Yili, Mengniu fighting for No 1
By Jiang Jingjing (China Business Weekly)
Updated: 2004-04-27 16:53

China's two milk manufacturing giants, Yili Group and Mengniu Milk Co Ltd, have each claimed recently that they are the No 1 liquid milk producer in the country.

The conflict was initiated by statistics released by the China General Chamber of Commerce (CGCC), showing Mengniu beat Yili, with a 16.67 per cent share of sales, while Yili held 16.18 per cent.

But the statistics also indicated Yili had wider market coverage than Mengniu, which meant Yili topped Mengniu on the comprehensive market share, a weighted average of sales market share and market coverage.

Mengniu said sales market share is an important index showing consumer acceptance of products. Therefore, Mengniu is the No 1 milk producer, according to Mengniu spokesman Sun Xianhong.

Sun admitted Mengniu's market coverage lags Yili, which means it is a little more difficult for consumers to find Mengniu's product in the market than Yili's.

"We are making every effort to improve on that," he said.

Yili, however, does not agree that leading in sales market share only is leading in everything.

Yili pointed out that there are many criteria, other than sales market share, from which to judge whether a company is No 1 or not.

"The raw milk base is a major factor that influences milk producers. With more than 20 years' effort, we have extended our bases throughout the country. How can Mengniu, which was established in 1999, compare with us?" questioned Jin Biao, marketing director of Yili's Beijing office.

Sun admitted Yili's long history in the sector, but said Mengniu's rapid progress is a fact.

Statistics from the China Dairy Yearbook indicate Mengniu made revenues of 5 billion yuan (US$603.9 million) last year, compared with 2 billion yuan (US$241.5 million) the year before.

The company also announced a sales target of 10 billion yuan (US$1.2 billion) by 2006.

However, insiders point out Mengniu's rapid progress in sales volume does not match the company's strength, according to Dou Ming, director of the editing department of the China Dairy Yearbook.

Mengniu currently has less than 10 factories throughout the country, and many of them are OEM (original equipment manufacturing) providers.

Yili has so far more than 20 factories.

Dairy products have to be consumed fresh. Long-distance transportation is not possible for the business.

Therefore, dairy producers have to build up their own factories across China if they want their products to reach every corner of the country.

The method of OEM cannot guarantee a consistent quality of products, Dou said.

Dou told China Business Weekly that Mengniu carries out unfair competition to "deprive" raw material sources in some places.

He cited an example of Mengniu offering 0.10 yuan (1 US cent) more for each kilogram of raw milk in order to win over milk sources from a milk producer in north China, which had developed its milk base for more than 10 years.

"The No 1 manufacturer should raise cows rather than doing this kind of thing," Dou said.

Sun responded: "These are all rumours originated from our competitors."

Sun revealed to China Business Weekly that a dairy company bribed a Beijing-based public relation (PR) company to spread rumours against Mengniu.

"We have already sued the PR company in a court in Beijing, and are waiting for the judgment," said Sun.

Mengniu has always been friendly to all of its competitors, and appreciated fair competition, Sun said.

"As both Mengniu and Yili are originated from Hohhot, capital of North China's Inner Mongolia Autonomous Region, we always call on Yili to work together with us to build Hohhot into China's milk capital," Sun said.

But Yili gives little response to Mengniu on the suggestion.

There has been a long conflict between the two giants, which can be traced to 1999, when Niu Gensheng, a senior executive of Yili at that time, was dismissed by the company and established Mengniu with a bunch of medium- and senior-level personnel from Yili.

Since then, the two companies have competed with each other in every aspect, from occupying raw milk bases and establishing factories, to advertising volume, promotional activities and price cuts.

With a successful marketing strategy, and especially a large amount of advertising , Mengniu has kept a growth rate of 100 per cent annually.

Yili has been listed for seven years in Shanghai, and made revenues of 6.3 billion yuan (US$760.9 million) last year.

It was recently reported Mengniu is expected to float on the Hong Kong stock market this month.

If successful, Mengniu will collect between HK$1.5-1.6 billion (US$192-205 million) from the flotation, and Mengniu's strength will be greatly increased, analysts believe.

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