Mengniu Milk

Shortly after the announcement that scores of China’s milk samples were tainted with the industrial—and potentially deadly—chemical melamine, this comforting headline appeared in a press release: “Independent Inspection from CAIQ has been Conducting for a Month and all Mengniu’s Products are Safe and Qualified. The Big Brand Milk is Reliable to Trust.” The company was China Mengniu Dairy Group Co. Ltd., former shining star in the mainland’s private dairy industry and the recipient of several local and international awards and industry accolades. Overnight, it was stripped of its “national brand” status by the Chinese government.

This is a scandal that still reverberates throughout the world for claiming the lives of six Chinese infants and making 300,000 others ill with kidney-stone-related diseases. Even as recently as mid-February 2009, a quick Google search brings up articles fervently pursuing the issue of melamine and broader quality-control issues in China’s milk industry. It was clearly the kind of public relations nightmare a company could never shake. But nearly six months on, shake it did. Mengniu, which had its shares trading suspended on the Hong Kong Stock Exchange on Sept. 17, 2008, is now trading again at sustainable levels. Though nothing like pre-melamine highs of US$ 3.00–3.50, it is now hovering around the US$ 1.00–1.20 mark, after dropping drastically to lows of US$ 0.20–0.50 (Reuters, March 2009). “Mengniu’s sales are currently reported to be at roughly 70 percent of pre-melamine volumes, and come summer this year, they are expected to make a full recovery,” says Philippe Chan, Asia Manager for beverage industry consultants Canadean. Unfair though it may seem to turn this into a “branding” or “public image” exercise for Chinese dairy companies, for similar fledgling export-driven industries China-wide, this is essentially what the crisis represents. Quality-control issues are not new for Chinese companies, but having to deal with them on an international stage is. Mengniu has emerged healthy on the other side of this crisis, both from a quality standpoint as well as an image perspective. How did they do it, and are there lessons for other aspiring export-driven mainland companies in the Chinese F&B sector to learn? Background check A fairly new kid on the block, Mengniu Dairy Company was established in 1999 by a former employee of the Yili Group, now Mengniu’s largest competitor. Owner and founder Niu Gensheng took Mengniu to heights that includes total registered assets of RMB 8 billion (a little over US$ 1 billion) with 30,000 employees and a reported production capacity of dairy products that reaches 5 million tons per year. Its export markets are listed as America, Canada, Mongolia Republic, Hong Kong and Macau as well as some Southeast Asian countries. Mengniu was ranked No. 3 among dairy enterprises in Asia in the Top 500 Brands poll of 2006 and was named “The Most Creative Enterprise” of China in March of the same year. Along with brand recognition, China Mengniu Dairy’s stock has appeared on a Morgan Stanley list of Global Top 50 Blue Chip Stocks until 2012. Of Mengniu’s branding efforts, Chan says, “Mengniu wants to be a global player, and is interested in projecting a more international image.” They have an effectively bilingual website up and running, a move that has proven tricky for other similar-sized companies in China, that includes prudent information for consumers, trade customers and other interested users. Dealing with the crisis There were few, if any, options for Mengniu and other Chinese dairy companies like Yili Group and Sanlu to cushion the impact of the melamine scandal. When kids die and others fall ill in the hundreds of thousands due to sheer greed and laziness, all one can do is humbly surrender, apologize profusely and ensure the mistake will never be repeated. This, Mengniu did promptly and sincerely. On Sept. 28, 2008, the news page on the Mengniu website featured a release titled: “Solemn Guarantees From Mengniu Group,” and it proceeded to “genuinely apologize for the physically and psychologically affected consumers.” It guaranteed: - a recall of all tainted baby formula - temporary suspension of production to facilitate inspection and improvement - a doubling of the government-set compensation amount to affected consumers - an opening up of its facilities to state and local inspection authorities - a continued effort to protect dairy farmers’ interests by purchasing raw milk that passes quality tests A dedicated crisis hotline was also set up in the immediate aftermath of the scandal to enable affected consumers to reach and receive assistance as soon as possible. There also exists a general information line that customers can contact with any queries regarding Mengniu’s products. This openness is very unusual in a mainland company, but also refreshing. Normally you are lucky to find any contact information on an official website, and if it works, you may as well head out and buy a lottery ticket! This “open policy” has the twin benefits of building trust with consumers who do use the service and building goodwill among those who do not. Company spokeswoman and VP Zhao Yuanhua has also appeared frequently in the media, urging consumers to restore their confidence in Mengniu and also being open about the measures being taken to combat the crisis. In a November 2008 press release, she is quoted as saying, “we are going to guarantee the safety of raw milk…and build Mengniu (into a) time-honored brand.” Late last year, Mengniu organized a site visit for consumers, journalists and health officials to its key Beijing facility, walking them through the improved proceedings and explaining in great detail how processes have changed since the scandal. Measures like this have certainly helped improve the Mengniu brand, at least in the eyes of the domestic market. Opportunities in the aftermath One Mengniu competitor untainted by the melamine crisis was the American Feihe Dairy Company. While Mengniu and its tainted peers scrambled to pick up the pieces post-crisis, Feihe has been enjoying increased sales and several “any publicity is good publicity” opportunities. After all, one’s PR nightmare is usually another’s dream come true. An official spokesperson for the company said, “There has been a flight towards quality after the melamine crisis and many consumers have shifted towards Feihe’s long-standing, premium quality products. We will continue to increase advertising spending to capitalize on Feihe’s increased brand opportunities.” Mengniu, however, was not without its own opportunities in the aftermath. As per its corporate vision, “…building a world famous brand is a steadfast pursuance for Mengniu Dairy Group” and that it will continue to do, not just by upholding safety and quality standards but certainly also by milking a PR opportunity or two when it presents itself. As it readily admits in a recent press release, “During the crisis, people also see a brand new image of the Chinese dairy industry that has a stronger sense of responsibility and credit standing of trust.”