Smucker’s UncrustablesSmucker’s Uncrustables

Product Expansion: Product Expansion: ChinaChina

Presented by: Linsey Bailys, Kelly Cocanougher, Jon Oleksyk, Matt Overholser, Tim Rittenhouse, Will Veit

China ProfileChina Profile Population: 1.3 billionPopulation: 1.3 billion GDP: approximately $6 trillionGDP: approximately $6 trillion GDP Per capita: $4700GDP Per capita: $4700 Unemployment: 10.1%Unemployment: 10.1% Became a member of the World Trade Organization in 2001Became a member of the World Trade Organization in 2001 Member of Asia Pacific Economic CooperationMember of Asia Pacific Economic Cooperation Chinese Communist Party is in powerChinese Communist Party is in power Currency: Yuan (CNY) or Rembini (RMB); Exchange Rate: Currency: Yuan (CNY) or Rembini (RMB); Exchange Rate:

$1/8.2765 $1/8.2765 Language: No official language - Putonghua (Mandarin) Language: No official language - Putonghua (Mandarin)

considered the standard spoken language. There are many considered the standard spoken language. There are many dialects spoken as welldialects spoken as well

Age distribution:Age distribution: 0-19: 31.66%0-19: 31.66% 20-39: 34.7%20-39: 34.7% 40-59: 23.02%40-59: 23.02% 60+: 10.62%60+: 10.62%

General InformationGeneral Information Market analysis: Market analysis:

• Chinese ready meals market is experiencing Chinese ready meals market is experiencing enormous growth.enormous growth.

Acceptance of chilled and frozen “convenience” foodsAcceptance of chilled and frozen “convenience” foods Lots of growth in the last five yearsLots of growth in the last five years

Retail food market: $126 billionRetail food market: $126 billion Ready-made meals market: $2.2 billionReady-made meals market: $2.2 billion Major food categories: baby foods, Major food categories: baby foods,

breakfast cereals, frozen foods, fast food, breakfast cereals, frozen foods, fast food, noodles and snacks.noodles and snacks.

Snack market grew 14.1% to reach a value Snack market grew 14.1% to reach a value of $4,390 million in 2003. of $4,390 million in 2003.

DistributionDistribution

Currently there are no Smucker’s products Currently there are no Smucker’s products in China.in China.

There are no known operations or There are no known operations or manufacturing in Asia or China manufacturing in Asia or China specifically.specifically.

Local companies enjoy cost advantages in Local companies enjoy cost advantages in distribution over their foreign competitors.distribution over their foreign competitors.

DistributionDistribution Smucker’s Production Facilities:Smucker’s Production Facilities:

• CanadaCanada• BrazilBrazil• Livingston, Scotland (U.K.)Livingston, Scotland (U.K.)

Member of EUMember of EU UK and China working together on bilateral, UK and China working together on bilateral,

multilateral and global issuesmultilateral and global issues Plans for developing co-operation on areas including Plans for developing co-operation on areas including

trade, education and the environment.trade, education and the environment.

In China companies such as Exel, Fed Ex, & Sinotrans are In China companies such as Exel, Fed Ex, & Sinotrans are leaders in providing supply chain and freight carrying leaders in providing supply chain and freight carrying services.services.

LogisticsLogistics There are heavy costs of importing due to the value added tax of There are heavy costs of importing due to the value added tax of

17% on the value of products at importation, at wholesale and at 17% on the value of products at importation, at wholesale and at retail sales.retail sales.

Foreign companies tend to have higher logistics and supply chain Foreign companies tend to have higher logistics and supply chain costs.costs.

Long haul truckingLong haul trucking• Expensive option Expensive option

Underdeveloped roadsUnderdeveloped roads High intra-provincial customs feesHigh intra-provincial customs fees

Ocean and riverOcean and river• CheaperCheaper• Yangtze river flows through several, large inland citiesYangtze river flows through several, large inland cities

PortsPorts• Commonly used to import goods into the countryCommonly used to import goods into the country• Several large ports in ChinaSeveral large ports in China

InfrastructureInfrastructure China’s 14,500 km coastline hosts 200 seaports. China’s 14,500 km coastline hosts 200 seaports. Hong Kong is home to the world’s largest container port. Hong Kong is home to the world’s largest container port. Most ports—including some of the largest, such as Shanghai—are Most ports—including some of the largest, such as Shanghai—are

relatively shallow, and this prevents modern container ships from relatively shallow, and this prevents modern container ships from using many of them. using many of them. • Developing a new offshore deepwater port Developing a new offshore deepwater port • The full project will take 20 years to complete The full project will take 20 years to complete

China has made concerted efforts in recent years to construct China has made concerted efforts in recent years to construct highways in its western regions.highways in its western regions.

Investment in highway construction has increased rapidly.Investment in highway construction has increased rapidly.• 3.0 billion yuan (US$360 million) in 2001 3.0 billion yuan (US$360 million) in 2001 • 12.1 billion yuan (US$1.5 billion) in 2004. 12.1 billion yuan (US$1.5 billion) in 2004.

In October 2004, a 4,395 km-long major national highway was In October 2004, a 4,395 km-long major national highway was completed. completed. • Links the New Silk Road to the Asian highway network Links the New Silk Road to the Asian highway network • Reduced the travel time from Urumqi, the capital of Xinjiang, to Reduced the travel time from Urumqi, the capital of Xinjiang, to

Lianyungang, a port city in eastern Jiangsu Province, from more Lianyungang, a port city in eastern Jiangsu Province, from more than than two weekstwo weeks to just to just 50 hours. 50 hours.

InfrastructureInfrastructure Over the next two decades, Xinjiang will be investing a total Over the next two decades, Xinjiang will be investing a total

of 200 billion yuan (US$24.1 billion) to build up its major of 200 billion yuan (US$24.1 billion) to build up its major highway networks.highway networks.

The total length of highways nationwide is now 1.9 million The total length of highways nationwide is now 1.9 million kilometers, and superhighways extend for some 34,200 kilometers, and superhighways extend for some 34,200 kilometers. kilometers.

200,000 km of roads will be built, connecting 93% of 200,000 km of roads will be built, connecting 93% of villages across the country. villages across the country. • Despite these improvements, the road network is likely Despite these improvements, the road network is likely

to remain inadequate in relation to the demands for to remain inadequate in relation to the demands for transportation in China. transportation in China.

First-ever railway to be built with privately invested shares First-ever railway to be built with privately invested shares is expected to break ground in East China this year. is expected to break ground in East China this year. • A key move in the finance and investment system in the A key move in the finance and investment system in the

previously government-monopolized sectorpreviously government-monopolized sector• 1,724.7 billion tons/km of freight traffic in 20031,724.7 billion tons/km of freight traffic in 2003

TargetingTargeting

Smucker’s is a product for school-aged Smucker’s is a product for school-aged childrenchildren

Generally, in China, there is one child per Generally, in China, there is one child per household household

Population aged 39 and under = 66.36%Population aged 39 and under = 66.36% TargetTarget

• Families (especially mothers) with young Families (especially mothers) with young childrenchildren

• Busy and always on the goBusy and always on the go

Population ControlsPopulation Controls Many Chinese are moving to nuclear families and Many Chinese are moving to nuclear families and

away from their extended families.away from their extended families.• Most families are simply parents with one or two Most families are simply parents with one or two

children or empty nest parents.children or empty nest parents. Most families only have one child because of the Most families only have one child because of the

population control measures enforced by the population control measures enforced by the government. government. • Rural families with difficulties who have had a girl Rural families with difficulties who have had a girl

may apply to have a second child. may apply to have a second child. • Urban couples who are both only children may Urban couples who are both only children may

have two children.have two children. The one child policy is not as strict for ethnic The one child policy is not as strict for ethnic

minorities in order to prevent extinction.minorities in order to prevent extinction. Population control policies vary from province to Population control policies vary from province to

province and from city to city. province and from city to city.

Urban vs. Rural MarketsUrban vs. Rural Markets The gap between urban and rural China has also been The gap between urban and rural China has also been

growing in recent years. growing in recent years. • Income per head in 2003 Income per head in 2003

8,472 RMB in urban areas8,472 RMB in urban areas 2,622 RMB in rural areas2,622 RMB in rural areas

• Income per head in 1995 Income per head in 1995 4,283 RMB in urban areas 4,283 RMB in urban areas 1,578 RMB in rural areas1,578 RMB in rural areas

• Urban income per head is now 3.2 times that in the rural areasUrban income per head is now 3.2 times that in the rural areas Up from 2.7 times rural income in 1995.Up from 2.7 times rural income in 1995.

• Disposable incomeDisposable income Urban: $830 per personUrban: $830 per person Rural: $286 per personRural: $286 per person

• The opening up of China to foreign investment and trade has The opening up of China to foreign investment and trade has naturally favored provinces with good transportation links to naturally favored provinces with good transportation links to the outside world, like Guangdong, Shanghai, and Jiangsu.the outside world, like Guangdong, Shanghai, and Jiangsu.

It has done this at the expense of the huge Chinese hinterland. It has done this at the expense of the huge Chinese hinterland.

PositioningPositioning

Convenience, delicious, time-saving, Convenience, delicious, time-saving, neat snackneat snack

Frozen meals – convenience, Frozen meals – convenience, freshness, neatnessfreshness, neatness• 96% of urban Chinese households have 96% of urban Chinese households have

refrigeratorsrefrigerators Fast food is growing in popularity in Fast food is growing in popularity in

ChinaChina Food vendors at schoolsFood vendors at schools

• Boxed lunches (He Fan)Boxed lunches (He Fan)

CompetitionCompetition

Frozen-made meals: Frozen-made meals: • Leading companies include: Nestle, Ajinomoto Leading companies include: Nestle, Ajinomoto

Co., Inc, and Unilever Co., Inc, and Unilever Ready-made meals:Ready-made meals:

• Leading companies include: Nestle, Unilever, Leading companies include: Nestle, Unilever, Kraft Kraft

The popularity of fast food is also growing rapidly.The popularity of fast food is also growing rapidly.• Dominos, McDonalds, KFC have gained Dominos, McDonalds, KFC have gained

acceptance in Chinaacceptance in China

Product and Local StandardsProduct and Local Standards Smucker’s Uncrustables Smucker’s Uncrustables

• Come in packages of 4, 10 and 18.Come in packages of 4, 10 and 18.• The color of the box varies, depending upon the flavor The color of the box varies, depending upon the flavor

inside (red, purple, orange).inside (red, purple, orange).• Four is considered an unlucky number in China due to Four is considered an unlucky number in China due to

the word resembling the sound of the word for “death.”the word resembling the sound of the word for “death.” Eight is considered the luckiest number in Chinese Eight is considered the luckiest number in Chinese

culture.culture. Black and white are considered unlucky colors, while Black and white are considered unlucky colors, while

red and gold are considered lucky colors.red and gold are considered lucky colors.• Red symbolizes happiness and gold symbolizes Red symbolizes happiness and gold symbolizes

wealth.wealth.

Product and Local Standards Product and Local Standards

Pricing: $2.39 - $2.59 (US)Pricing: $2.39 - $2.59 (US) four packfour pack

• Uncrustables would be taxed three Uncrustables would be taxed three times at 17% for importation, wholesale times at 17% for importation, wholesale and retail sales.and retail sales.

All goods must be inspected prior to All goods must be inspected prior to importation which increases the cost importation which increases the cost of imported products.of imported products.• These standards are viewed as overly These standards are viewed as overly

strict by many.strict by many.

Brand NameBrand Name

““Uncrustables” must be translated Uncrustables” must be translated into Mandarin as required by law.into Mandarin as required by law.

• This name does not translate directly This name does not translate directly into Mandarin.into Mandarin.

• There is no brand equity with the There is no brand equity with the “Smucker’s” brand name or “Smucker’s” brand name or “Uncrustables.”“Uncrustables.”

They have no current products in market.They have no current products in market. Peanut Butter & Jelly is not big in China, Peanut Butter & Jelly is not big in China,

therefore they would not have an idea of a therefore they would not have an idea of a sandwich with crusts.sandwich with crusts.

Packaging - RegulationsPackaging - Regulations

All packages must have Chinese language labels.All packages must have Chinese language labels.• The label must include:The label must include:

Country of originCountry of origin Name & Address of Chinese distributorName & Address of Chinese distributor

National Health and Quarantine AdministrationNational Health and Quarantine Administration• Imported food items need to be affixed with a Imported food items need to be affixed with a

laser sticker evidencing the product’s safety. laser sticker evidencing the product’s safety. 5-7 cents per sticker5-7 cents per sticker

TaxesTaxes

Personal income tax rates:Personal income tax rates:• A proportional tax rate of 20 percent shall A proportional tax rate of 20 percent shall

apply to the income from franchise royalties, apply to the income from franchise royalties, interest, dividends, bonuses, any other types of interest, dividends, bonuses, any other types of income. income.

• At the beginning of 2001 the average tariff on At the beginning of 2001 the average tariff on imports was reduced to 15.3%. imports was reduced to 15.3%.

• Progressive tax rates in excess of specific Progressive tax rates in excess of specific amounts shall apply to wages and salaries, the amounts shall apply to wages and salaries, the rates being 5 percent to 45 percent (see rates being 5 percent to 45 percent (see graph).graph).

Personal Income Tax Rate Schedule (applicable to income from wages and salaries)

0 10 20 30 40 50

<500

2001-5000

20001-40000

60001-80000

>100000

Mon

thly

Tax

able

In

com

e (R

MB

)

Tax Rate

The monthly taxable income means the balance of the monthly income after deduction of 800 RMB in expenses

PromotionPromotion All forms of media are directly controlled by the Chinese All forms of media are directly controlled by the Chinese

government. government. China has more cable television subscribers (around 100 China has more cable television subscribers (around 100

million) and mobile phones customers (270 million) than the million) and mobile phones customers (270 million) than the US US

Types of media availableTypes of media available• TelevisionTelevision

Time watching television averages 215 minutes/dayTime watching television averages 215 minutes/day 94.6% of households have television in urban areas94.6% of households have television in urban areas 750 cable television stations750 cable television stations

• RadioRadio Time listening to the radio averages 83 minutes/dayTime listening to the radio averages 83 minutes/day 1100 radio stations1100 radio stations

• Print adsPrint ads• InternetInternet

Average time spent on internet is 115 minutes/dayAverage time spent on internet is 115 minutes/day

PromotionPromotion

United StatesUnited States• Event SponsorshipEvent Sponsorship

Figure Skating Figure Skating “Stars on Ice”“Stars on Ice”

ChinaChina• SponsorshipsSponsorships

Sports teams and Sports teams and some other events some other events are also permittedare also permitted

• Possible promotion Possible promotion opportunity during opportunity during the 2008 Summer the 2008 Summer Olympics in BeijingOlympics in Beijing

AdvertisementsAdvertisements Can not Contain:Can not Contain:

• The national flag, national emblem, or the Nation Anthem of The national flag, national emblem, or the Nation Anthem of people’s Republic of Chinapeople’s Republic of China

• Names of state organizations or staff of state organizationsNames of state organizations or staff of state organizations• The words “state level,” “highest level” or “best”The words “state level,” “highest level” or “best”• Matters hindering the public order or violating good social Matters hindering the public order or violating good social

customscustoms• Matters hindering social stability or endangering the safety Matters hindering social stability or endangering the safety

of life or property or harming the public interestof life or property or harming the public interest• Pornographic, superstitions, offensive, violent or unpleasant Pornographic, superstitions, offensive, violent or unpleasant

mattersmatters• Discrimination on the grounds of ethnicity, race, religion or Discrimination on the grounds of ethnicity, race, religion or

sexsex• Matters hindering environmental and natural resources Matters hindering environmental and natural resources

protectionprotection• Matters that are prohibited by laws and administrative Matters that are prohibited by laws and administrative

regulationsregulations

Advertising RestrictionsAdvertising Restrictions

Direct marketing is banned in China.Direct marketing is banned in China.• Samples may be sent after receiving the Samples may be sent after receiving the

approval of a consumer in advanceapproval of a consumer in advance Tobacco ads: bannedTobacco ads: banned Alcohol ads: restrictions on the number of Alcohol ads: restrictions on the number of

advertisements per time slotadvertisements per time slot Children’s ads:Children’s ads:

• Must be suitable for developing “moral Must be suitable for developing “moral character”character”

Advertisements should be written in Mandarin. Advertisements should be written in Mandarin. They should uphold national dignity and respect They should uphold national dignity and respect

Chinese culture. Chinese culture. The comparison between competing products is The comparison between competing products is

prohibited.prohibited.

Advertising RestrictionsAdvertising Restrictions

The State Administration of Radio, Film The State Administration of Radio, Film and Television (SARFT) is set to publish and Television (SARFT) is set to publish new rules by April 2005. new rules by April 2005.

Guidelines will focus on the design, image, Guidelines will focus on the design, image, taste and possible psychological impact of taste and possible psychological impact of advertisements. advertisements.

SARFT recently tightened controls on the SARFT recently tightened controls on the use of English words on TV, and programs use of English words on TV, and programs that promoted "Western ideology and that promoted "Western ideology and politics." politics."

Advertising Costs Advertising Costs The state controls the price of advertisements in The state controls the price of advertisements in

the various media forms, and foreign advertisers the various media forms, and foreign advertisers pay a premium. pay a premium.

Television: Television: • Channel 1: 198,000 RMB/30 sec. peak rate ad Channel 1: 198,000 RMB/30 sec. peak rate ad

Most Expensive ($22,758.62 US)Most Expensive ($22,758.62 US)• Channel 11: 9,000 RMB/30 sec. peak rate adChannel 11: 9,000 RMB/30 sec. peak rate ad

Least Expensive ($1,034.48 US)Least Expensive ($1,034.48 US) Print ad: Print ad:

• People Daily: 280,000 RMB ($32,183.91 US)People Daily: 280,000 RMB ($32,183.91 US) full page black and whitefull page black and white daily circulation of around 3 million daily circulation of around 3 million

Trade GroupsTrade Groups

China & European UnionChina & European Union• Hold annual SummitsHold annual Summits• Allow political leaders to update each other Allow political leaders to update each other

on progress made and to plan for the futureon progress made and to plan for the future• Working to further co-operation in all areas Working to further co-operation in all areas

on the basis of equality and mutual benefit on the basis of equality and mutual benefit and to promote the development of a and to promote the development of a partnership between the EU and China. partnership between the EU and China.

Trade GroupsTrade Groups

China & World Trade Organization China & World Trade Organization (WTO)(WTO)

• Accepted into WTO December 11, 2001Accepted into WTO December 11, 2001• Given “Most Favored Nation” statusGiven “Most Favored Nation” status

offers low tariffs and treats countries as normal trading offers low tariffs and treats countries as normal trading partners. partners.

With this status, imports from China have a maximum tariff With this status, imports from China have a maximum tariff of 2% while China maintains a 30% to 40% tariff on US of 2% while China maintains a 30% to 40% tariff on US goods.goods.

China & Asian Pacific Economic Cooperation China & Asian Pacific Economic Cooperation (APEC)(APEC)• Consists of 18 NationsConsists of 18 Nations• Committed to creating a free-trade zone around the Committed to creating a free-trade zone around the

PacificPacific

ConclusionConclusion

In 2008, the Chinese frozen food market is In 2008, the Chinese frozen food market is forecasted to have a value of $12.51 billion, an forecasted to have a value of $12.51 billion, an increase of 30.3% since 2003.increase of 30.3% since 2003.

The population of 1.3 billion will make China an The population of 1.3 billion will make China an industrial powerhouse within the next few decades.industrial powerhouse within the next few decades.• Companies not located in China will miss out on their great Companies not located in China will miss out on their great

consumer & labor markets.consumer & labor markets. "China"China is a big prize," says PepsiCo's Asia president, is a big prize," says PepsiCo's Asia president,

Ron McEachern. "As the Chinese have opened up in Ron McEachern. "As the Chinese have opened up in the past ten years, there's been an inherent the past ten years, there's been an inherent demand for foreign products. An aspiration aspect demand for foreign products. An aspiration aspect of that is a willingness to try new things.“of that is a willingness to try new things.“