Sanlu Is a Dead Brand

Any Attempted Turnaround Has a "Snowball's Chance in Hell," Says Interbrand's Thomas Chen

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SHANGHAI ( -- There are many things that a company can do to turn around a dying brand, but nothing can help a brand that is already dead.

That's the fate that has befallen the Shijiazhuang Sanlu Group.

Chinese consumers sentenced the country's leading milk powder brand to a sudden death as soon as news stories about its melamine-contaminated infant formula milk shocked the world on Sept. 12, 2008. An attempt by Sanlu to save its brand has a snowball's chance in Hell.

Sure, many brands that have made disastrous mistakes managed to rebound eventually, such as Johnson & Johnson's Tylenol recall in 1982. In face of the alleged 250 deaths caused by contaminated Tylenol, J&J made a critical and responsible decision to recall all Tylenol and immediately inform the world of this fact.

Unfortunately, Sanlu's management opted for a different route when coping with its crisis. Instead of taking responsible moves, it opted for a cover-up. This ill-advised and unsurprising decision is the straw that broke the camel's back. It killed any excuse consumers might find to trust Sanlu again and erased the reason for the brand's very existence.
Interbrand's strategy director-China, Thomas Chen
Interbrand's strategy director-China, Thomas Chen

Nationalistic pride was one of the driving forces behind Sanlu's leading position in China over the past 11 years. Chinese consumers have been known to stand up for local brands during difficult times.

Sanlu has already wasted that chance. The majority of Chinese consumers have already abandoned the brand. In addition to betraying the expectations of loyal users, the milk scandal has let down all Chinese.

A survey of public opinions in China about Sanlu on Google or on the Chinese search engine clearly shows criticism disproportionately outweighs supportive commentary. Indeed, the public's anger does not stop with Sanlu. Blame has also extended to celebrities who have endorsed the Sanlu brand in China.

Once a brand has failed, its value becomes debt. Sanlu's brand name is undoubtedly a burden heavier than any company can bear, not to mention Sanlu's outstanding 700 million RMB ($102 million) in compensation liability and the value of an estimated 10,000 tons of milk powder it recalled.

Sanlu's partners also are suffering from the scandal. New Zealand-based Fonterra Co-operative Group, which owns 43% of Sanlu, cut the value of its investment in the Chinese dairy by nearly 70% on Sept. 24, reflecting the damage done to the brand by the melamine scandal.

Sanlu's former local partner, Henan Huahuaniu Dairy Product Stock Co., has launched actions to rid its company of any close association with Sanlu's brand.

The negative brand value also affects ongoing takeover talk from Sanyuan Group, another major Chinese dairy. According to local news, the proposed takeover deal is limited to the hard assets of Sanlu Group only, while the brand name and its associated liability are left for the Sanlu Group to deal with.

Clearly, the entire market has lost its faith in Sanlu brand. If there is any residual value left in the Sanlu brand at all, it is the brand's position as a food safety lesson both for Chinese consumers and the country's food and beverage manufacturers, particularly its dairy companies.

China's entire dairy industry has no choice but to walk over Sanlu's dead body to thrive again. Every comeback attempt by other local dairy brands, such as Inner Mongolia Mengniu Milk Industry Co. and Inner Mongolia Yili Industrial Group, will inevitably remind consumers of the Sanlu scandal for years to come.

Consumers' long memories make the return of Sanlu impossible, but it also ensures the China's dairy and food manufacturers will behave more responsibly down the road.

A brand is nothing but a promise, a promise for good, for better, even for the best. Companies rise if they are committed to keeping their promises. Companies fall if they break their vows.

The moment Sanlu's top management decided to put corporate profit before consumers' interest and food safety, the brand was doomed to fail.

Thomas Chen is the Shanghai-based strategy director-China at Interbrand, a WPP-owned brand consultancy.

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