Baby boom

The current year of the dragon promises to be a good one for companies that target China's baby market. Reports, though still sketchy, have shown that many hospitals in major cities such as Shanghai and Beijing have seen higher-than-usual rates of birth.

Heinz China is one company whose bottom line should benefit from the desire of many couples for their child to be born in this auspicious year but senior executives are reluctant to discuss the financial details of their operations.

"We are making profits, yes," says Mr Charles Chyi, president of Heinz-UFE, one of the food giant's two operations in China. "But I can't tell you how much." In fact, the Guangzhou-based company started to make profits just four years after its opening in 1985. However, in the mid-1990s, it slipped into losses "as a result of poor management.?

It is difficult to ascertain how many foreign investors are actually making returns on their investments in China. Those that do make money are often reluctant to publicise the fact, while those struggling to break even prefer to stress their long-term strategy and commitment to China.

Heinz is even reluctant to discuss the size of its investment in Mainland China, where it is the only foreign manufacturer of solid baby foods. Its second plant in China was completed last year in Qingdao. "I can't disclose the figures without consulting our Chinese partners first… but our new plant in Qingdao covers an area of 50,000 sq metres, which gives you a rough picture of the scale of our investment," says Mr. Maurice Eng, Heinz's regional director in charge of the greater China region.

Both operations are joint ventures with a combined total of five partners, Heinz holding 80 percent in Guangzhou and 65 percent in Qingdao. They produce packet cereal and food in jars for babies of between four and 24 months of age. Except for a few slight alterations to some recipes to cater to the Chinese palate, most of the products are similar to those available in other parts of the world. At the moment, they are all fruit and vegetable products but meat is corning on to the market "very soon," according to Chyi.

The 20m babies born every year in China are a very exciting prospect for baby food manufacturers, but Heinz has faced a challenge in persuading mothers to buy its food ever since entering the market.

"There is a breastfeeding culture here, which the government encourages. And this is economical for most mothers from rural areas," says Chyi. "We support government policy, of course, but we also want people to buy our ready-made food."

Nationwide healthcare reforms in China have urged hospitals to look for income rather than depend solely on government funding. This has created opportunities for commercial organisations such as Heinz to go straight into major hospitals to meet mothers-to-he. Women stay in hospital for an average period of one week before and one week after labour – longer than in the West, but encouraged by hospitals since they derive more revenue this way.

Trained Heinz staff conduct lectures during this period, not only to promote their products but also, according to Chyi, "to educate new mothers on how to care for their new-horns."

Chinese mothers have a tradition of not weaning their babies until quite late, he says. Even when they start introducing solids, they typically stick to starchy food such as mushy noodles or congee cooked in chicken stock. Heinz's educational programmes have, to a great extent, raised awareness of the nutritional needs of babies in different stages of their physical and mental development.

"We stress the point that mothers can breast-feed their babies for as long as they want but after six months, scientific research has shown that breast milk alone cannot meet the nutritional demands of a baby, especially the need for extra iron. New mothers are very receptive to such information because of the one-child policy. They all want the best for their only babies," Chyi says.

Apart from extensive programmes in hospitals, Heinz spreads its message through the local media. Last year, Heinz-ULE spent its highest amount ever on advertising and public relations, equivalent to 15 percent of its total sales. Its turnover in 1999 "exceeded Yn200m," according to the president. This year, the expense has been budgeted at 20 percent of revenues.

Heinz products are distributed across the country and are highly visible on shop shelves. "Heinz baby foods are all over the place now, but they have always been for rich parents," says Wang Xiaohua, a university librarian in Shanghai. Her daughter hasjust celebrated her sixth birthday. She remembers buying once or twice the Heinz ?Ying Yang? (nutritious) ?Mi Feng? (baby rice) when weaning, but most packets were gifts from friends and relatives.

The lectures were good, she says, but the products were expensive for an average wage earner like her. "They [Heinz's lecturers] also conveniently forgot to mention that home cooking can also provide all the nutrition a baby requires. They would, wouldn't they? The truth is, all mothers have a statutory right to maternity leave for up to a year and in most cases arc supported by two grandmothers in taking care of the baby. So there is plenty of time and resources for good home cooking."

Chyi disagrees on the pricing issue. "We are very price competitive even compared with local giant manufacturers like Huiliduo," he says. According to Chyi, a Huiliduo baby jar costs on average Yn7.50-12.00, while all Heinz jars cost just Yn5.00.

He believes competition is intensifying, as more local groups have been modernising their facilities and improving their products. Meanwhile, the company's traditional rivals, such as Gerber of the US and Hipp of Germany, have been expanding their distribution networks.

Critical reports
The whole industry has so far been spared criticism by the local media or health authorities for the high sugar content in their products. In June, the South China Morning Post conducted a survey revealing that nearly half of the baby food products available in Hong Kong are packed with tooth-damaging sugar and are bulked up with starch.

Two months earlier, the American non-profit education and advocacy organisation, the Center for Science in the Public Interest, produced a critical report on the baby food industry, accusing manufacturers of 'cheating babies.' `Gerber and Heinz replace real food with water and thickening agents in many of their products for children over six months of age,' the report says. It alleges manufacturers encourage `a mystique about their products.' They want parents to think that commercial baby foods have special properties that make them particularly appropriate, if not essential, for infants, it concludes.

The impact of such criticism has not yet been felt in China and Chyi is counting on another good year for Heinz with double-digit sales growth expected in 2000. Its parent I Ii Heinz Company, listed on the New York Stock Exchange, is projecting worldwide sales growth of 3-5 percent in coming years.

Not surprisingly, the food giant regards Asia as its fastest growing region and expects double-digit growth each year for the next five years, according to the regional director. "We have not been growing at a rate that we should have. In China in particular, we will he actively looking for opportunities for mergers and acquisitions to achieve such growth," Eng says.

In future the group wants to introduce other core businesses into China, including its most famous product, Heinz tomato ketchup. Turning China into a nation of ketchup consumers would certainly be an achievement.