Leader of the pack

Tetra Pak has a 75% market share

Which is the most successful foreign brand operating in China today? Elon Musk’s Tesla captures many of the headlines, of course, but it is the Rausing family’s humble milk carton which probably wins the day in terms of market presence.

The Swedish clan owns Tetra Pak, which has established a dominant grip of its segment of the Chinese market since opening its first manufacturing plant in Beijing back in 1987 (the company first exhibited at the Peking Trade Fair in 1972).

Tetra Pak gets some competition from Hong Kong-listed Greatview. But the reality is that it has retained a hold over about three-quarters of the market for its goods in China for many years. And while some international companies are rethinking their presence in the country, Tetra Pak continues to expand, including with a groundbreaking ceremony this month for its first capping plant in Hohhot, the capital of Inner Mongolia.

The new facility will be next door to Tetra Pak’s existing packaging plant and close to three of its biggest customers, the Chinese dairy producers Mengniu, Yili and Bright Dairy.

Sina Finance describes Tetra Pak as the hidden giant behind these dairy firms. But as a company it chooses to fly below the radar, still run by the family of Ruben Rausing, who in 1951 invented a plastic-coated carton called the tetrahedron, which offered a cheaper and lighter alternative to glass milk bottles.

Occasionally, as we reported in WiC201, it has come more into the spotlight in China.

In 2013, the government opened an antitrust probe into the company and it was fined Rmb668 million ($94 million) in 2016 for trying to stifle what little competition there is left.

In late 2017 it closed its factory in Foshan, after nearby residents lobbied the local government about air pollution concerns (see WiC381).

But Tetra Pak’s aseptic packaging technology has high barriers to entry. That is not because the know-how is especially expensive or sophisticated but more down to how its reliability has become so important to customers like the dairy industry, which need to be absolutely certain of the quality of their packaging after so many years of scandals involving tainted milk.

Packaging is becoming a more important component of business decisions made by brands as well. A 2019 survey by market research firm Ipsos MORI revealed that 94% of Chinese consumers took notice of new ways that products were packaged, with 79% expressing a willingness to pay more for professionally packaged goods. A further 83% of respondents even said that novel or unique packaging could be a key selling point for them.

Tetra Pak will be hoping that local consumers like the DreamCaps that the Hohhot plant is going to produce. These are engineered to improve beverage flow control, with resealable closures. The pitch is that the design suits those who want to drink on-the-go. The plant, which will be operational in 2021, has capacity to produce 10 billion units a year.

Tetra Pak’s 2019 financials, published on its website, show that Asia-Pacific accounted for 35% of its €11.5 billion ($12.95 billion) in sales last year. Greater China is believed to be its biggest individual market at 10% of the total.

In the case of the new factory in Hohhot, much of the focus will be on Tetra Pak’s relationships with its largest clients in the dairy sector. Despite increases in milk sales, average consumption lags that in Western markets by some distance. On average the Chinese drink only about a third of the milk consumed by Europeans and Americans per year.

Dairy is one of the industries that hasn’t been as hard hit by the Covid-19 crisis. Milk production dropped 8.9% during the first quarter, but the decline in output was relatively limited compared to a number of other consumer-facing sectors. It has also shown signs of picking up again strongly over the past two months, with Zhu Yidong, Tetra Pak’s general manager for Greater China, telling reporters at the Hohhot opening that sales at the existing plant in May this year were already exceeding those in the same month in 2019.

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