concentrated juice Minute Maid brand here.”

There is no doubt that both Coca-Cola and its main rival Pepsi, which are estimated to have a stranglehold on the carbonated soft drinks market with a combined share of around 85 percent of the market, view more health-conscious drinks as a huge source of potential future sales in China.

“I think the increasing heath consciousness of Chinese consumers will continue. Right now, carbonated soft drinks are the largest category in the soft drinks industry. But going forward, tea, mineral water, juice and dairy drinks, have a stronger trajectory. I think ready-to-drink tea drinks will soon overtake carbonated drinks as the largest soft drinks category,” said Deng at AT Kearney.

A number of Chinese companies have made inroads in the healthier drinks sector, most notably Wong Lo Kat, which makes herbal teas, Taiwan-based Tingyi, which is behind Master Kong ready-to-drink teas and another tea maker, Uni-President, which is also from Taiwan.

Other local successes include Xiangpiaopiao from Zhejiang province, which makes instant milk tea and which has built up 1 billion yuan sales.

There are also leading Chinese players in mineral water, including Yangshengtang, which makes Nongfu Orchard and Nongfu Spring.

Both Coca-Cola and Pepsi are known to be stepping up their research and development to produce herbal teas for the China market.

“The growth in health-conscious drinks such as herbal teas is very much in line with the rest of the world. When you have greater urbanization, increasing disposable incomes, health becomes a key trend which drives, not just tea, but juices, dairy and bottled water,” said Max Magni, partner and leader of the consumer practice, Greater China, at management consultants McKinsey