Chocolate was introduced to Europe in the 16th century but it was not until the end of the 20th century that the godly good made its way to China. By the end of the 20th century, China had undergone dramatic social and economic expansion, and the world’s largest chocolate companies (the “Big Five”: Ferrero SpA, Cadbury, Hershey Co., Nestlé SA, and Mars Inc.) recognized the potential of introducing chocolate to the Chinese market (Allen 202). At the time however, chocolate had no history or tradition in China, thus highlighting the importance of finding a meaningful way of introducing the good. The “Big Five” companies needed to have a profound understanding of cultural differences in order to do so (Nelson). Moreover, these companies faced numerous challenges in regards to supply chain management and distribution. Depicting how global chocolate companies attempted to gain commercial success in China highlights the intricate nature of developing into an emerging market. This also enhances our understanding of the strategies these companies will embrace as they expand further.
Gift Giving – A Cultural Gateway
Culinary traditions were very different in China and chocolate companies were challenged to find a meaningful way of introducing chocolate to the Chinese market (Allen 23). The big five chocolate companies recognized that gift giving was universal throughout China and could serve as the cultural gateway for introducing chocolate. With this is mind, chocolate companies targeted their marketing efforts toward affluent Chinese consumers and developed elaborate packaging designs to appeal to this consumer base (Allen 25).
Although many affluent Chinese consumers were willing to justify the expense of chocolate for gift giving, chocolate companies recognized that self-consumption could generate even greater profits across a variety of social classes. In established markets in other countries, self-consumption accounts for approximately 90 percent of total sales (Allen 26). In China in the 90s however, gift giving accounted for more than 50 percent of total sales, thus highlighting enormous potential for expansion into the self-consumption market! China’s economy grew substantially in the 1990s and consumers subsequently started having more pocket money. In addition, young Chinese started familiarizing themselves with Western culture and food. These social and economic changes conveniently facilitated the introduction of chocolate to the mass market in China (Allen 27).
Mars’s Master Strategy
Today, the American company Mars is the leading chocolate business in China and a number of factors allowed Mars to get ahead of its competitors. First, Mars introduced the Dove chocolate bar, the earliest chocolate product aimed for self-consumption (Allen 200). This bar allowed Mars to establish legitimacy and build loyalty among young Chinese people (Allen 21). Moreover, Mars has embraced an aggressive expansion strategy of manufacturing in China along with aggressive media and marketing initiatives primarily to build up its Dove and Snickers brand (Lannes and Blasberg)
In addition to recognizing the value of branding, Mars has also undergone some organizational changes that lowered distribution costs. The recent acquisition of the gum company Wrigley’s, resulted in the formation of the leading retail confectionary company and gave Mars extensive distribution and sales operations networks (Allen 211-212). This recent merger ultimately allowed Mars to strengthen the company’s position as the leading chocolate company in China.
This campaign, which encourages consumers to create a love art piece by using Dove’s boxes, went viral on social media, exemplifying the success of Mars’s marketing efforts.
Today, the Chinese chocolate market represents a relatively small share of global chocolate consumption. However, the country’s sales potential is huge, given that a larger proportion of the country’s population is becoming potential chocolate consumers (Allen 202; Cohen). During the last three decades, the “Big Five” companies have built brand awareness and it seems unlikely that other global chocolate companies will be able to break into the market (Allen 22). Although local Chinese competitors have lower operating costs and can thus set lower prices, it seems unlikely that these companies are an immense threat to the “Big Five” (Allen 213).
China’s market has enormous growth potential and there are two major strategies that chocolate companies can adopt to strengthen their position. First, chocolate companies should sustain business in first-tier cities and fine-tune sales and marketing efforts (Allen 202; Nelson). Secondly, chocolate companies should consider expanding to second-tier cities (Allen 202; Nelson). Supermarkets represent a new exciting distribution channel, but it will be imperative to address challenges in regards to infrastructure and product innovation to respond to the preferences and price-point of the new consumer base.
To wrap up, there is seemingly no simple recipe for success but companies that are sensitive to the varied demands of the Chinese consumers are more likely to unleash the full potential of the market.
Allen, Lawrence L. Chocolate Fortunes: The Battle for the Hearts, Minds, and Wallets of China’s Consumers. New York: American Management Association, 2010. Print.
Cohen, Luc. “China Chocolate Market Seen Growing to $4.3bln by 2019-Hershey.” Reuters. 18 February 2015. Web. 11 March 2016.
Lannes, Bruno, and John Blasberg. “Gold Medal Brands.” Bain & Company Insights. July 1 2008. Web. 11 March. 2016.
Nelson, Christina. “Chocolate Fortunes.” China Business Review. July 1 2008. Web. 11 March 2016.
Chocolate candy hearts. Digital Image. http://torange.biz/16365.html. Web. 11 March. 2016
Chocolate Heart. Digital Image. http://www.publicdomainpictures.net/view-image.php?image=20869&picture=chocolate-heart. Web. 11 March. 2016.
Kestrel Lee. “Dove Chocolate’s Valentine’s Day Campaign”. Online video clip. YouTube. YouTube, 9 January 2012. Web. March 11. 2016.
Snickers hospitality Team. Digital Image. http://www.sportsworld.co.uk/clients/snickers-beijing-olympics-2008. Web. 11 March. 2016