Encouraging China to eat butter and cheese is all about education, as the Irish Dairy Board is finding out

----By Mark Godfrey

Karl Long knows Chinese consumers could buy twenty bowls of rice for what they'd pay for a 200 gram block of his Kerrygold Irish cheddar. But there's plenty of wealthy Chinese more than able to afford RMB24 for a block of quality cheese, says Long, Beijing-based sales representative for the Irish Dairy Board (IDB), which markets the Kerrygold brand around the world.

Rice and tofu top most Chinese shopping lists, but consumption of dairy products has risen sharply in recent years. With more money in their pockets, fussing Chinese parents are keen to have a generation of single children eat better than generations from leaner times. Western notions of Chinese tastes are often based on outdated and spurious information, says Long. "There are many myths about the Chinese not being dairy people, about them being lactose intolerant," says Long, who likes to explain to Chinese customers how to make cheese dumplings from Blarney Irish Gouda.

True, the country's milk consumption has risen by 300 percent in the past decade according to the China Association of Dairy Products Industry (CADPI), much of it consumed in schools as a calcium boost. The CADPI claims average per capita dairy consumption is running at 20 kilos per annum. That's still well behind a world average of 100 - and an EU average of 200 kilos - but it's growing at 25 percent per annum, according to the CADPI. "We wanted to get in here now as kids in China are moving to a more Western diet," says Long, who worked with a Taiwanese freight forwarding company before hoofing Beijing's dusty hutong lanes for the IDB.

The right environment

The IDB first entered the Chinese market in the early 1990s, shipping bulk butter through an agent to the hotels and business clubs springing up in Chinese metropolises. Long was brought on board in late 2005 to shift an exploratory five-ton shipment of Kerrygold butter and cheese onto supermarket shelves in Beijing and Shanghai. The IDB is betting that its premium image, which made it a hit in key markets like Germany and the USA, will also wash with affluent Chinese shoppers.

But Australian and New Zealand dairy brands have long established themselves in China. A 227-gram block of Kerrygold salted butter sells at RMB18 compared to RMB16.20 for the equivalent product sold in China by New Zealand-based Anchorage. "The Aussies and Kiwis have been here a long time," acknowledges Long. "But the Kerrygold brand name is a premium product, one of the best in the market. And we use this as an advantage in boosting brand awareness."

A net importer of dairy products, China bought US$500 million worth of dairy goods in 2005. But whereas two million students in the country are provided with 15,000 tons of fresh milk every year, butter and cheese account for very small shares of China's imports. Dairy consumption last year totaled 25.9 million tons, with per capita consumption running at 20 kilograms, says Liu Chengguo, president of the Dairy Association of China. That's not necessarily rosy news for importers like Kerrygold. Liu is betting that by 2020 China will rank third in milk production worldwide with 50 million tons from its own farms.

Bulkier dry whey and condensed milk account for 50 and 40 percent, respectively, of the country's total imports of dairy products. But a rising tide may indeed lift all boats, including premium cheese and butter brands like Kerrygold. "The dairy industry will maintain rapid growth for a long time," says Liu. "China's government sees the development of the milk industry as strategic to the restructuring of the agricultural sector because it can improve people's diet and health."

Samples of Kerrygold have gone down well with Chinese purchasing agents, but with the presence of Australian and New Zealand brands on local shelves, they take some convincing. "The Chinese have stock images of Ireland as a green, scenic place but they say New Zealand is best for butter and cheese," explains Karl Long. "We have to explain to them that we have the perfect conditions and grassland in Ireland for dairy production." Australia's Devondale and New Zealand's Anchorage have both been in the China market for longer, and, unlike Kerrygold, both wrap their products in Chinese language packaging.

Spreading the butter

Undaunted, the Irish Dairy Board's target customers for now are expatriates and affluent Chinese. A refrigerated satchel over his shoulder as he does the rounds in Beijing, Long is shifting that first shipment of Kerrygold into supermarkets across Beijing and Shanghai. "Most of the customers so far are expats, but we're hoping they'll have an impact on their Chinese friends." More than 150 expatriates and well-to-do Chinese flocked to a recent Kerrygold cheese night in Durty Nelly's, an Irish pub in Beijing's business district. A similar number enjoyed crackers and cheddar at a Beijing Ladies Golf Society bash.

The go-softly strategy seems to be working in its own modest way. Sales have been strong in expatriate-friendly chains like Jenny Lu's and department stores Scitech and Yansha in Beijing's central business district. But a recent deal with Xinhuolong supermarket gets Kerrygold into more proletarian Chinese neighborhoods. If negotiations with Jingkelong - one of China's largest supermarket chains - succeed, the brand will become even more familiar to locals.

A plan to be in 40 to 60 Beijing stores by June appears on track - Kerrygold is currently on shelves in 35. Operations in Shanghai appear to be moving more slowly - currently in "less than 20" but with plans to be supplying 40 by the end of June. The company's distributor in Shanghai is also charged with looking after Suzhou, Guangzhou and Shenzhen, three booming coastal cities south of Shanghai. "These are other towns we want to get into and really target the Chinese customer," says Long.

To make a serious impression on China's 1.3 billion consumers, Kerrygold will have to start showing up in China's vast interior, home to the majority of the country's population. The IDB is willing to pay listing fees to get into French retailer Carrefour's Chinese stores, something many local firms have groaned about doing. Distribution deals are in the offing with Chinese stores run by Britain's Tesco and German-owned Metro, says Long, but the IDB is shying away from Wal-Mart, a powerful presence in China's prosperous second-tier cities like Changsha and Fuzhou.

It's not that Long is shy of China's hinterlands. "We'll definitely head to second-tier cities. Markets are huge there." The IDB has been eyeing Chongqing, a sprawling logistics and auto-making hub in southwestern China with 20 million inhabitants. The city typifies go-getting Chinese municipalities with an expanding middle class opening up to Western food habits. "Consumption of dairy products is under 10 kilos there, but the locals have got plenty of Pizza Hut and McDonald's outlets and they're eating cheese through them."

Making cheese interesting

On paper, Kerrygold and China look like a match made in heaven. Western consumer goods makers have become adept at appealing to Chinese vanity and worries among local consumers about food safety, after a wave of food safety scandals in the last year exposed decrepit backyard factories producing substandard milk powder, cooking oil and even eggs in faked brand-name packaging. Enter a world-trusted dairy brand. Long is not worried about counterfeited Kerrygold showing up on local shelves. "At the moment China has no capacity to do such a high quality product, and the supermarkets we use are very organized against that."

The product is right for an increasingly health-conscious market, but price may be Kerrygold's Achilles heel. Even though Kerrygold compares favorably with French brand President, it can only salivate at the mouthwatering prospect of a contract to supply thousands of Pizza Hut and McDonald's franchisees across China. "European brands are premium quality, and fast food franchisers always go for price," says Liu Chengguo. Kerrygold has more luck with chefs at Beijing's five-star Grand Hyatt and St Regis hotels. "They want to use real, good European dairy products," says Long.

Introducing Chinese to a cheese and cracker culture won't be easy, says Liu. "China doesn't have a dairy history. There must be an education process. There is also a majority of Chinese who won't buy milk or butter yet because they see it as too expensive." The sheer size of China's market is also a massive marketing challenge. Kerrygold billboards along Beijing's congested ring roads are a possibility, says Long, but with local dairy giant Mengniu's iconic dancing cows plastering most major outdoor advertising sites across the Chinese capital, the Irish Dairy Board is content to hold its advertising fire. "We'll let Mengniu introduce the dairy concept and we'll compliment them."

China's discerning shoppers will, however, soon be educated by in-store promotional booklets explaining Kerrygold cheese and butter types, tastes and health benefits. There will also be recipes for cheese dumplings and cheesecake. "We will teach China how to make cheese interesting," says Long.