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Success story of Haagen-Dazs in China

Updated:2010-06-21 17:53:28

For young urban Chinese professionals with money to burn, Haagen-Dazs ice cream parlors have become a status symbol.

Since Haagen-Dazs debuted in China in 1996, the cafes have been a success for General Mills. The company now operates 80 cafes in 20 cities, including Xiamen, Shanghai, Beijing, Chongqing and Chengdu. Although the company would not reveal specific expansion plans, it opened an average of 10 cafes a year over the past three years. It will also launch cafes in five new cities, including Dalian, this year.

The company looks for premium real estate in busy city areas that are populated by Western luxury brands. General Mills even uses Christian Dior's database of VIP customers to send out ads and coupons for nearby Haagen-Dazs cafes.

The cafes are modeled after European-style patisseries and have outdoor seating. Prices range from $10 a pint to $30 to $40 for seasonal international "dessert creations", such as fondue, or sponge cakes with green tea ice cream served on a hot plate.

"The core customer group is 20-35 year olds who are sophisticated and have disposable income," said Johnny Song, the Shanghai-based director of the Haagen-Dazs business unit in China. "They pay attention to quality and want to enjoy a little bit of the indulgence lifestyle."

General Mills distributes its ice cream in trendy cafes rather than supermarkets to reinforce the super-premium image. Finding the right location is crucial, said Song.

Song said Haagen-Dazs's success boosted sales growth in General Mills' Asia/Pacific region by 25 percent (to $577.4 million) last year, making it the company's second fastest growing international segment, behind Latin America.

But Jack Russo, a food analyst with Edward Jones Investments in St. Louis said General Mills should stick to its core business of manufacturing and that operating cafes "seems a little far fetched".

Russo said he doubts General Mills will build many more cafes and likely intends to use them as laboratories to test new products and gauge consumer reaction. "China is such an opportunity, but investors need to understand that it's not easy," he said. "There's a lot more local competition, and it takes a lot of time."

The Chinese ice cream market is particularly fragmented with foreign conglomerates such as Nestle and Unilever competing fiercely with local companies like Inner Mongolia Yili Industrial Group. Wooing lower income customers away from Chinese brands has proved especially difficult for foreigners due to a lack of large distribution networks, according to a report by research firm Datamonitor.

This was the reason behind General Mills' decision to target the pickier, high-end consumers who exhibit greater brand loyalty, according to the Datamonitor report. "Image is important and influences their ice cream choices," said the report.


Source: China Daily

 

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