A Sour Milk Rivalry

By LAN XINZHEN

A Sour Milk Rivalry

By LAN XINZHEN

A libel scandal involving Mengniu taints its image and deals a blow to China’s dairy industry

M engniu, w ith the 2008 m ilk contam ination incident still fresh in people’s memories, has brought China’s dairy industry into the spotlight again—this time the attention focused on a bitter rivalry.

Police in Hohhot, capital of the Inner M ongo lian Autonomous Region, held a press briefing on October 22 over a Mengniu-initiated smear campaign against its rival, Yili.

Police said An Yong, a product manager of Mengniu’s liquid m ilk department,worked w ith a Beijing public relations agency in July to spread accusations on the Internet that an element called fish oil docosahexaenoic acid (DHA) contained in Yili’s QQ Star Children’s M ilk was harm ful to consumers. Four suspects including An have been detained, and another two suspects remain at large.

The briefing was believed to have helped dism iss worries about Yili products, though it will take time for consumer confidence to recover.

Ma lic ious com petition

Yili and Mengniu, both headquartered in Hohhot, are the top two companies in China’s dairy industry. They have reportedly been competing in most aspects of their business operations, from raw m ilk sources to distribution channels.

Founded in August 1999, M engniu,w ith total assets exceeding 14.1 billion yuan ($2.1 billion), has an annual dairy production capacity of 6 million tons and nearly 30,000 employees. In recent years it has w itnessed rapid grow th and expanded its p resence across China. M engniu’s products are now exported to a number of countries, the United States and Canada included.

In the first half of this year, Mengniu topped all competitors to rake in net profi ts of 618.8 million yuan ($92.4 m illion), followed by Yili’s 345 m illion yuan ($51.5 million).

W hile M engniu led the liquid m ilk market, Yili kept the top position in m ilk powder. But the competition heated up when both made forays into infant m ilk production.

In 2006, Y ili’s latest p roduct QQ Children’s M ilk became a m arket hit.Mengniu followed suit by releasing its Star of Future Children’s M ilk in 2008. The two products bore significant resemblances, but in terms of market share, Yili enjoyed evident advantages.

An’s online attack was aimed at devastating the rival product’s reputation and driving up Mengniu’s sales.

The Hohhot police confirmed that An hired the Beijing Bosse PR Consulting Co.Ltd. to plot the online sabotage. On its official website, the PR company called itself a think tank of M engniu, and stressed it provided important consultant support for Mengniu on its path of fast expansion.

The police revealed that Bosse’s deputy general manager Xiao Xuemei and three other employees jointly hammered out a plan to maliciously attack Yili’s reputation.The DHA element was an easy target, since it helps infant brain development. Mengniu would also be able to differentiate itself since Yili’s DHA comes from fish oil and Mengniu’s from algal oil. The libel campaign focused on allegations that DHA from sea fish could lead to premature sexual development and that DHA from algal oil was much safer.

The on line cam paign, at a cost of 280,000 yuan ($41,791), was executed by a Beijing Internet marketing company, which took a variety of measures to spread the rumors, including posts on forums, blogs and websites. It even initiated a public lettersigning campaign among netizens to refuse fish oil DHA.

The Hohhot police said that the online posts drew a considerable amount of negative attention to Yili and that the most-read article had recorded more than 200,000 hits.

Far-reaching im p lication

Mengniu has denied any involvement in the dirty tactics and insisted that An acted w ithout the company’s know ledge or perm ission.

HARD TO CHOOSE:The M engniu scanda l is expec ted to taint the dairy m aker’s repu tation and cast yet ano ther shadow over the country’s dairy industry

“W e are deeply sorry for the negative impact on Yili and the consumers,” said the company in a statement on October 22.“W ithout first consulting his supervisor,An worked w ith the partner PR agency and spread accusations online that the fish oil in Yili’s baby milk was harm ful to human health. He should take responsibility for the consequences.”

The statement went on to say An was a former employee of Yili before com ing to Mengniu in 2005 and that he had already been fi red.

“W e w ill learn from this incident,strengthen internal management and improve employee education to prevent this from happening again,” said Mengniu.

However, in the statement M engniu also went on the offensive. It claimed that Yili had spent more than 5.9 million yuan($880,597) between 2003 and 2004 hiring PR companies to launch media attacks against Mengniu.

In response, Yili accused Mengniu of trying to distract public attention from the scandal. “This case is still unsolved,” theBeijing Newsquoted an anonymous PR manager of Yili as saying. “Why did they bring up things that happened several years ago? Is it to confuse the public?”

The furore underscores the brutally competitive nature of the country’s dairy market,already heavily hit by the Sanlu melam ine scandal in 2008 that put thousands of babies in hospital and forced Sanlu to shut down.

The malicious competition w ill hurt the health of the industry, said Wang Dingmian,a dairy expert and former Executive Director of the Dairy Association of China.

The enterprises must first learn how to honor their social responsibility and seek consumer recognition by branding and marketing, instead of attacking each other, he said.

Tan Guiqiu, a professor at the China University of Political Science and Law, believed it is urgent now to curb this malicious competition. The illegal marketing tactics destroy the reputations of not only rival companies, but also the whole industry, and dented consumer confidence.

“The competition between Chinese dairy makers w ill allow foreign com panies to swoop in,” said Chen Lianfang, a senior analyst at the Beijing-based Orient Agribusiness Consulting Ltd.

A mature brand, especially in food production, should pay more heed to its product quality than just maintaining a brand name. Meanwhile, efforts are also needed to strengthen supervision over online marketing tactics and create a healthy business environment, said Chen.