Nestle has been forced to revise its marketing strategy for the Chinese ice cream market for the second year running after failing to wrestle a sufficient market share in the low-priced product market from domestic producers in 2006, Monday's Economic Observer reports.
Multinational brands like Nestle and Walls turned to low-end products in 2006 by switching from selling ice creams worth 2-3 yuan to ice creams retailing for 1-1.5 yuan in a bid to gain a bigger market share.
However, the foreign brands were unable to beat the major domestic brands like Mengniu and Yili in the low-price range as they had less powerful distribution networks, failed to cater to local people's tastes and came up against hikes in the prices of raw materials.
"As we don't have an edge in low-priced products, we will turn to develop products with a higher added value under our global developing system," Dong Haoqin, operation director of the ice cream division for Nestle Greater China told the Economic Observer.
It's generally acknowledged in China that low-end ice creams are priced below one yuan (around US$0.13), with mid-priced ice creams at around two yuan and high-end products priced above two yuan.
About 70 percent to 80 percent of the sales in 2006 came from products priced in the 1-1.5 yuan range.
The production cost of ice creams was pushed higher by the soaring sugar price, which reached 5,800 yuan per ton from the rock-bottom 2,500 yuan, and a near 20-percent increase in the price of milk.
Yili raked in around 1.3 billion yuan from sales of ice creams in the first half of 2006, while Mengniu earned about one billion yuan during the same period. Yet, the figure for Nestle in China was not revealed.
Nestle has introduced a large number of new ice creams priced above two yuan for 2007.
(Xinhua News Agency March 13, 2007)