McCormick tempts China's palate Wooing a market of 1.2 billion potential customers

August 11, 1996|By IAN JOHNSON | IAN JOHNSON,SUN FOREIGN STAFF

SHANGHAI -- It took only a minute for 8-year-old Luo Ting to make his mother a McCormick customer.

"Try some of the delicious dessert jelly," he heard the McCormick hawker say at the entrance of the neighborhood grocery store.

Luo took a lump of the wobbly red gelatin and slurped it down. He looked up at his mother, tugged at her sleeve and in a flash she plunked down the equivalent of $1.50 for three of the powdered gelatin mixes.

Score a small victory for the world's largest seasoning company as it tries to win over China's 1.2 billion consumers -- one by one.

The strategy may be costly but it is typical of how foreign companies slowly make headway in the world's most tempting -- and sometimes the most difficult -- market.

For McCormick & Co. Inc., victory in the China market has become more than a long-term gamble; the Maryland-based company has identified the world's most populous country as a key to its future. Facing intense competition at home, the company is looking to new markets, especially in Asia, to contribute to its bottom line.

"In the next year or two it's not very important, but looking out over the next five years, it's very, very important," said Matthew Roswell, an analyst with the securities company Legg Mason Inc.

Doubling of sales expected

McCormick does not release financial information for sales in each overseas country, but estimates put sales at under $10 million, or less than 1 percent of McCormick's 1995 revenues of $1.9 billion. Company officials say, however, that sales are set to double this year, highlighting China's great promise.

"As people become more prosperous, they value convenience more. The potential for us in this region is great," said Elizabeth Todd Lambert, director of strategic business planning and development for the Asia/Pacific region.

Yet as McCormick and other U.S. companies are finding out, winning over customers such as Luo Ting is an expensive business, one that yields profits grudgingly.

At first glance, McCormick's China operations should be highly profitable.

Most of the business involves retail sales to ordinary customers as opposed to selling spices in bulk to big food companies, which is usually less profitable.

Chinese customers, however, require so much education and the distribution network in China is so primitive that profits from the China operation are probably negligible, analysts say.

Explains Victor Sy, managing director of McCormick's Asian operations: "We have to teach them how to make the products because no one is going to do it on their own."

This involves a huge campaign to promote products and teach people how to make a gelatin dessert or use a powdered chicken batter.

Booths in front of stores

Each day, for example, up to 50 temporary McCormick employees may be in operation across Shanghai, a city of 14 million. Most work in booths set up in front of grocery stores.

The stores receive a small rent fee of $4 or $5 and McCormick's help in selling up to $150 of McCormick products from the store's stocks.

McCormick's costs increase further because the stores have tiny storerooms, forcing the company to make constant deliveries. When it sets up a promotion booth, it can sell off the store's stock in less than a day, so the company must make emergency deliveries to keep the promotion going.

Of course, not all McCormick's products require an explanation.

Bottles of spices with green and gold labels -- the company's international color scheme -- dominate grocery stores in Shanghai, Beijing and Guangzhou.

It's not uncommon for small corner grocery stores to display McCormick spices in a plastic rack that sits on top of the sales counter -- a McCormick invention to give it more visibility in crowded Chinese stores, where most goods are stocked on shelves behind the sales counter.

Distributing spices is also not as complicated as it might be thanks to the limited use of spices in modern China.

Herbs are virtually unknown in China and most people cook just with salt, pepper, garlic, ginger and hot peppers. This allows McCormick to limit its offering of seasonings to 14 bottles, vs. the 40 regularly displayed in stores in the Philippines and the 12-foot rack of bottles featured in many U.S. stores.

Highest profit-makers

While McCormick has to convince Chinese consumers that its quality is worth the higher price -- sometimes twice the price of spices sold in open-air markets -- its mixes and desserts are the easiest sells and highest profit-makers.

And, unlike in the United States, where the McCormick name is closely identified in consumers' minds with spices, Chinese consumers are a blank slate, so they can be made to associate McCormick with more than little bottles of seasonings.

"We have been famous as a spice company. It's hard to shake off that image. In China we're relatively new and people don't have preconceptions," Sy said.

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