Chu Oversees Operations In China, Hong Kong And Taiwan
With a pressed-for-time middle class increasingly turning to convenience foods, and food safety scandals pushing this growing demographic towards trusted international brands, China has become a critical market for major global food producers. But with a very established native food culture in place, prepared food manufacturers are finding that localization, rather than transplantation, is key. Recently, Jing Daily had the opportunity to sit down with Gary Chu, President of General Mills Greater China, to discuss food safety, the emerging middle class, strategies for entering the Chinese market, and how best to tap growing Chinese demand.
Jing Daily (JD): In the wake of food safety scandals in China, what steps is General Mills taking to ensure safe, reliable food products?
Gary Chu (GC): I think food safety does not only apply to China, it’s a hot topic for the world — for the US, Europe, China, and developing countries. In China, we put a lot of resources behind every part of our process to ensure that quality lives up to [our] global standard. The standard is the same everywhere whether it’s in Africa, China, the US, or Europe. This does not mean that if you’re in a developing country, the standards will be lower — there’s no such thing. Our philosophy is from field to table. We have to control the process to ensure that food safety is implemented. That’s the kind of cultural principle [we embody] to ensure a reliable, safe food product [is] on the customer’s table.
JD: Would you mind giving a few examples of specific regulations you’ve implemented to ensure this standard of quality control?
GC: Every country, every region has their own standards. Europe has its own European standards, China has its Chinese standards. [But] our standards are higher, tighter, than the country-specific standards. For example, when we’re dealing with vegetables, we don’t buy vegetables from the market, we contract vegetable farms to plant according to our standards, including the fertilizer, seeds, and pesticide they use. To ensure that their fields don’t contain heavy metals, we test the soil. We do surprise auditing, which means they drop in unannounced to examine the quality of the supplier.
What I described is very, very simple, but there’s a lot of work involved. We have quality assurance people in the workshop and quality control people overseeing the whole process. The most important thing is not batch testing, but building a tight system to ensure mistakes don’t happen.
JD: In your opinion, which localized food products have been the most successful in China? Which didn’t work?
GC: We have a lot of successful products. General Mills’ portfolio and strategy are very different from any other company. In China, we have our global platforms, global brands, such as Häagen-Dazs, which are super-premium everywhere in the world, especially in China. Then, we have our local products such as dumplings, Wanchai Ferry. Then we have products that are popular in every country like snacks, salty snacks, and also yogurt, since our acquisition of Yoplait. So we have a very diversified portfolio.
Even under Häagen-Dazs there are four businesses: there is the retail business, cafe/restaurant business, food service business — which means supplying five-star hotels, airlines, movie theaters, high-end restaurants — and the gifting business: gift vouchers, cakes, mooncakes. A very different dynamic and portfolio than a company like Coca-Cola. We have some success stories, but also some failure stories. China is a very complicated market, and living standards are very different. That’s why we call it a multi-tiered economic system, multi-tiered consumer segments. Shanghai is just Shanghai. Outside of Shanghai it’s totally different. Living standards are different, trade is different, very different.
Managing China is like managing the entirety of Europe. That’s why we call it “One country, many markets.” you must have the agility to deal with different situations, dynamics, trades, consumer habits, shopping habits. Each requires different strategies to ensure your business is successful. Häagen-Dazs is highly successful, so is Wanchai Ferry. No one knows that General Mills, a multinational number six food company, is behind the number one selling dumpling brand in China. It’s like a Chinese guy going to New York City to sell hamburgers, it’s unimaginable. At the same time, we have food products that don’t do very well, so we have to cut them. You always have to come up with strategies that fit what the consumer wants.
JD: General Mills’ marketing strategy and campaigns for Häagen-Dazs, in particular, have been extremely successful in China. From this, what would you say are key strategies foreign brands must keep in mind when tapping into the Chinese market?
GC: Number one is consumer insight. Meaning, you have to understand what a consumer wants, what they demand. In China today, the middle-income class is the key consumer segment that you must understand. It’s very dynamic. China’s consumer dynamic changes every two or three years, unlike the US in which it is very settled. So, number one is consumer insight: what they want, what benefits you’re going to bring to the consumer.
Number two is understanding the trade structure. There’s modern trade and traditional trade. You have to create a portfolio, a product, that doesn’t only fit the consumer demand, but also meets the trade demand.
Number three, you must understand the environment in which you live, i.e., government relationships, regulatory requirements, compliance with local statuary law. These regulations can be very different, they vary. Do not use a Western mindset to operate in China.
Number four, you must have a strong leadership team. People are the most important successful factor in China. You have to have a strong leader and strong team to execute strategy.
Number five is branding. China is very brand sensitive, and branding is a key part of the business. In the China market, you have so many brands competing that it’s very competitive. Unlike the US, where there are a few brands or manufacturers that dominate the market. in China brands come and go, and you have many brands from different manufacturers and countries, some you’ve never seen in the States. You’re competing with local brands, regional brands, international brands, and state–owned company brands.
Out of all of these, I believe people are the most important factor.
JD: You mentioned that the rising middle class is currently your largest consumer class.
GC: Yes. China has been opening up in the past 25-30 years or so. What you see is that the rising middle class is forming. By 2025, China’s middle class is going to surpass that of the United States. So, you must do everything to meet the demands of an emerging middle class. Some sectors are doing well, like automobile manufacturers. International carmakers such as GM and Volkswagen are hugely successful in China. And China has become the largest car manufacturer in the world because of the emerging middle class.
That applies to every consumer product, such as mobile phones, food, beverages, drinks, etc. They’re a major economic force. We’re assuming China’s income/social structure is going to be like the United States, where the middle class will be the most powerful representative class, both politically and economically.
JD: Since this middle class is projected to stake such a large percentage of the population, what role do you see yourself playing in changing the tastes and behaviors of Chinese consumers?
GC: Food is cultural, a culture rooted in history. Our job is not to change culture. It’s more to understand the culture, understand their habits, connecting with them to understand what they want. This is the most important part, not so much changing their habits. We understand their habits and deliver reliable, tasty, safe, convenient, nutritional food products.
JD: What exactly do you think your consumers looking for?
GC: There are three factors that make any company successful. Number one, you have to deliver good tasting foods. Number two, you have to be reliable in terms of nutrition, it has to be healthy. Number three is convenience.
They sound easy, but there’s a lot of science and research involved. Consumers are very different. There’s no universal consumer. If you like one food, your friend might not like it. Everyone has their own opinion. Our job is to understand the taste/flavor profile that will fit the greatest amount of people. That’s why we do a lot of field work and consumer research to create a flavor that the consumer really likes. Qualitative and qualitative consumer insights research.
Nutrition is another thing. there’s an aging population in China. In today’s trends, you have to have low sodium, low sugar, low-fat, more fiber. Our mission is “nourishing life” which mean we have to nourish consumer’s everyday life. Making their days more healthy and convenient, which is why a lot of products have become healthier. In China, we significantly reduced the sodium level in our dumplings and significantly reduced the fat level and increased the vegetable portions.
We also innovate in terms of convenience. We do a lot of research to understand the level of convenience required by the consumers. Today, we live in a highly industrialized environment. People want to spend less time cooking and yet people want to eat healthily. Those are very much today’s trends. Those three success factors are not going to change. Furthermore, among young people ethnic foods are also very popular. Young people in China are starting to eat pizza, pasta, Japanese, Korean, Indian. So, we don’t only focus on our major categories, but we’re developing ethnic foods. For example, we have dumplings and frozen dim sum. We even have Mexican food. We also sell Wanchai Ferry in the US and Europe, all toward meeting the demands of the younger generation.
JD: “Going organic” is rapidly becoming a way of life for many Chinese, especially for the more health-conscious, wealthy elites. As a prepared/frozen foods brand, what is General Mills’ stance on the organic movement and is it taking steps toward the organic?
GC: In China, we have not have gotten into organic food because the organic food manufacturing standards are not clear yet. Organic foods are becoming popular, not really packaged foods, but more agricultural products like vegetables, free-range chicken and eggs. We don’t have organic supermarkets yet, but we are closely monitoring that because we have the core competence to compete in this field.
JD: How long do you think it will be before organic prepared/packaged foods will surface in the China market?
GC: We don’t know yet. There is definitely a trend starting. Organic is very popular now. People are starting to invest in organic farms. We haven’t seen organic packaged foods yet, but we’re closely monitoring the trend.
JD: Is General Mills looking to acquire more local food brands as they did with Wanchai Ferry?
GC: We always keep our eyes open to any potential acquisition targets. If another potential company fits into our strategy, we’ll definitely look into it.