Milk scandal batters Chinese brands

The two brands, which spent heavily around the Olympics to boost their profile, were embroiled in the crisis amid 22 Chinese companies whose milk and dairy products contained the toxic industrial chemical.

According to Shaun Rein, founder and CEO of CMR Group, the two brands have become trusted products in China, and will be seen to have betrayed a public that otherwise placed more faith in foreign dairy products.

In the six months leading up to the scandal, research conducted by CMR across 12 cities indicated that 80 per cent of Chinese mothers favoured foreign dairy brands - with the exception of Nestlé - due to a perceived higher level of quality control.

“But consumers were willing to buy Yili and Mengniu at a premium because they felt that these Chinese brands were as good as foreign brands at ensuring quality,” he explained, stating by contrast that San Lu’s consumer base had been built purely on the basis of low cost. “It will be extremely difficult for them to regain trust because they are relatively young companies.”

The two brands have invested large amounts to build their brands. On top of its Olympic sponsorship, Yili spent Rmb 849 million (US$124 million) on advertising between January and August, according to CTR, while Mengniu spent Rmb 1.2 billion. San Lu, in comparison, spent Rmb 45 million.

Yili and Mengniu have also seen a backlash from endorsers. Liu Guoliang, former world champion and coach of China’s national table tennis team, offered to give back the money he was paid for appearing in a Yili TVC. Snooker star Ding Junhui said that he would like to donate half of his Mengniu endorsement fee to help the victims.

The response from the domestic milk industry has been to run individual campaigns, rather than a unified response. Yili released a print ad urging consumers to ‘put your minds at ease’, featuring images of the production process to symbolise transparency alongside the message that the formula has remained ‘untainted’.

Shanghai’s Bright Dairy sought to counter negative publicity by offering a ‘guarantee of safety and healthiness’ in an ad emphasising the company’s history.

Meanwhile, imported foreign milk powder brands such as Abbott, Wyeth and Mead Johnson have substantially increased adspend, running print ads promoting the safety of their products.

The domestic reaction has drawn criticism from industry observers, who point out that an ad campaign is not sufficient to resolve the situation.

“The volume and the intensity of the buzz around this crisis is unmatched,” said Sam Flemming, founder and chief executive of CIC, a company that monitors word-of-mouth on the internet.

Meanwhile, David Zhao, MD of Hill & Knowlton Shanghai, argues that, at the very least, “transparent communications” are essential if the brands embroiled in the crisis are to regain any form of public confidence.