(Part 10 of the Business Without Borders series. An ongoing project chronicling the challenges, the opportunities, the strategies, and the models for Canada as it transforms from resource giant to global trading powerhouse.)
Kraft Foods had a problem—the Chinese weren’t buying Oreos. Introduced to the world’s most populous nation in 1996, the company’s most popular cookie saw only modest sales growth in the ensuing decade. By 2005, it controlled a mere 3% of the Chinese cookie market.
For anyone raised in North America, this was a shocking fall for the King of All Cookies. “When I worked in the U.S., it was the biggest mega-brand we had,” says Shawn Warren, a native of Kitchener, Ont., who arrived in 2005 as the company’s newly assigned vice-president of snacks for Asia-Pacific. “Then, when I came over here, Oreo was just this really small brand.”
More than 25 million Oreos are eaten every day in the U.S., but the company considered taking it off the shelves in the fastest-growing consumer market on earth. What could possibly be the problem in China?
It’s a question faced by many western brands that over the past 15 years have flocked east, eager for the potential profits presented by a nation of 1.5 billion people with a ballooning middle class. But brands have often relied too heavily on the same approach that made them popular in the West. Same product, same marketing, just a different language. And it rarely works. As Oreo learned, scoring success in China requires both exploiting the appeal that big brands have to Chinese consumers and adapting products for local tastes. This small insight led the cookie to go from a piddling 3% to 15% in a few short years. Put that in your glass of milk and dunk it.
The best example of this approach is KFC—Chinese sales account for nearly 40% of worldwide operating profits for its parent company Yum Brands, which also owns Pizza Hut and Taco Bell. The Colonel has dominated China’s fast-food landscape since it first landed in 1987, thanks, in part, to adding items like breakfast congee and rice dishes to the menu. Last year there were more than 3,700 KFC outlets in China, compared to 1,464 McDonald’s restaurants.
For many years, the chicken seller was alone in realizing you need to adapt to succeed in China. Only recently have more major western brands begun focusing on the needs of Chinese consumers. In September, Estee Lauder launched an entirely new beauty brand specifically for the Chinese market called Osiao, which the company says was formulated for various types of Asian skin and includes traditional Chinese herbal ingredients like ginseng. Last year, Colgate introduced its Flax Fresh tea mouthwash flavour, catering to China’s love of all things tea-related. In 2006, BMW created a longer version of its 5 Series sedan exclusively for the Chinese car market, where the wealthy have personal drivers and want more room in the back seat. This year, Nestlé altered its Nescafé instant coffee recipe after its research showed Chinese consumers preferred a smoother, milkier cup of joe than their European or North American counterparts.
Whether it’s squid on a stick at KFC, lobster cheese-flavoured Lay’s chips, tea-flavoured mouthwash from Colgate or stretched-out Beemers, these brands are cashing in by balancing an established image with new or adapted products. And one of the biggest success stories is Oreo.
The billion-dollar Chinese biscuit market can be roughly split into seven categories: sandwich biscuits, plain sweet biscuits, wafers, plain savory, cookies, soda crackers and egg-roll biscuits. In 2005, Oreo was competing solely in the sandwich biscuit category. Its 19% share in that segment translated into just 3.5% of the overall biscuit market. Since then, the brand has increased its sandwich biscuit take to 46% and launched an Oreo wafer cookie that’s nabbed 30% of the wafer market, to boost its overall share to almost 15%. That’s the highest market share for Oreo anywhere in the world, including the U.S. or Canada.
Warren was appointed president of Kraft Foods China in 2011, renamed Mondelez International this past October after the company split its snack business into a separate company. Warren says Oreo’s journey to cookie hero has three key components: product, packaging and advertising. Before 2005, each item copied Oreo’s U.S. approach and had little appeal in the new market.
In North America, Oreo is synonymous with one flavour. But global tastes vary. While we like the classic Oreo, in India for example, consumers think it’s not sweet enough. Conversely, Oreo discovered back in 2005 Chinese consumers thought our North American version of the Oreo was too sweet.
According to Kraft, there are 135 components to an Oreo cookie, including roastedness, burntness, bitterness and 132 other “nesses.” To create an “original” Oreo for China, Kraft tested more than 20 unique Oreo formulations.
But they didn’t stop there. More than anything else, it’s been Oreo’s willingness to alter its size, shape and flavour that led to its dominance of the Chinese cookie market. North Americans have had a century to get to know Oreo as both a taste and brand, and it’s consistently been a top-seller. In China, the brand needed to be more innovative if it was to make an impact. The Chinese love wafer cookies, which make up a sizable proportion of the overall cookie market. So in 2006, Kraft launched the Oreo wafer stick with white crème of Oreo but in the form of a rectangle wafer and coated in chocolate. It was a home run, putting Oreo into the popular wafer category, extending its reach to consumers who before never gave it a glance. “It completely changed what an Oreo looked like,” says Warren. ”But it made the brand a lot more relevant to the Chinese market.”
As the company delved deeper into its China market research, they found more opportunities to grow. In China, sales of cookies and other chocolate products tend to slow down in the summer. Warren says the Chinese have what they call “heaty” foods and cooling foods, the former for colder months and the latter for warmer times of the year. Cookies were traditionally a heaty food. To boost summer sales, in 2009 Oreo developed a crème that had a cooling sensation when licked to create both a vanilla and green-tea ice-cream-flavoured cookie. Yep, green-tea ice cream. It’s now the second-most-popular flavour after original Oreo.
That success sparked a cookie Island of Dr. Moreau. Fruits are also cooling foods, so Warren says the success of the ice-cream-flavoured cookies led them to try more cooling variations. In 2011, after researching what fruit flavours Chinese consumers would like best, they launched Oreo double fruits that put combinations like orange-mango and blueberry-raspberry between the familiar biscuits. “It’s about taking a local cultural consumer insight and finding ways to innovate with it,” says Warren.
It wasn’t just the cookies that needed to change. Kraft also found that its traditional package size was too big and expensive for the average Chinese consumer, who have less disposable income than North Americans. “We introduced smaller sizes so we could get into smaller grocery stores and mom-and-pop stores, as well as make it more affordable,” says Warren.
For advertising, the company ditched the subtitled American ads in favour of a focus on kids, who are at the centre of the Chinese family, and homegrown spokespeople like former NBA star Yao Ming.
All of these strategies helped Oreo grow its market share by 10 times over the past five years. Warren says the Oreo model in China has become the company’s model for all its other products. That means get ready for Ritz cracker flavours like “fantastic beef stew” and “very spicy chicken.” “There’s now a different formulation for Chips Ahoy cookies here than in North America,” says Warren. “We’ve also got the packaging and advertising localized, and as a result over the last few years we’ve tripled the Chips Ahoy business.”
Despite the different shapes, colours and flavours that have catapulted Oreo to the top of the cookie heap in China, some things remain universal. “We do it in different ways around the world,” says Warren. “But it’s still the ritual of twist, lick and dunk.”