In a strong demonstration of faith in Chinese product quality,
KFC is replacing Nestle with Mengniu products.
The global fast food behemoth yesterday signed a dairy product
supply agreement with Inner Mongolia Mengniu Dairy Industry (Group)
Co Ltd, China's top dairy producer.
Under this strategic alliance, Mengniu's dairy products will be
sold at KFC's 2,000-odd stores in China from next year, replacing
multinational Nestle. Milk will be the first of Mengniu's products
that will be available at KFC outlets.
Though this is not an exclusive agreement, executives from both
sides hinted the two companies would not consider a similar
partnership with each other's competitors for now.
This is a significant step that demonstrates KFC's commitment to
localize in China, said Mark Chu, KFC brand general manager with
Yum! Brands Inc (China Division).
But Chu refused to elaborate on why KFC ended its partnership
with Nestle, KFC's dairy supplier of choice in China in the past
two decades.
"Nestle is a quality supplier. We'll start other kinds of
cooperation in the future," Chu said.
Nobody from Nestle could be reached for comment.
This year marks the 20th anniversary of KFC's entry into China,
which contributes around 20 percent of its sales revenue worldwide.
Currently, more than 90 percent of KFC's products are localized,
and "there will be more", according to the company.
Chu said KFC has had its eye on Mengniu for many years. "Its
explosive growth, high-quality products and brand popularity among
Chinese consumers are more impressive than its counterparts."
Set up in 1999, Mengniu has rapidly grown to become the leading
player in the liquid milk, ice cream and yogurt segments. Going by
its interim financial report, by September, Mengniu's first-half
profit surged 41 percent and its sales rose 32.8 percent to 10
billion yuan.
KFC's rival McDonald's has been partnering Chinese dairy
producers like Sanyuan since 1992 when it entered China, as part of
its strategy to localize and cut costs.
Industry insiders said Mengniu products would be priced lower
than those of Nestle at KFC outlets, but executives from both sides
refused to comment, saying they would set "reasonable" prices.
For Mengniu, the deal is both a bid to strengthen its brand and
promote sales. Last year, the company set the target of entering
the Global Top 20 list of dairy producers by 2011.
The agreement with KFC comes on the heels of a deal with
Starbucks Coffee, which in June appointed Mengniu as its liquid
milk supplier in China, again replacing Nestle.
(China Daily October 23, 2007)
