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Nation
Print Edition> Nation
UPDATED: April 6, 2007 NO.15 APRI. 12, 2007
A Delicious Struggle
While foreign ice cream conglomerates shift to the middle and high-end market, Chinese companies battle over the sweet remains
By WANG JUN
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A cherry on top

Experts in the field estimate an annual consumption of 2 liters of ice cream per capita in China, leaving them far behind the ice cream-loving Americans, who each consumes a gut-busting 19 liters a year. In China, low-end ice creams are generally priced below 1 yuan, mid-priced ice creams around 2 yuan, and high-end products above 2 yuan. About 70-80 percent of 2006 sales came from products priced in the 1-1.5-yuan range.

"China is a dynamic and competitive ice cream market that is developing rapidly and changing constantly," Donaldson said. "To succeed in the Chinese ice cream market, companies must not only manufacture quality products that taste good, but also keep up with local tastes and lifestyle trends and be able to turn product concepts into products quickly."

Statistics show that the Chinese ice cream industry is stepping into a field with vast market potential. According to the China Association of Bakery and Confectionery Industry (CABCI), in the first eight months of 2006, output of large ice cream companies reached 1.33 million tons, a year-on-year increase of 22.3 percent. The output value, sales revenue and profit shot up 39.9 percent, 37 percent and 45 percent respectively over the previous year. This has led ice cream makers to believe they have huge market potential to increase investment for setting up or upgrading factories and production lines.

"In today's ice cream market, consumers are more and more sophisticated in their tastes and they have high expectations," said Jeff Liu, Nestlé's Regional General Manager for Ice Cream in Northern China. "While they accept many international trends, successful products must follow Chinese taste preferences."

One China, many flavors

For Bian Jiang, Deputy Secretary-General of the China Cuisine Association, the struggle over the Chinese ice cream market boils down to just a few simple factors. Domestic ice cream magnates have low raw material costs, therefore they have advantages in the "price war" against foreign brands. International giants, on the other hand, are more powerful in product research and development, have more mature brand images, and are blessed with global resources. In his opinion, as foreign brands quit the price war, the Chinese ice cream market will become more pluralistic in the future.

At present, domestic ice cream leaders Yili and Mengniu price most of their products below 2 yuan, while prices of major products of Nestlé and Wall's are between 2 yuan and 5 yuan. Foreign giants now avoid competition with domestic brands to some extent by their return to the high-end market.

CABCI figures showed that by August 2006, the number of ice cream makers in China had reached 3,359, though only 1,224 of them had passed quality safety certification. This means that nearly two-thirds of small companies could be eliminated because they don't meet industry standards. Moreover, since high-end products can bring more revenue compared with the slender profits from ordinary diary products, Yili and Mengniu are increasing investment in ice cream lines with high added value and improving the product quality to compete with foreign brands.

Yili, a domestic brand that holds 50 percent of the market share in 1.5-yuan products, is planning to develop ice creams at higher prices. Recently it has launched five or six products ranging from 2 yuan to 3 yuan, a sales manager surnamed Dong at Yili told Beijing Review. Moreover, Yili is also expanding its products into places such as Hong Kong, Macao and Malaysia, although the overseas sales volume is still small, according to Dong.

While it is safe to say that foreign brands can lay claims on the high-end market, industrial insiders believe that the Chinese high-end ice cream market only needs time to mature. It is still likely that products priced at 1-2 yuan will again be the most popular this year.

"I think ice creams of 1 or 2 yuan are delicious enough for me and I will still choose them," Zhou Ling told Beijing Review

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