Mondelēz warns multinationals to reposition during China’s economic slowdown

By Douglas Yu contact

- Last updated on GMT

Mondelēz recently partnered with Alibaba in China
Mondelēz recently partnered with Alibaba in China

Related tags: China

Multinational companies should reconsider their business strategies amid China’s economic slowdown, Mondelēz China president Stephen Maher told the audience at the recent Food and Beverage Innovation Forum in Shanghai.

Maher said China has the most “electrifying and dynamic urbanization and industrialization,”​ which has pushed international corporations to strategically target this market.

He added that, while growing distribution pipelines is one of the most common ways to increase a company’s business, “once you hit a plateau, your market share starts to flatten and even to decline.”

Mondelēz grew while competitors declined 

Many multinational companies fall into a trap when their market shares decline in China, Maher suggested, and that it usually takes three years to recover.

Mondelēz was struggling in China in 2014, but grew by high single digits in 2015 while many of its peers were declining.

One of Mondelēz’s competitors in China, Hershey, reported a net loss of almost $100m​ for the second quarter of 2015 due to “macroeconomic challenges and changing consumer shopping behavior in China”,​ ConfectioneryNews previously reported.

Maintain lower tier city consumer base

Maher previously worked as general manager at Colgate in China, and said Colgate reached a distribution plateau in the country in 2002. In response, the company decided to launch a brand extension, herbal toothpaste, to drive business growth.

“Here’s the real danger to the toothpaste industry: The Chinese consumers in the ​[higher tier] cities are quite sophisticated. Once you go down to the lower tiers, they do not necessarily understand the difference between the different variants of toothpastes,” ​he said.

Colgate only did trade deals with the new herbal toothpaste, Maher continued, which meant the herbal toothpaste might be the only option a consumer found in a store in a lower-tier city.

And, if the consumer did not like the taste because it is different from the standard Colgate toothpaste, this created "an inconsistent [consumer] experience" ​with Colgate, Maher added.

"Once you lose your consumers, it’s very hard to drive them back,”​ he said.

Mondelēz recently tailored its Milka brand​ to local Chinese consumers, and Maher suggested companies should appeal to Chinese consumers with relevant flavors.

Focusing on Chinese upper middle class

He added that incremental growth for international businesses in China will come from the upper-middle class in the future.

“Products that are working for people who were born in the 1960s and 1970s now have to adapt to the 1980s and the 1990s,”​ he said.

“In the 1990s, the middle class was generic: anyone with disposable income. In the next decade, it’s going to be the consumers of the middle and upper middle class that are going to drive business.”

Multinational businesses should also take advantage of China’s booming e-commerce market by “upscaling their e-tails,”​ Maher added.

Earlier this year, Mondelēz targeted its $1bn global e-commerce goal by partnering with Alibaba​. Mars made a similar move in July. 

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