China Consumer

Not so sweet

Why Mondelez is cutting back on biscuits

Chipsahoy

A life-sized cardboard cutout of actor Nicholas Tse stands in the window of his shop in Hong Kong. He’s dressed in a chef’s outfit and holding a tin of his own-recipe cookies. For much of this year there have been long queues outside the store as Tse’s fans from mainland China sought to buy his high-priced biscuits which come in butter, lemon and chilli flavours.

At one stage the star’s cookies were being rationed to two tins per customer, though WiC can report that in our strolls past the store in recent weeks the lines seem to have diminished. We are not sure whether the fad for Tse’s cookies has run its course, but we suspect the star must be realising that mainland consumers are a fickle bunch.

Indeed, that is something US snack food giant Mondelez has become grimly aware of too, as it moves to shut one of its production factories in Shanghai. It has discovered in particular that Chinese buyers are no longer so keen on its mass-market Oreo and Chips Ahoy! cookies, as they migrate to eating more fruits and snacks with more locally-tinged flavours (such as green tea or purple potato).

CBN reports that “signs of shutdown” at the Shanghai plant have been very obvious, with an employee suggesting that only one production line runs sporadically, and inventories of raw material have been run down. The plant was established in 1993 and one veteran told the newspaper: “I have worked here for almost a lifetime. Seeing it shut up, I feel it is really a pity.” At its peak the plant had 400 staff and four production lines producing about 30,000 tonnes of snacks annually. “Now one line runs for two days every three weeks, so the plant is almost in a state of suspension,” says the same staffer, adding the plant director left a few weeks ago, and the remaining 100 employees are negotiating compensation.

Mondelez is the food company that was spun-out of Kraft and produces some of the world’s most famous brands, including Cadbury’s chocolates, Ritz crackers and Nabisco biscuits. A Mondelez spokesperson told CBN: “In order to further optimise the company’s supply chain, we are working to transfer part of the production capacity of the plant in Shanghai to Suzhou. With the transfer and optimisation of this production line, the required labour force will be reduced accordingly.”

Jiemian, a news website, reported that it is not just in the factory where there are layoffs. Sales teams in various Chinese cities are also being reduced in a restructuring plan code-named “Himalaya”.

Mondelez told Jiemian the “Himalaya” project is in process, though the initiative is designed to maintain its competitiveness as well as to better allocate resources.

An industry insider confirmed to CBN that the snack industry has experienced a seismic shift, with some categories that were popular just a few years ago having suddenly lost favour. Indeed, it is not just Mondelez that has been hit but other multinationals such as Danone and Nestle. The Swiss food firm’s chief executive has described the speed of change in Chinese consumer preferences as unprecedented and conceded that Nestle “is out of touch… we are planning to reintegrate with the market”.

A recent report by AC Nielsen shows that 20% of Chinese consumers surveyed said their snack of choice today is fruit (a trend corroborated by our article about surging cherry consumption in WiC294). Next come chocolate, nuts and yogurt, while biscuits and potato-based snacks have dwindled in popularity. These survey results are strikingly different from a similar poll in 2013, when biscuits ranked highly. This led to more cookie production lines being opened, to cater for demand growth (then) predicted to run to double digits in the coming decade.

Instead biscuit makers have discovered that a slowing economy, changing Chinese tastes and rising labour costs are an unsavoury combo. Their big investments in new plants means the biscuit industry now faces overcapacity. Competition from nimble local brands – quick to pick up on rapidly evolving new trends – and a general shift to healthier foods, have likewise taken multinationals like Mondelez by surprise.

China National Radio notes that unlike Americans – who grow up munching cookies – it is becoming apparent the Chinese are proving to be among the “world’s most fickle” when it comes to tastes and eating habits.


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