Competition in China Erodes Profit Margins
American businessman Paul Rasch elbows his way through a crowded Carrefour supermarket to the display of Great Lakes fruit juice, the product his family's U.S. company has been selling here for a decade.
It is on sale for $2.30 a bottle, but a Chinese competitor, Huiyuan, is offering a bigger bottle at half the price. Mr. Rasch walks down an aisle teeming with dozens of fruit-juice brands, reading the state of the marketplace from their cartons. A recent manufacturing date on one means it is selling fast. A deep discount on another suggests that the company is in trouble. Mr. Rasch grabs a three-pack of a rival juice brand, now doing a buy-two-get-one-free promotion, and glares at it.
"You're killing us. You're ruining it for everyone," he moans.
Selling consumer goods in China is getting harder, threatening to squeeze out all but the largest multinationals as foreign corporations face brutal competition from Chinese rivals. Veteran foreign executives now describe the mid-1990s as the golden days, when their products were novelties, consumers were impressionable, and domestic competition trailed.
Complaints then often centered on corrupt officials and uneven enforcement of the rules. But these days foreign firms are being beaten at their own game, often by Chinese rivals competing fair and square and turning out to be better capitalists.
"We wouldn't survive, if we were to start now with the kind of size we have," says Mr. Rasch, a fourth-generation fruit grower and the president of Great Lakes Fresh Foods & Juice Co. in China. "Margins are thinner, costs are higher, volumes are bigger. The costs of making a mistake are too high now."
Merrill Lynch & Co. issued a report this year warning multinationals about a bumpier path to profitability as profit margins erode in many sectors due to fierce competition. "It is the most competitive market I've seen in the world, full stop," says Georges Desvaux, a director at consultants McKinsey & Co. in Beijing who follows the consumer-goods market. "Everyone and his brother is here. The number of players who are of good quality, both international and domestic, is huge."
The result: In many industries and in the big cities where competition is fiercest, it appears near impossible for any but the biggest corporations to build a business, given the competition and the need for speed and scale. There appears to be narrowing room for smaller companies, even those like Great Lakes that did most things right.
Great Lakes is at once a success story and a cautionary tale for the many smaller U.S. businesses that may be eyeing the China market as a potential savior. Split from a century-old, family-run apple business on Lake Michigan, Great Lakes entered China in 1993 to make and sell 100% fruit juice, then a novelty. At the time, the market was awash in "fruit tea," a pulpy drink of fruit puree thickened with potato starch, with only a few imported fruit juices for sale.
Great Lakes avoided many of the mistakes of multinationals. It kept costs low, using only second-hand equipment for its factory in Tianjin, a port city near Beijing. It focused on the biggest cities first, where consumers were willing to pay more for pure fruit juice. It sweetened its juices to suit the local palate and put the product in distinctive clear glass bottles to emphasize freshness. The company started making money in 1995.
In 1997, Great Lakes embarked on an ambitious expansion, pouring $4 million into television advertising and expanding distribution into 26 cities. But in China's consumer-goods market, two seismic shifts were under way. Domestic competition turned fierce, turning out large volumes of good-quality juice at half Great Lakes' price. In addition, modern supermarkets became popular, demanding higher fees for shelf space and turning away small concerns that couldn't deliver. Both shifts favored the big firms.
Price Cuts
"We thought we'd make a premium product and do fine. But we didn't have the volume, and local companies came and just kicked our butts," Mr. Rasch says. Great Lakes has slashed prices 40% in the past two years in response to domestic competition.
China today may be the most perfectly efficient demonstration of capitalism in the world. Once a product proves popular, a business will unroll it on a national scale if it can. Rivals latch on to innovations instantly. Markets mature extremely rapidly. The fruit-juice market took off in 2001 after three companies -- Taiwan archrivals Tingyi Holding Corp. and Uni-President Enterprises Corp., and Coca-Cola Co. -- launched fruit drinks with 10% juice content. At half the price of pure juice, such drinks appealed to price-conscious consumers. Many couldn't taste the difference in juice content anyway.
Other juice businesses piled in, then bottled-water concerns. Juice and juice-drink sales hit $1.4 billion last year, a 40% surge from the year earlier, according to market-research firm Gung Ho Intelligence Co. The markets for bottled water and bottled iced tea also zoomed from novelty to ubiquity almost overnight.
"In China, the market lurches. Something can go from being a new category to a big category in a year," says David G. Brooks, a veteran Coke executive who has just finished his third China stint. "You have to be ready for the next thing."
The demands for speed and volume favor titans. That includes multinationals like Coke and fast-growing domestic conglomerates like Hangzhou Wahaha Group Co., which saw $1 billion in sales last year selling such things as yogurt drinks, bottled water and fruit juice, and Huiyuan Group Co., China's largest pure-juice maker. In fact, Great Lakes was an early innovator in juice drinks. In 1998, it launched a drink with 20% fruit juice, called Juicee. Then in 2001, just as juice drinks were gaining ground, Great Lakes launched MingLang, a line of juice drinks at half the price of its Great Lakes line that would build the company's business in smaller cities.
But without a huge marketing and distribution machine, the business has stayed small. In the fruit-juice market that Great Lakes pioneered, it now does $10 million in annual sales; Mr. Rasch says sales are growing 20% a year and that the business is profitable. But Tingyi, a relative latecomer to the field, now claims a 20% share of a $1 billion-plus market, while Uni-President, which holds the No. 1 spot, has an even larger business. Industry executives estimate that Huiyuan leads the pure-juice category with about $100 million in sales. All dwarf Great Lakes in the size of their juice business.
Other pioneers also are struggling. Beijing Seanoble Food Co., a Canadian-invested concern, started selling fruit nectar in restaurants in 1995 under the Rougemont brand and was profitable from its first year. Its innovative strategies included paying distributors a generous markup to fund their marketing and promotions and giving gifts to waitresses based on how much fruit nectar they sold. But business has soured as domestic competition has heated up and the juice trade has moved from restaurants into supermarkets, where prices are lower.
In April, Seanoble cut prices on a line of drinks by more than half. The company's majority investor, Lassonde Industries Inc., wrote off $9.3 million in operating losses from its China business last year and is negotiating to sell its stake in the company. "What I did then [in the mid-1990s] is not possible anymore," says Gervais Lavoie, who recently left as chief executive of Beijing Seanoble. "There's so much more competition."
Great Lakes, for one, is fighting back. On a recent afternoon, Mr. Rasch plots strategy with two top lieutenants in the company's Beijing office, a single large room with a fluorescent light and a gray carpet. They are planning to run promotions in housing compounds to minimize the rising cost of getting shelf space in the big supermarkets. They are in talks with several foreign juice firms that want to use its distribution network and manufacturing base to enter the Chinese market. Moreover, they are cutting costs to the bone: Mr. Rasch scans a promotional budget from his marketing director and runs his pen through many items, rejecting even a 20-yuan raise -- valued at $2.40 -- for a part-time saleswoman.
But winning over China's increasingly jaded consumers isn't easy. At a busy supermarket in the northern city of Tianjin on a recent afternoon, a young Great Lakes saleswoman in a polyester minidress offers what would seem a no-lose proposition: Free samples of fruit drink with bottles selling for a third off the regular price. A bored-looking pregnant woman walks right by. A mother in a housedress gives half to her teenage daughter and returns the rest.
Mixed Victories
Even those who do buy a bottle represent mixed victories at best: "Try it, it's Xianchengduo," Kang Yahong wheedles her toddler son, mentioning the name of a rival juice brand which translates as "many fresh oranges." She buys a bottle but only because it is on sale. "It's about the same. It's all orange juice," Ms. Kang says with a shrug.
Retailers are more demanding, too. For Mr. Rasch, a tour of the Beijing supermarkets is a reminder of all the promotions Great Lakes used to do that have become too costly. As he heads down an escalator to one store, he points to the slanting ceiling overhead and says, "That used to be a good place to advertise, but it got too expensive." The space is now plastered with billboards for Coke, Pepsi and Sprite.
Even the Carrefour SA display of Great Lakes products is a shadow of its former self: The coveted end-of-the-aisle display space is shared with a Chinese rival. "We used to get the whole row, but it got too expensive," Mr. Rasch says. The various fees charged by a store for displays and promotions can amount to a quarter of the sales in that store, he estimates.
"It would be easier to have a lot of money, but this builds a better company, I genuinely believe that," Mr. Rasch says, as he wraps up his weekly tour of the stores. But as his taxi weaves and stalls through Friday afternoon traffic, he concedes that he is sometimes daunted by how big the competition has gotten. "I do have my days when I wish we were bigger, but you have to be the big boys to play that game," he says. "There's lots for us to do where we are."
中国市场竞争惨烈 外国公司风光不再
在人头攒动的家乐福(Carrefour)超市，美国商人保罗?拉什(Paul Rasch)挤过人群来到大湖(Great Lakes)果汁的货架前，这种果汁由拉什家族企业生产，在中国已经销售了十年。
大湖果汁每瓶2.30美元，但是当地果汁品牌－－汇源(Huiyuan)的价格比其低一半，并且容量超过大湖。拉什沿著摆放著十几种果汁的货架一路走下去，浏览著各种品牌果汁的外包装。一瓶果汁外包装上的生产日期距现在不久，显示这是一款畅销产品。另外一种果汁则大幅打折，表明这家公司经营不顺。拉什拿起了一捆果汁，共有三瓶，该厂家正在进行买二送一的促销活动，拉什先生注视著这捆果汁，叹息道："你把我们害死了。你让所有人都没有生路。"
在中国，消费品的销售正变的越来越艰难。对跨国公司而言，除最大几家公司外，许多公司面临著被挤出市场的危险，因为这些公司遭遇了来自中国对手的残酷竞争。闯荡多年的外国公司高层人士现在将90年代中期称之为黄金时代，当时他们的产品对中国人来说还是新奇事物，消费者趋之若鹜，来自国内的竞争不足挂齿。
那时，跨国公司的抱怨通常集中在官员腐败和执法不公上面。但是现在，跨国公司在自己的游戏规则下被打败，胜利者是正大光明竞争的中国对手；事实显示，他们对资本主义游戏规则的把握更胜一筹。
拉什先生说，"如果以我们当前的这种规模重新进入市场，我们将不会生存。"拉什是大湖新鲜食品果汁有限公司(Great Lakes Fresh Foods & Juice Co.)的总裁，他说，"当前利润空间变得越来越小，成本上升，销量增大。犯错的成本太高了。"
美林公司(Merrill Lynch & Co.)今年发布的一份报告警告跨国公司，激烈的竞争令许多行业的利润空间缩小，因此他们实现盈利将要走一段更为坎坷之路。麦肯锡(McKinsey & Co.)驻北京跟踪消费品市场的一位董事Georges Desvaux说，"这是我所看到的世界上竞争最为激烈的市场。" "商品应有尽有。高质量的国外和国内产品不胜其数。"
结果就是，在许多行业以及在竞争最为激烈的大城市，鉴于目前竞争状况以及对速度和规模的需要，似乎只有最大的公司才能闯出一片天地。小型公司的发展空间似乎正在萎缩，即使是像大湖这样极少犯错的公司也是如此。
对许多正觊觎中国寻求发展良机的众多小型美国企业来说，大湖既是一个成功例证，同时也发出了警示。大湖是从密歇根湖旁边的一个种植和加工苹果的百年家族企业分离出来的，在1993年进入中国，开始制造并销售100%果汁，当时这还是个新鲜事物。那时市场盛行果茶饮料，只有少数进口果汁有售。
大湖与许多跨国公司犯下的错误都无缘。大湖将成本保持在低水平，其在天津的工厂只使用二手设备。销售目标首先被锁定在最大的几个城市，因为当地消费者愿意为纯果汁支付更高的价格。公司还对果汁进行了改良，将之变甜以更适合当地人的口味，并将果汁装在透明的瓶子里以突出其新鲜度。大湖于1995年开始赚钱。
1997年，大湖开始了雄心勃勃的扩张计划，投入400万美元播出电视广告，并将产品分销至26个城市。但当时中国的消费品市场已悄然发生了两大的转变。其一：国内竞争开始加剧，大量高质量的果汁面市，而价格仅为大湖的一半。其二，现代超级市场开始受到欢迎，由此造成货架空间的费用上升，小型企业被挤出市场。而这两个转变都对大公司有利。 降价
拉什先生说，"当时我们认为我们拥有非常好的产品，将会有优异的表现。但是我们产品数量不够，当地公司进入了市场，对我们的产品造成巨大冲击。"大湖在过去两年为应对国内企业的竞争将价格下调了40%。"
中国可能是当今世界上对资本主义体制最有效的示范。一旦一种商品受到欢迎，厂家将会把这种产品推向全国。竞争对手迅速进行创新，市场迅速的成熟。果汁市场在2001年开始启动，当年三家公司－－台湾主要竞争对手康师傅控股有限公司(Tingyi Holding Corp.)和统一企业(Uni-President Enterprises Corp.)以及可口可乐(Coca-Cola Co.)－－推出了果汁含量为10%的果汁饮料。这类饮料价格是纯果汁的一半，吸引了那些对价格敏感的消费者。 毕竟有许多人尝不出两者味道的区别。
其他果汁厂商相继跟进，然后瓶装水公司也加入了这一行列。据市场研究机构Gung Ho Intelligence Co.称，果汁和果汁饮料去年的销售额达到了14亿美元，较前年猛增40%。瓶装水和瓶装冰茶也几乎在一夜之间遍布了全国各地。
可口可乐公司的资深管理人士戴维?布鲁克斯(David G. Brooks)说，"中国的市场很不稳定。某种商品自问世起能够在一年内畅销全国。你不得不随时为下一步做好准备。"对速度和数量的要求有利于大型企业，包括象可口可乐这样的跨国公司以及象杭州娃哈哈集团(Hangzhou Wahaha Group Co.)和汇源集团(Huiyuan Group Co.)这样迅速发展壮大的国内大型企业。娃哈哈去年乳酸饮品、瓶装水及果汁等产品的销售额达到了10亿美元，而汇源则是中国最大的纯果汁制造商。事实上，大湖是果汁饮料革新的先行者。1998年，大湖推出了果汁含量为20%的果汁饮料。2001年，随著果汁饮料的流行，大湖推出了明朗果汁饮料，其价格仅仅为大湖果汁的一半，这一产品将有助于大湖在中小型城市开拓市场。
但是由于没有庞大的宣传和销售网络，大湖的业务依然没有做大。在占据优势的果汁市场，大湖年销售额为1,000万美元；拉什先生称，销售额年增长率为20%，这一业务是盈利的。但是后来进入该市场的康师傅称，目前它在这个总共10亿多美元市场的占有率为20%，坐头把交椅的统一企业则拥有更高的占有率。行业高层人士估计，汇源在纯果汁市场上独占鳌头，其年销售额达1亿美元。上述公司的规模都令大湖相形见绌。
其他一些行业先驱者的日子也不好过，加拿大投资的北京海爵食品有限公司(Beijing Seanoble Food Co.)从1995年开始在餐馆内销售茹梦(Rougemont)果肉饮料，并在第一年就实现盈利。该公司实行的开创性策略包括向分销商支付数量可观的资金，为其销售和促销活动提供支持，并且向餐馆服务员提供礼品，服务员销售的越多，礼品也就越丰厚。但是随著国内竞争的加剧，该公司业务受到了冲击，其果汁销售已经从餐馆转向了超市，而果汁在超市的售价低于餐馆。
4月份，北京海爵将一系列饮品的价格下调了一半还多。该公司主要投资者Lassonde Industries Inc.去年将中国业务注销了930万美元的营运亏损，目前正在进行出售持股的谈判。最近卸任北京海爵首席执行长职务的Gervais Lavoie说，"（90年代中期）的辉煌已经一去不复返了。现在竞争过于激烈。"
大湖正在奋起反击。在最近一天的下午，拉什先生在北京办公室与两位高级副手共同谋划发展战略。他们计划在住宅区开展促销活动，以将大型超市货架不断上涨的成本降至最小。他们与几家想利用大湖分销网络和生产基地进入中国市场的外国果汁企业进行合作谈判。此外，他们降低成本的措施做到了极致：拉什审视著市场总监做的促销活动预算，用笔划掉数项，其中甚至包括给一个兼职的女销售人员增加人民币20元（合2.4美元）一项。
但是要想赢得中国喜新厌旧的消费者并非易事。在天津一个繁忙的超市内，一为身著超短连衣裙的女孩正在促销大湖，促销看上去很划算；免费品尝果汁，该果汁一瓶的售价比正常价格低三分之一。一个孕妇正经过此地，但她对此毫无兴趣。一位母亲取过果汁，将一半给她十多岁的女儿，将剩余部分还给了销售人员。 苦涩的胜利
一些消费者付钱购买，但听了他们的想法后却让人觉得有些苦涩：康亚红(Kong Yahong，音译)哄著她蹒跚学步的宝宝，"喝一点，这是'鲜橙多'"。鲜橙多是大湖竞争对手的一个果汁品牌。这位母亲之所以买大湖是因为降价销售。康亚红耸了一下肩，说道，"两个都一样，都是橙汁。"
零售商提出的条件也越来越苛刻。拉什先生的超市之行给他提了一个醒：大湖过去实行的促销措施的成本已经变得过高。当他乘自动扶梯去超市另一层时，他指著上方的斜天花板说，"过去这里可以用来进行很好的营销，但是现在已经过于昂贵。"现在天花板上贴著可口可乐、百事和雪碧的广告。
即使家乐福超市对大湖产品的摆放与以往相比也不可同日而语：最抢手的走道尽头的货架上，大湖和一家中国竞争对手的产品共同摆放。拉什说，"过去我们的产品占一整排，但是现在成本过于高昂。"他估计，这家超市收取的货品摆放或促销费用约占其总销售额的四分之一。
拉什在结束每周一次的超市之行时说，"如果有很多钱事情就好办多了，但是现在情形有助于公司取得更好的发展，对此我深信不疑。"但当他乘坐的出租车缓慢前行在周五下午的车流中时，他承认有时候他对竞争已如此激烈感到沮丧，"有时我的确希望我们的公司比现在更大，但是你必须具备相当的实力，而现在我们尚需做出许多努力。"
