By Debasish Roy Chowdhury (China Daily)
Updated: 2007-07-17 06:50

At first glance it seems a bit like selling coal to Newcastle. But Campbell is confident it has the recipe for success in this apparently impossible venture. The confidence is not misplaced.

US-based Campbell, the world's largest soup manufacturer, last week announced its plans to enter the Chinese mainland, as well as Russia, with products such as broths and soup bases aimed at making homemade soup easier.

Campbell has lined up two broths for the mainland market, both under its Swanson brand: a clear chicken broth and a classic broth, gao tang, a combination of chicken, Hainan ham and pork. Apart from preparing soup, both can be used in making noodle dishes, hot pot or braising vegetables.

Campbell cites the mainland's enormous market potential as the reason for its China expansion from its solid base in Hong Kong.

In the US, the company said, about 14 billion servings of soup are consumed each year, compared with about 32 billion in Russia and about 320 billion on the mainland. While 70 percent of the soup consumed in the US is commercially prepared, nearly all soup consumed on the mainland and Russia is homemade.

According to JPMorgan analyst Pablo E. Zuanic, if just 3 percent of this home soup consumption can be commercialized, the two markets will amount to $5 billion - the entire US market.

In a note to investors, Zuanic said he was particularly confident about the China strategy, which has already worked in Hong Kong, where Campbell has a 90 percent market share. Campbell has been selling soup in Hong Kong under its Swanson brand for over two decades.

Zuanic's optimism is based on a curious contradiction: while the world loves Chinese soup, the Chinese themselves prefer to buy their soup from others. Just as Campbell rules Hong Kong, the extremely fragmented mainland soup market is dominated by foreign players.

According to a Euromonitor International study on the mainland soup industry, the market leader is Unilever China, with a 33.3 percent share of the 221 million yuan market, followed by Shanghai McCormick with 12.8 percent and Nestle China with 7.2 percent.

Apart from their smart brand positioning and marketing strategies, these highly localized foreign food companies have also been feeding on the growing income of the Chinese, which spawns a need for convenience on the one hand and quality consciousness on the other.

Campbell, for example, will position its broths as a healthy option, made from natural ingredients, 97 percent fat-free and with no added MSG. It has already started a low-sodium drive for its existing brands.

These, exactly, are the concerns of a new China, and will mark the new marketing battle lines in the food industry as in almost everything else, rather than mere price competitions.

Campbell's entry thus carries two vital lessons: one, there is still enough room to grow in the market as the market itself is constantly growing, which is why it keeps drawing new players; two, moving up the value chain to create product differentiation is key to making room in this dynamic market.

Any Chinese company planning to wrest the market in traditional products from multinationals will easily soup up its sales if it takes these lessons to heart.

(China Daily 07/17/2007 page13)