Nestle to invest $81m in the south

Swiss food group Nestle SA announced Friday that it will invest 500 million yuan ($81 million) to triple its ice-cream production in Guangzhou, capital of South China's Guangdong Province, in the next five years, betting on South China's big market potential.

Nestle holds the leading position in the Guangdong ice-cream market with dual brands - Nestle and Wuyang, a Guangdong brand which it acquired in 1999 - and the firm aims to further strengthen its advantage there, Daniel Lutz, senior vice president of Nestle China in charge of ice cream and frozen food, said Friday.

Nestle also ranks third in North China's ice-cream market, the company said.

Lutz said Nestle's goal is to offer ice-cream flavors that Chinese people enjoy. Wuyang ice cream has red bean and mung bean flavors to cater to a Cantonese audience, and Nestle uses sesame in China but not elsewhere.

Nestle's ice-cream business in China is growing by about 8 percent annually, and Nestle China is seeing double-digit growth each year, he said.

The expanded ice-cream production at the Guangzhou plant is targeted specifically at consumers in South China, Nestle China spokesperson He Tong told the Global Times Sunday, a sign of the firm's confidence in that market.

The move shows Nestle is making a strategic adjustment toward sectors with bigger potential, Yan Qiang, a partner at Beijing-based H&J Consulting, told the Global Times Sunday.

"South China, with hot weather and a large population, offers a fast-growing ice-cream market and the competition is less intense there," Yan said, noting that the North China and East China markets have been seized by other brands.

Due to fierce competition, Nestle closed its Shanghai ice-cream plant at the end of 2011 and suspended sales of ice cream in East China. Its share of China's ice-cream market has lagged far behind domestic dairy producers Yili and Mengniu, as well as Wall's, which is owned by multinational consumer goods company Unilever.

Domestic brands have wider coverage of retail channels, while Wall's has gained popularity through marketing, making Nestle ice cream less popular, Chris Qin, a senior consultant with Frost & Sullivan, told the Global Times Sunday.

Qin said Nestle needs to make greater efforts to improve its brand marketing and sales channels in order to gain a bigger market share.

Although the Guangdong plant expansion will not necessarily help Nestle win back market share in China, it conforms to the company's pursuit of high profitability, Yan said, as does its acquisition of other businesses.

In 2011, Nestle acquired food and beverage producer Yinlu Foods Group and candy maker Hsu Fu Chi International.