Nestle, Danone suspend or close factories in China

BEIJING, China – Global food conglomerates Nestle and Danone said Monday they will suspend or close factories in China, moves analysts said highlighted the tough competition from domestic players.

French group Danone will suspend operations at one of its two yoghurt factories in the Asian country, while Swiss firm Nestle will shutter one of its three ice-cream plants, the companies told Agence France-Presse (AFP).

Analysts said foreign dairy makers have struggled in China where local firms such as Sanyuan Group, Inner Mongolia Yili Industrial Group and China Mengniu Dairy are better recognised and make similar products at a cheaper price.

“Foreign companies making such products in China have no competitive edge,” said Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultant Ltd.

“Each place has their own local brands that are more recognised in their own region, for example Shanghai has Sanyuan and in northern China there is Mengniu.”

But Danone spokesman Xu Jie denied the Shanghai factory suspension was due to local competition, saying the company was “working on a new and more centralised strategic plan for our fresh dairy products in the Chinese market”.

“The severe competition condition has been there for so many years. We are just working on a series of assessments to improve our business,” he told AFP.

The French company would continue to operate its yoghurt factory in Beijing as it adjusts its “strategy to make it more sustainable and focus our investment in a few major cities”.

Nestle (China) Ltd spokeswoman Nancy He said the company would close an ice cream factory in eastern China as well as suspend retail sales in the same region as it focuses on markets in the country’s north and south.

Yan Qiang, an analyst at Adfaith Management Consulting Inc, was quoted by state media as saying Danone and Nestle may be shifting their focus to “higher-end products” to meet growing demand from well-heeled customers.

China’s dairy industry, like the rest of its vast food sector, has been hit by countless scandals in recent years involving contaminated products.

In March, state media said more than one fifth of dairy producers would lose their licences after inspections aimed at preventing a repeat of the 2008 toxic milk scandal that killed at least six babies and sickened 300,000.