The Rising Influence of Rising Affluence

[DewDiligence]

Multinationals Market Nutraceuticals With Traditional Chinese Ingredients

[The companies mentioned in this piece include PFE, HNZ, PEP, and Nestlé. #msg-48221898 is a background read.]

http://online.wsj.com/article/SB10001424052748703678404575637421610979434.html

›DECEMBER 13, 2010
By LAURIE BURKITT

BEIJING—In China, where diabetes, cancer and other chronic illnesses are on the rise, people are growing more health conscious, creating a fast-growing market for companies selling health foods.

Food-product giants such as Nestlé SA and PepsiCo Inc. have begun introducing foods that have a traditional Chinese folk-medicine twist. Among the ingredients the multinationals are using: wolfberry plants, chrysanthemum teas and tremella, a fungus commonly thought in China to help improve the skin, strengthen bones and control weight.

In 2009, sales of wellness foods and beverages in China increased 28% from five years earlier to $1.5 billion, driven by the elderly and women, according to Euromonitor International, a market-research firm. The figure is small compared with the category's $162 billion in U.S. sales last year, but the world's biggest food companies are eager to cash in on the growing Chinese market.

The Swiss food giant Nestlé is investing $500 million globally over 10 years to develop foods that can claim health benefits, and it's currently testing five of them in China. An estimated 92 million Chinese people suffer from diabetes, for example, and one of its clinical trials involves a mulberry yogurt for diabetics that is supposed to naturally regulate blood sugar and aid the digestion of glucose. The yogurt and Nestlé's wolfberry cereal drink, for improving immunity in the elderly, are not yet available in Chinese markets.

By completing clinical trials—a two-year scientific process of laboratory work and human testing—Nestlé will be able to introduce the food with special packaging, which generally has more influence on Chinese shoppers than it does on their Western counterparts. The company will also be able to distribute the foods at pharmacies and hospitals.

"This is the future," says Patrice Bula, chairman of Nestlé China. "We believe that Chinese are looking at food for their well-being, and we have an opportunity to play a bigger role in that."

Meanwhile, PepsiCo, as part of a $2.5 billion expansion into China over the next three years, is developing drinks and snacks inspired by traditional Chinese medicine. In October, it launched Quaker Herbal Oatmeal with such flavors as wolfberry and tremella. Teas created from chrysanthemum and lotus plants that claim to cool the body naturally were rolled out last year.

Coca-Cola, too, is hoping to attract customers concerned about their health with its Vitaminwater, which it launched in China last year.

Chinese parents pack their grocery carts with products aimed at improving children's development, such as Kraft's milk-flavored, calcium-fortified biscuits and fiber-packed vegetable and apple sauces from H.J. Heinz Co.

Vitamin makers are also profiting from the health boom. Last year, Chinese consumers bought $9 billion of meal replacements, vitamin pills and sports-nutrition and other sorts of dietary supplements, according to Euromonitor.

Direct-selling company Amway took in $16 million from sales of its Nutrilite vitamin brand last year, up 13% from the previous year and 52% from 2007.

Aiming to capture some of the increased spending on vitamins, New York-based pharmaceutical giant Pfizer Inc. is expanding marketing in China for its Centrum brand, which had $441 million in global sales last year.

Nutrition retailer GNC Holdings Inc, which operates more than 7,100 stores globally, is also trying to grab part of the growing market, raising up to $350 million in an initial public stock offering, in part to expand its China operations.

In February, the Pittsburgh-based company announced plans to form a joint venture with Chinese food conglomerate Bright Food Group that would allow it to sell products it sells in the U.S. market, such as calcium pills and weight-loss bars, in China. Retail operations are expected to begin by year-end, according to GNC filings.

Last week, The Wall Street Journal reported that Bright Food Group was close to a deal to buy GNC for between $2.5 billion and $3 billion.

Lu Lu, a 35-year-old who runs her own small marketing consultancy out of Beijing, tried vitamins for the first time eight years ago, before giving birth to her son. Now, she spends roughly $150 a month on vitamin packages from Amway.

"People say that's a lot of money to spend," Ms. Lu says. "But I believe that if I pay for better health now, it's cheaper than paying for hospital bills later."‹