Interface News Reporter | Ma Yue
Interface News Editor | Xu Yue
On May 14, Katsushi Nagamori, general manager of Meiji (China) Investment Co., Ltd., publicly expressed confidence in the future of the Chinese market.
"Meiji's ice-cream business started in southern China, and in the next step, we will expand our business in East China, with Shanghai as the center, and the northern China region, and develop our business in China in an all-round way." He told Interface News in an exclusive interview.
Japan's largest food company has just completed the construction of its production base in China. On May 14, Meiji Confectionery Food Industry (Shanghai) Co., Ltd. officially opened a new ice cream factory, which cost 650 million yuan, started construction in 2022, and officially started production on March 30 this year.
Meiji entered the Chinese market in 1989 and currently has four major businesses in China: milk and yogurt, ice cream, chocolate candy, and nutritious food, mainly in convenience stores and large supermarkets in first- and second-tier cities.
In terms of price, Meiji's products are in the middle of the range. For example, 950 ml of Meiji alcohol fresh milk costs about 20 yuan, a honeydew melon jasmine ice cream costs about 6 yuan, and a bag of 180 grams of chocolate costs about 50 yuan.
Against the backdrop of a "price war" in which Zhongxuegao was in trouble and Freshippo's own brand beat 950ml of 4.0 Jersey milk to 18.9 yuan, Meiji seems to have found another way to survive and has "stepped on the accelerator" in the past few years in the expansion of production capacity in China.
During the 2022 Shanghai International Import Expo, Meiji proposed a plan to increase sales in China by more than three times by 2026 compared to 2022. The basis for the realization of this radical goal is that it continues to build new production bases in China according to different production categories, so as to speed up the liberation of geographical restrictions and accelerate the nationwide distribution of goods.
Since January 2023, Meiji's milk yogurt factory in Tianjin, the yogurt milk factory in Guangzhou, and the ice cream factory in Shanghai have been completed one after another.
The Tianjin plant, its first in northern China, will allow Meiji to further supply low-temperature refrigerated yogurt and milk products to northern China, doubling its milk and yoghurt production capacity in China after the plant opened in January 2023. In January of this year, Meiji's milk and yogurt plant in Guangzhou was put into operation, and Meiji's milk and yogurt production capacity in China has quadrupled compared to the original single plant system in Suzhou.
As for the completion of the Shanghai Ice Cream Factory, Meiji's ice cream production capacity will double that of 2020. In addition, the production capacity of chocolate snacks has also doubled compared to 2020.
So far, Meiji has set up six factories in China – Meiji Dairy (Tianjin) Co., Ltd. (milk yogurt factory), Meiji Dairy (Suzhou) Co., Ltd. (milk yogurt factory), Meiji Fruit Food Industry (Shanghai) Co., Ltd. (chocolate factory, ice cream factory), Meiji Foods (Guangzhou) Co., Ltd. (milk yogurt and chocolate snack factory), and Meiji Ice Cream (Guangzhou) Co., Ltd. (ice cream factory).
"In Vision 2026, the Meiji Group has set a key policy of 'laying the foundation for growth in overseas markets' and has set a goal of increasing the proportion of overseas sales to more than 20%." President Matsuda of Meiji Co., Ltd. said, "In particular, our business in China is positioned as the most important target in our 2023 Medium-Term Management Plan due to its stable growth potential in the future, so we are actively investing in expanding our production capacity in China. ”
According to Katsushi Nagamori to Jiemian News, Meiji's milk and yogurt, ice cream and chocolate products account for almost the same proportion of sales, and because the nutrition business has just started, the scale is still relatively small.
However, compared with the annual sales of about 100 billion yuan of Chinese local giants such as Mengniu and Yili, Meiji's market size of more than 100 billion yuan per year in China is still not large.
Meiji has high hopes for the Chinese market, but it will face many challenges if its consumer goods business continues to expand steadily in the Chinese market. Moreover, Meiji has already paid some "tuition" in China.
According to its recently released financial report for the 2023 fiscal year ending March 31, 2024, Meiji's food business had net sales of 24.3 billion yen (about 1.128 billion yuan) in the Chinese market, a year-on-year increase of 13.5%, but an operating profit loss of 3.7 billion yen (about 172 million yuan). And it is expected to lose 5.6 billion yen in fiscal 2024, and the loss will continue to widen.
Meiji expects net sales in China to reach 60.3 billion yen in fiscal 2026; Operating profit reached 300 million yen, turning losses into profits.
An important reason for the current decline in Meiji's profitability is that Meiji's upstream ranch business, which had previously invested in China, has suffered a sharp decline in performance.
In order to obtain a stable and high-quality milk source, Meiji acquired a 25% stake in Australasia Group for about 1.8 billion yuan in 2020. Australasia mainly operates farms in China, and its shareholders also include Yuanqi Forest, New Hope Dairy and Pucheng Dairy. However, affected by factors such as the weak recovery of market demand, the oversupply of raw milk in the industry, the continued low price of raw milk and the still high cost of feed, Australasia Group will lose 489 million yuan in 2023, and said that "2023 is the most challenging year for China's dairy farming industry in more than ten years".
As a result, the impairment loss on non-current assets related to the B2C milk and yogurt business operated by Meiji's Chinese subsidiary was 14.3 billion yen, as a non-recurring gain or loss.
Meiji has also publicly acknowledged that China's milk and yogurt business has been stymied.
"In overseas markets, we are striving to achieve sales growth for high value-added products in China by strengthening our production and sales capabilities and expanding our sales area. Confectionery, B2B milk and cream businesses performed well. However, the impact of the economic situation has put the B2C milk and yoghurt business in a difficult position. Meiji said.
Meiji said in an earnings call that it had previously been profitable in its milk and yogurt business, which recognized the quality of low-temperature milk products in its milk and yogurt business for the consumer market. However, due to the intensification of competition, Meiji is also affected by the "price war".
However, compared with local companies such as Mengniu, Junlebao, New Dairy, etc., large-scale advertising and frequent promotions, as a typical Japanese brand, Meiji is actually relatively cautious in terms of product marketing expenses.
Taking low-temperature milk as an example, according to the data in an article in July 2022 by the self-media "Machimang Evaluation", among the 14 mainstream low-temperature milk products on the market, the price of Meijiol one high-temperature sterilized milk per 100ml is 3.31 yuan, ranking 8th in order of price from low to high, in the price range of 3 yuan/100ml, in addition to Junle Baoyue fresh, Yili Jindian fresh milk and other products in the 4-6 yuan/100ml price band, as well as ternary fresh milk, Guangming Youbei fresh milk is located in the price band below 3 yuan/100ml.
The interface news reporter saw on the Tmall platform on May 17 that the promotional price of Meiji Alcohol One 950ml for 3 boxes was 79 yuan, the promotional price for 10 bottles of Guangming Youbei fresh milk 280ml was 56 yuan, and the promotional price of 12 bottles of 235ml of Yili Jindian fresh milk was 73 yuan. Therefore, judging from the data in July 2022, the price reduction of Meiji Alcohol One is not as large as that of Yili Jindian.
And this strategy also makes its products worse in the fierce competition to a certain extent.
Judging from the current situation, it is not its way to make low-priced products and "roll" with more local brands, on the contrary, one of the key strategies that Meiji has repeatedly emphasized is still "high value-added products".
"We believe that the so-called 'cost-effective' is not simply that consumers demand cheap goods," Katsushi Nagasmori explained his judgment on the current Chinese consumer market to Jiemian News, he believes that consumers will fully consider the value of the product and the comprehensive balance of price, and if it is worth the money, they will buy.
He emphasized that one of Meiji's strengths is that it has "unique technologies that have been cultivated over more than 100 years" and can be used to differentiate itself by supporting the production of products with high added value.
Specifically, for example, Meiji uses RO concentration technology to increase protein concentration, which is used to produce Meiji's "Dingol" series of milk; Meiji's "Baile Yiyou Series R-1 Flavored Yogurt" and "LG21 Flavored Yogurt" are produced using unique lactic acid bacteria, and the above two yogurts are also the probiotic-flavored yogurt products that Meiji is currently promoting in China.
A common practice for international brands that want to differentiate themselves in the Chinese market is to introduce mature foreign products to China.
Meiji had similar intentions.
Katsushi Nagamori told Jiemian News that Meiji's "SAVAS high-protein milk drink" is expected to be promoted to the Chinese market in June 2024. Meiji's nutrition business is just starting in China, and the first product to be introduced in 2020 is the SAVAS Protein Powder series.
According to a recent earnings call, Meiji also plans to launch a low-temperature milk called "Oishii Gyunyu" in China in the future, which was launched in Japan as early as 2002. Meiji believes that the increase in Chinese tourists to Japan will help the product become more popular in the Chinese market, and it intends to "grow grass" in the form of memories of Japanese tourism.
For international consumer goods companies, how to launch innovative products that meet the needs of the local market is still a long-term challenge, which also tests their keen insight into local consumer trends and whether they can execute efficiently.
In Nagamori's view, Chinese and Japanese consumers have a large deviation in food taste preferences. Chinese consumers have a more diverse range of hobbies, which will change with age and region.
Meiji's innovation in the localization of ice cream flavors is a typical case.
For example, the "Fruit Tea" series of ice creams, which have become popular products in Meiji, were developed separately for the Chinese market. In the early development of the product, the Japanese side was worried that the flavor of "White Peach Oolong" might not be accepted by consumers, but with the insistence of local Chinese R&D personnel, it was launched and promoted and achieved market success.
"So later, the Japanese side also felt that to promote the taste of the product in China, it was still necessary to rely on local R&D personnel." Nagamori Keshi said.
Previously, Meiji had only one factory in Guangzhou for ice cream production for a long time, which also led to the fact that most of its product sales were concentrated in Guangdong and did not penetrate into the northern market.
According to the data provided by the FMCG offline retail monitoring agency Instant Win Jiemian News, Guangdong Province is in the position of "No. 1 fault line" in the provincial distribution of Meiji ice cream products in stores. The above-mentioned single pack of white peach oolong ice cream is the SKU with the highest sales volume in its ice cream product line.
By building a new production base in Shanghai, Meiji will also be able to strengthen the development of new products with unique added value.
At the same time as the completion of Meiji's new plant in Shanghai, a new product development center was established here to quickly respond to consumer preferences and strengthen local product development, Nagamori revealed.
For Meiji, another challenge came from the channel.
For example, milk, yogurt, and ice-cream products that require cold-chain transportation are limited by the transportation radius of the factory, and the construction and operation of new factories in Tianjin and Shanghai will help it better open up markets in North China and East China to a certain extent.
"All business departments of our company have expanded the business scale in North China, and have increased the corresponding sales outlets and sales personnel, and we still hope that by consolidating our sales foundation, the sales scale of each business unit in the northern region can be further expanded." Nagamori Keshi said.
In view of the current positioning and product characteristics, Meiji's products are mostly concentrated in first- and second-tier cities, and the channels are more distributed in convenience stores and large supermarkets. The Japanese brand may need to learn more from local brands in terms of channel penetration experience to adapt to China's ever-changing channels and consumption scenarios.