Comparative analysis of the strategies of implantation and expansion of Danone and Nestle (food and beverage industry) on the Chinese market

Résumé du document

The two firms, Danone and Nestle are on the same segments of the food and beverage industry, they both produce dairy products, bottled water and biscuits. They also cracked the Chinese market at the same time in 1996 but not through the same market segment, which forced Danone to reconsider its position on key markets, i.e. fast-growth markets. In terms of staff, Danone employs about twice as more Chinese people than Nestle does. This should however, not be regarded in the perspective of contribution to the local social development but as a result of massive short-term investment policies to perform mass-production. Indeed, Danone has seventy factories in China, when Nestle only operates twenty-one of them. In terms of market share, we must recognize that Danone is better than Nestle as we can see in the following ranking: Danone ranks second in the segment of dairy products, first in the segment of bottled water and first in the segment of biscuits. Indeed, Danone is making higher profits in the Chinese market, about twelve times more than Nestle.

Extraits

[...] In the early 1990s, Danone adopted a different approach and started what became the initial phases of their implantation in mainland China by setting a partnership with a company in the food industry in Hong-Kong, called Amoy, to get used to the consuming habits of Chinese people by first getting used to westernized Chinese consumers. Danone is now considered to have cracked the Chinese market through the industry of beverages in 1996 when the group acquired of Wuhan Dongxihu Beer and established five jointventures with Wahaha (group in the beverage industry producing bottled water). [...]

[...] Specificities of the range of products (localization), market segmentation and education The objectives of Danone and Nestle have heavily conditioned their strategies on the Chinese market to create, maintain and develop their respective market share: the short-term-based strategy of Danone induced a focalization on marketing whereas Nestle, with a long-term-based strategy, chose to bet on the development of products fitting the future mature Chinese market. As it has been mentioned above, Danone chose to focus on markets with a potential fast growth, such as beverages and biscuits and first let apart its main activity of dairy products and especially yoghurts. As a result of a strategic segmentation of the Chinese market regarding the distribution of wealth between provinces of mainland China, Danone operated the launch of different products in different regions at different times. [...]

[...] Consequently, strategies such as market segmentation and market education granted Danone a strong market share in China, even for products that had been first rejected by the market. At the opposite, Nestle chose to base its strategy of implantation in China and this highly conditioned the way it conducted marketing policies as well as research and development According to Nestle's Chinese corporate website, research and development aims to strengthen “Nestlé's ability to further adapt its products to local taste preferences, and address the nutritional and health needs of future generations of Chinese consumers”. [...]

[...] This will be a key clue as you may further read in the analysis on the development of Danone and Nestle on the Chinese market Comparative analysis of the respective strategies of Danone and Nestle to establish on the Chinese market Key success factors and difficulties, how they dealt with them and how it conditioned their success or failure to crack the Chinese market. Time-to-market and consumption behavior Time-to-market needs to be considered the key concept when establishing a market in countries with different consumption habits than where the brand originated. [...]

[...] In the case of Nestle, considering the fact that they are willing to maintain/increase their position on the Chinese market in order to target the future middle-class, I would advise them to better evaluate the China political and legal future issues that may impact their future development. [...]