Mengniu scales up its image with Latte launch

And other news in Greater China

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SHANGHAI--China’s Inner Mongolia Mengniu Milk Industry Co. has entered the premium drink segment for the first time with a latte-flavored milk drink aimed at China’s burgeoning white-collar middle class.

An aggressive local marketer, Mengniu announced a joint-venture earlier this week with French dairy giant Groupe Danone to build yoghurt sales, and has hired consultants McKinsey & Co. to map out corporate strategy for Mengniu.

Until now, China’s local dairy companies have treated the country’s flavored milk market as a low-cost item. Mengniu’s Latte drink, sold in in chocolate, vanilla and coffee flavors, retails for more than twice the price of standard flavored milks in China.

“We positioned the brand as melted ice cream to stress its high quality and elevate us beyond the commodity pricing of other milk brands,” said Jiang Hong, Mengniu's Shanghai-based CEO.

Advertising created by M&C Saatchi, Shanghai, conveys the drink’s premium quality and taste with a theme about the romance of a rendezvous. The slogan translates as, “Romance starts from the moment you meet.” The campaign is running in TV, print, public relations, radio and online media and includes events. To promote trial, the winner of a lucky draw will get a trip to Italy.

The premium drink launch is the latest in a string of bold moves by Mengniu to grow its sales and and brand awareness in China. Since the company was founded in 1999 by a former board member of Inner Mongolia Yili Co., then China’s leading dairy by a wide margin, Mengniu has evolved into one of the leading dairy companies in the mainland. Today, Mengniu, Yili and Bright Dairy & Food Co. jockey for the leading position in China’s $8 billion dairy industry.

Mengniu was already a commercial success in 2005, when it shot to the top of the market by sponsoring the second season of “Supergirl.” An American Idol-type singing contest created by Hunan Satellite TV, the second season became the most successful program ever to air on Chinese television.

The success of the second season is partly attributed to the savvy event marketing and branding campaign built around the show by Mengniu and its creative agency, APEX, a major local agency in Chengdu, Sichuan province. (The founders of APEX, who orchestrated the “Supergirl” deal for Mengniu, sold a majority stake in the agency to WPP Group's Bates Asia earlier this month for an undisclosed sum.)

In addition to entering the premium drink segment, Mengniu has made other moves to dominate China’s dairy industry. Last October, it appointed the consulting firm McKinsey & Co. to help lay out a medium-term corporate strategy.

Earlier this week, it also announced plans to form a joint-venture with France’s Groupe Danone, the world’s largest yogurt marketer, to make, develop, distribute and sell yogurt products in the mainland. Mengniu will have a 51% interest in the partnership.

“Over the past three years, Mengniu has built itself into a leading dairy product manufacturer in China with the support of its extensive nationwide distribution and sales network,” Pierre Couderc, Danone’s president, Asia/Pacific said in a statement. “The cooperation presents an excellent opportunity for both parties to work together in developing and growing the China dairy market.”

China already accounts for about half of the global dairy market but consumption per capita is low, indicating the market still has considerable room for growth. Mengniu’s market share in China’s liquid milk market by volume, excluding milk beverages and yogurt, reached 31.7% in June 2006, up 3.1% from December 2005, according to ACNielsen.

Despite price wars, rising costs and stiff competition, Mengniu reported 58.7% revenue growth in the first six months of this year, compared to the first half of 2005, to $965 million, following the launch of value-adding new products and rising market share. Net profits grew almost 40% to close to $44 million for the same period, according to the company’s unaudited financial statement.

Ebay shuts down Chinese site to partner with Tom Online
BEIJING--Ebay will shut down its main web site in China after failing to chip away at the strength of Taobao, a Chinese auction site operated by Corp., which also operates China’s leading online shopping portal,, and Yahoo’s China operation.

Instead of operating on its own, Ebay will partner with Tom Online, a Beijing-based internet portal and wireless operator. Tom Online will have a 51% stake in the joint-venture and Ebay EachNet, Ebay’s China-based subsidiary will hold 49%.

Both companies will invest in the venture, including a $40 million cash contribution from Ebay and $20 million in financing from Tom Online. The new venture builds on the existing relationship between Tom Online and Skype, Ebay’s online communications business.

The two companies hope to combine EBay’s global e-commerce knowledge and trading community in China with Tom Online’s local market knowledge and active wireless user base of more than 75 million.

“By combining our expertise with that of a strong local partner,” Meg Whitman, Ebay’s president-CEO, said in a statement “we are even better positioned to participate in this growing market.”

An alliance with Tom Online may not be enough to keep Ebay alive in China, but the company is determined to try, given the size and potential of China, which had an internet population of 123 million web users in June 2006. The number of users grew by 19% in a year, and the country has more than 400 million mobile users. China's e-commerce market is experiencing explosive growth, and could rise to almost $6 billion in value next year, from $680 million in 2005, according to IResearch.

McDonald's hires Tribal DDB for interactive marketing in China
SHANGHAI--McDonald's Corp. has hired Tribal DDB, the interactive arm of Omnicom Group's DDB Worldwide, to handle its interactive and digital marketing in China. The win follows a three-way pitch against the incumbent, Leo Burnett's Arc Worldwide division, and Omnicom's OMD. McDonald's above-the-line creative business remains split between Publicis Groupe's Leo Burnett and Omnicom's TBWA Worldwide.

Tribal DDB also works with Unilever's Lipton business in China as well as Wyeth Consumer Healthcare's Centrum brand, according to Adam Good, Tribal DDB's president, Greater China based in Hong Kong. Mr. Good has worked with McDonald's for the past eight years, most recently in Hong Kong and before that, in Australia.

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