Undaunted by the chilly winter temperatures hanging over northern parts of China, world-leading ice cream maker Nestle has kicked off its marketing campaign for 2006.

The company launched over 20 new ice cream products in Beijing last month, the latest in a long line of offerings the company has specifically tailored to appeal to Chinese consumers since 2002.

"Consumers here are very curious about new things, but they tend to lose interest quickly," says Ken Donaldson, head of Nestle's ice cream business unit in China.

"That's why the company needs to continuously change and launch new products. Our goal is to surprise and delight Chinese consumers with items that reflect both international trends and local preferences."

Donaldson tells China Business Weekly that the company's strategy of innovation has not changed over the past four years, and will remain the same in the future. This is not surprising, considering Nestle's ice cream business enjoyed double-digit growth in China last year.

"We will continue to offer a wider range of products, including low-price and high-value items. This will meet consumer demand at every level of the market," Donaldson says.

This year, the company has added more products into its Drumstick, X Crunch, Wonder and Mega ranges. Prices for single-serve products range from 1 yuan (US$0.12) to 5 yuan (US$0.62). Take-home and multi-pack items range between 5 yuan and 19 yuan (US$2.34).

"We will continue to strengthen our sales distribution network in key cities with these new offerings, as well as in second and third-tier markets," he says.

The company has been very selective in expanding to second and third-tier markets, however. Donaldson says geographic expansion is extremely expensive, because the company needs to invest more assets in distribution channels when developing new markets.

It also needs to select products that will appeal to local consumers in those areas, because consumption capacity in smaller cities is much lower than in larger coastal centres.

The company also builds its strong brand reputation by looking for diversified promotional channels, such as online flash ads and TV spots during children's programming.

"The goal is to work with the target groups," Donaldson says.

Nestle's plans are likely to trigger fierce market competition this year.

Shanghai-based Bright Dairy plans to expand its product range into higher value products, to compete with foreign rivals such as Nestle and Walls. The company has launched more than 30 new products, priced between 1.5 yuan (US$0.18) and 3.5 yuan (US$0.43).

Li Jinze, an official at Bright Dairy, says the company plans to improve its brand image and raise profits this year. It used to primarily focus on the expansion of its sales channels and established a sales network in 18 provincial-level cities in 2005. It sold 278 million yuan (US$34.32 million) worth of ice cream last year, an increase of 141 per cent from 2004.

"Sales are expected to reach 400 million yuan (US$49.38 million) this year," Li says.

Other big players such as Yili and Mengniu are also preparing for the looming market competition.

Yili, China's largest dairy manufacturer, held its annual promotional meeting for its ice cream business in February. The company can now lay claim to 266,000 tons of ice cream production capacity. Its sales in the sector were nearly 2 billion yuan (US$247 million) last year.

The China Marketing and Media Study (CMMS) database shows Yili, Mengniu, Walls, Nestle and Bright Dairy were the top five ice cream brands in the Chinese market between July 2004 and June 2005. Sinomonitor, an independent market research company, conducted the study. The project involved over 70,000 Chinese consumers between the ages of 15 and 64 in 30 major cities over the past nine years.

The data shows Yili holds 17 per cent of the total market, Mengniu 15.2 per cent, Walls 12.7 per cent, Nestle 9.1 per cent and Bright Dairy 6.6 per cent.

"Most Chinese ice cream makers offer cheaper products than Nestle, and they also have much wider distribution networks in the country. They are good competitors," says Donaldson, adding he is confident Nestle's ice cream business will generate continuous and significant growth this year, based on its international and local experience.

(China Daily 03/20/2006 page1)