BIZCHINA> Review & Analysis
Milking it
By Liu Jie (China Daily)
Updated: 2008-04-14 11:19

Quality branding

"Quality and brand are the two top strategies that have given us the leading position in China's dairy industry," says Zhang, adding that the firm's reputation for high quality drives consumer loyalty.

"It also urges us to further improve our quality control and supervision," says Zhang.

"We have had no food quality accidents," adds Yili's President Pan Gang.

Yili's prominence was also built on stepping in where others had failed. In 2004 dozens of babies in south rural China died due to counterfeit milk power. Media reports and attendant fears caused the bankruptcy of medium-sized dairy producers and soon after Yili successfully capitalized on the tragedy by expanding into milk powder.

It quickly increased its market share quickly by leveraging its brand and reputation for quality and the infant milk powder industry remains Yili's most promising business. Sales income reached 2.72 billion yuan with year-on-year growth rate at 35.46 percent, much higher than its competitors and Yili's other business departments.

When mentioning Yili, Chinese consumers also cannot help thinking of its closest competitor, Mengniu.

Yili and Hong Kong-traded Mengniu occupied nearly 60 percent of the domestic dairy market last year, according to international market research company Euromonitor.

Ad strategy

However, insiders say the key tool for Yili's brand building is its barrage of multi-media advertisements - from print and broadcast to online - a common strategy for all local players, including Mengniu in China's tight dairy market.

In the rush to ensure a glass of milk, ice cream bar or cup of yoghurt in every hand, the dairy leaders are boosting their advertisement spending at a much faster pace than their revenue growth as they expand their markets and increase the range of products they offer, according to UBS Shanghai-based consumption stock analyst Kevin Yin.

"Advertisement expenses would be important for the dairy firms to enhance brand exposure and sustain market share," he says, saying that the average ratio of advertising and promotional expenses of total revenue for the two dairy producers was about 8 to 10 per cent last year, from about 6 per cent for the past couple of years.

"We expect advertising expenses will remain at a high level given three factors: first, a tough competitive environment; second, brand-building strategies; and new-product launches, also with the lead-up to the 2008 Olympic Games," says Yin.

Though Yili's 2007 profit soared 27.46 percent year-on-year to 439 million yuan, it suffered a loss of 115 million yuan. The company says in its filing with the Shanghai Stock Exchange that the loss is due to costs brought by its stock-incentive plan.

However, critics say Yili's huge investment on advertising and an Olympics sponsorship also contributed to the loss.


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