McCormick tempts China's palate Wooing a market of 1.2 billion potential customers


SHANGHAI -- It took only a minute for 8-year-old Luo Ting to make his mother a McCormick customer.

"Try some of the delicious dessert jelly," he heard the McCormick hawker say at the entrance of the neighborhood grocery store.

Luo took a lump of the wobbly red gelatin and slurped it down. He looked up at his mother, tugged at her sleeve and in a flash she plunked down the equivalent of $1.50 for three of the powdered gelatin mixes.

Score a small victory for the world's largest seasoning company as it tries to win over China's 1.2 billion consumers -- one by one.

The strategy may be costly but it is typical of how foreign companies slowly make headway in the world's most tempting -- and sometimes the most difficult -- market.

For McCormick & Co. Inc., victory in the China market has become more than a long-term gamble; the Maryland-based company has identified the world's most populous country as a key to its future. Facing intense competition at home, the company is looking to new markets, especially in Asia, to contribute to its bottom line.

"In the next year or two it's not very important, but looking out over the next five years, it's very, very important," said Matthew Roswell, an analyst with the securities company Legg Mason Inc.

Doubling of sales expected

McCormick does not release financial information for sales in each overseas country, but estimates put sales at under $10 million, or less than 1 percent of McCormick's 1995 revenues of $1.9 billion. Company officials say, however, that sales are set to double this year, highlighting China's great promise.

"As people become more prosperous, they value convenience more. The potential for us in this region is great," said Elizabeth Todd Lambert, director of strategic business planning and development for the Asia/Pacific region.

Yet as McCormick and other U.S. companies are finding out, winning over customers such as Luo Ting is an expensive business, one that yields profits grudgingly.

At first glance, McCormick's China operations should be highly profitable.

Most of the business involves retail sales to ordinary customers as opposed to selling spices in bulk to big food companies, which is usually less profitable.

Chinese customers, however, require so much education and the distribution network in China is so primitive that profits from the China operation are probably negligible, analysts say.

Explains Victor Sy, managing director of McCormick's Asian operations: "We have to teach them how to make the products because no one is going to do it on their own."

This involves a huge campaign to promote products and teach people how to make a gelatin dessert or use a powdered chicken batter.

Booths in front of stores

Each day, for example, up to 50 temporary McCormick employees may be in operation across Shanghai, a city of 14 million. Most work in booths set up in front of grocery stores.

The stores receive a small rent fee of $4 or $5 and McCormick's help in selling up to $150 of McCormick products from the store's stocks.

McCormick's costs increase further because the stores have tiny storerooms, forcing the company to make constant deliveries. When it sets up a promotion booth, it can sell off the store's stock in less than a day, so the company must make emergency deliveries to keep the promotion going.

Of course, not all McCormick's products require an explanation.

Bottles of spices with green and gold labels -- the company's international color scheme -- dominate grocery stores in Shanghai, Beijing and Guangzhou.

It's not uncommon for small corner grocery stores to display McCormick spices in a plastic rack that sits on top of the sales counter -- a McCormick invention to give it more visibility in crowded Chinese stores, where most goods are stocked on shelves behind the sales counter.

Distributing spices is also not as complicated as it might be thanks to the limited use of spices in modern China.

Herbs are virtually unknown in China and most people cook just with salt, pepper, garlic, ginger and hot peppers. This allows McCormick to limit its offering of seasonings to 14 bottles, vs. the 40 regularly displayed in stores in the Philippines and the 12-foot rack of bottles featured in many U.S. stores.

Highest profit-makers

While McCormick has to convince Chinese consumers that its quality is worth the higher price -- sometimes twice the price of spices sold in open-air markets -- its mixes and desserts are the easiest sells and highest profit-makers.

And, unlike in the United States, where the McCormick name is closely identified in consumers' minds with spices, Chinese consumers are a blank slate, so they can be made to associate McCormick with more than little bottles of seasonings.

"We have been famous as a spice company. It's hard to shake off that image. In China we're relatively new and people don't have preconceptions," Sy said.

McCormick's biggest seller in China is its chicken seasoning mix, which has piggybacked on the success of KFC's popular fast food restaurants in Shanghai.

In fact, McCormick's China manufacturing operations started as a joint venture between it; KFC's parent company, PepsiCo Inc.; and Shanghai Foodstuffs, a Chinese government-run company.

In 1993, McCormick bought out PepsiCo and all but 10 percent of Shanghai Foodstuffs It still delivers seasonings to KFC and maintains good contacts with local officials.

The other main business for the China operation is exporting spices. The company finds and trains spice farmers across China growing products such as ginger, cinnamon, celery seeds and peppers.

Most effort, however, is concentrated on retail customers. Besides the chicken mix, McCormick also produces a line of fried rice seasonings in foil pouches and fiery Sichuan seasoning pouches, allowing busy Chinese homemakers to cook, for example, spicy Ma-po tofu without having to spend time chopping garlic, hot peppers and onions.

A modern family

The targeted consumers, Marketing Manager Daniel Craig said, are the members of the country's relatively small urban middle class.

The Luo family, for example, is hardly your Chinese family of past generations. Living in affluent Shanghai, they have just one child, Luo Ting, as mandated by China's strict family planning. That allows the parents and grandparents to lavish attention on the boy, yielding to his sweet tooth, for example, on trips to the store.

His mother, Luo Weihong, said McCormick's gelatin dessert is a luxury they can easily afford. Unlike imported dessert mixes, which can cost $2 a packet, McCormick's products are locally produced and cost just 50 cents a pack.

"It's something new and he likes it, so we're able to buy a few, not every night but once in a while," she said.

Of course, the product is probably too expensive for most people in China, where the per capita annual income is under $500. Most sales are still in Shanghai, with distribution centers recently set up in Beijing and Guangzhou.

The company has also targeted the 30 capitals of China's provinces and in the long run the 100 or so cities in China with a population over 1 million, said Steven Sy, McCormick Asian sales and marketing manager and Victor Sy's son.

Novel ideas

As it reaches toward China's other billion potential customers, .. the company has had to come up with some novel ideas.

For those who find it too expensive to buy a bottle of seasoning, which costs the equivalent of 60 cents, the company also offers its traditional products in small foil pouches for 13 cents.

It has also started sending out "cash vans" to Shanghai's open-air markets to sell the small pouches wholesale to market vendors.

McCormick's expansion plans are also constrained by finding the right employees -- a perennial problem faced by foreign companies in China. The cash vans, for example, require trustworthy drivers with initiative, and the company is in need of good local sales people for its newest venture, sales of McCormick products to China's booming hotel and tourist facilities.

"The quality of the local staff in terms of finance, marketing or business knowledge is still in its infancy," said Thomas Doran, head of business planning and development. "It's still a major challenge to work with the local staff so we have to put a priority on training."

Despite these and other challenges, McCormick's presence -- at least in Shanghai and a few big cities -- is impressive.

A tiny outlet

On a back alley far removed from Shanghai's upscale supermarkets and imported-goods stores, a tiny convenience store, almost just a hole in the wall, featured candy, batteries and McCormick's chicken batter mix.

"Sure it's a good seller," the shopkeeper said pulling out a box of McCormick's seasonings from under the counter. "I can only show one packet, but I've got another box of the stuff here."

Pub Date: 8/11/96

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