China’s second largest dairy producer Mengniu Dairy says Indonesia expansion was fraught with hurdles

Mengniu Dairy, China’s second-largest dairy product producer, said it faced challenges in securing the supply chain for production when opening a new milk-based drink plant in Indonesia in November.

Lu Minfang, chief executive of Mengniu Dairy, speaking at the official opening of the plant in Bekasi, located on the eastern border of the capital Jakarta, said it was an ordeal to secure raw materials and packaging needed to get the project into operation.

“Indonesia lacks support for industries. It is not as good as more developed countries,” said Lu. “The [development] here is still relatively immature.”

Meanwhile, Mengniu faced low penetration rate of yogurt, its key product, in the southeast Asian market.

It will sell its dairy products under its YoyiC brand in Indonesia.

“In Indonesia, for yogurt, the [market] penetration rate is only 17 per cent,” Lu said. “In Europe, it is close to 95 per cent. Even in the case of China, Japan and Hong Kong, it is 80 per cent. So there is a lot of potential to grow.”

Mengniu also faces keen competition from fellow dairy producers.

Industry rival Yili Group has curated new products such as an ice cream brand called Joyday specifically for the Indonesian market.

Meanwhile, probiotic drinks from such brands as Yakult from Japan, local Indonesian brands Kin Dairy and Cimory are a common feature in convenience stores.

The keen competition has forced Mengniu to sell products at relatively low prices.

A 200ml bottle of probiotic drink retails at 8,500 rupiah (58 US cents), compared to imported brands that sell for nearly 10,000 rupiah.

But Lu said that no dominant brand of yogurt has emerged in Indonesia yet.

The plant’s opening also came after China saw widespread scandals in 2008 concerning substandard dairy products tinted with melamine, a chemical substance that can artificially boost nitrogen content of dairy products and give false protein levels.

Mainland dairies spent years rebuilding confidence among domestic companies and are now looking beyond the local market to building a presence in neighbouring countries.

“We hope to be the number one brand in Indonesia in three to five years,” Lu said.

This article was published by South China Morning Post. Click here to read the original.