Smucker’s Uncrustables
Product Expansion: China
Presented by: Linsey Bailys, Kelly Cocanougher, Jon
Oleksyk, Matt Overholser, Tim Rittenhouse, Will Veit
China Profile
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Population: 1.3 billion
GDP: approximately $6 trillion
GDP Per capita: $4700
Unemployment: 10.1%
Became a member of the World Trade Organization in 2001
Member of Asia Pacific Economic Cooperation
Chinese Communist Party is in power
Currency: Yuan (CNY) or Rembini (RMB); Exchange Rate:
$1/8.2765
Language: No official language - Putonghua (Mandarin)
considered the standard spoken language. There are many
dialects spoken as well
Age distribution:
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0-19: 31.66%
20-39: 34.7%
40-59: 23.02%
60+: 10.62%
General Information
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Market analysis:
• Chinese ready meals market is experiencing
enormous growth.
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Acceptance of chilled and frozen “convenience” foods
Lots of growth in the last five years
Retail food market: $126 billion
Ready-made meals market: $2.2 billion
Major food categories: baby foods,
breakfast cereals, frozen foods, fast food,
noodles and snacks.
Snack market grew 14.1% to reach a
value of $4,390 million in 2003.
Distribution
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Currently there are no Smucker’s products
in China.
There are no known operations or
manufacturing in Asia or China specifically.
Local companies enjoy cost advantages in
distribution over their foreign competitors.
Distribution
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Smucker’s Production Facilities:
• Canada
• Brazil
• Livingston, Scotland (U.K.)
 Member of EU
 UK and China working together on bilateral,
multilateral and global issues
 Plans for developing co-operation on areas including
trade, education and the environment.
In China companies such as Exel, Fed Ex, & Sinotrans are
leaders in providing supply chain and freight carrying
services.
Logistics
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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
retail sales.
Foreign companies tend to have higher logistics and supply chain
costs.
Long haul trucking
• Expensive option
 Underdeveloped roads
 High intra-provincial customs fees
Ocean and river
• Cheaper
• Yangtze river flows through several, large inland cities
Ports
• Commonly used to import goods into the country
• Several large ports in China
Infrastructure
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China’s 14,500 km coastline hosts 200 seaports.
Hong Kong is home to the world’s largest container port.
Most ports—including some of the largest, such as Shanghai—are
relatively shallow, and this prevents modern container ships from
using many of them.
• Developing a new offshore deepwater port
• The full project will take 20 years to complete
China has made concerted efforts in recent years to construct
highways in its western regions.
Investment in highway construction has increased rapidly.
• 3.0 billion yuan (US$360 million) in 2001
• 12.1 billion yuan (US$1.5 billion) in 2004.
In October 2004, a 4,395 km-long major national highway was
completed.
• Links the New Silk Road to the Asian highway network
• Reduced the travel time from Urumqi, the capital of Xinjiang,
to Lianyungang, a port city in eastern Jiangsu Province, from
more than two weeks to just 50 hours.
Infrastructure
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Over the next two decades, Xinjiang will be investing a total
of 200 billion yuan (US$24.1 billion) to build up its major
highway networks.
The total length of highways nationwide is now 1.9 million
kilometers, and superhighways extend for some 34,200
kilometers.
200,000 km of roads will be built, connecting 93% of
villages across the country.
• Despite these improvements, the road network is likely
to remain inadequate in relation to the demands for
transportation in China.
First-ever railway to be built with privately invested shares
is expected to break ground in East China this year.
• A key move in the finance and investment system in the
previously government-monopolized sector
• 1,724.7 billion tons/km of freight traffic in 2003
Targeting
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Smucker’s is a product for school-aged
children
Generally, in China, there is one child per
household
Population aged 39 and under = 66.36%
Target
• Families (especially mothers) with young
children
• Busy and always on the go
Population Controls
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Many Chinese are moving to nuclear families and
away from their extended families.
• Most families are simply parents with one or
two children or empty nest parents.
Most families only have one child because of the
population control measures enforced by the
government.
• Rural families with difficulties who have had a
girl may apply to have a second child.
• Urban couples who are both only children may
have two children.
The one child policy is not as strict for ethnic
minorities in order to prevent extinction.
Population control policies vary from province to
province and from city to city.
Urban vs. Rural Markets
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The gap between urban and rural China has also been
growing in recent years.
• Income per head in 2003
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8,472 RMB in urban areas
2,622 RMB in rural areas
• Income per head in 1995
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4,283 RMB in urban areas
1,578 RMB in rural areas
• Urban income per head is now 3.2 times that in the rural areas
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Up from 2.7 times rural income in 1995.
• Disposable income
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Urban: $830 per person
Rural: $286 per person
• The opening up of China to foreign investment and trade has
naturally favored provinces with good transportation links to
the outside world, like Guangdong, Shanghai, and Jiangsu.
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It has done this at the expense of the huge Chinese hinterland.
Positioning
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Convenience, delicious, time-saving,
neat snack
Frozen meals – convenience,
freshness, neatness
• 96% of urban Chinese households have
refrigerators
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Fast food is growing in popularity in
China
Food vendors at schools
• Boxed lunches (He Fan)
Competition
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Frozen-made meals:
• Leading companies include: Nestle, Ajinomoto
Co., Inc, and Unilever
Ready-made meals:
• Leading companies include: Nestle, Unilever,
Kraft
The popularity of fast food is also growing rapidly.
• Dominos, McDonalds, KFC have gained
acceptance in China
Product and Local Standards
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Smucker’s Uncrustables
• Come in packages of 4, 10 and 18.
• The color of the box varies, depending upon the flavor
inside (red, purple, orange).
• Four is considered an unlucky number in China due to
the word resembling the sound of the word for “death.”
 Eight is considered the luckiest number in Chinese
culture.
 Black and white are considered unlucky colors, while
red and gold are considered lucky colors.
• Red symbolizes happiness and gold symbolizes
wealth.
Product and Local Standards
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Pricing: $2.39 - $2.59 (US) four pack
• Uncrustables would be taxed three
times at 17% for importation, wholesale
and retail sales.
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All goods must be inspected prior to
importation which increases the cost
of imported products.
• These standards are viewed as overly
strict by many.
Brand Name
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“Uncrustables” must be translated
into Mandarin as required by law.
• This name does not translate directly
into Mandarin.
• There is no brand equity with the
“Smucker’s” brand name or
“Uncrustables.”
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They have no current products in market.
Peanut Butter & Jelly is not big in China,
therefore they would not have an idea of a
sandwich with crusts.
Packaging - Regulations
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All packages must have Chinese language labels.
• The label must include:
 Country of origin
 Name & Address of Chinese distributor
National Health and Quarantine Administration
• Imported food items need to be affixed with a
laser sticker evidencing the product’s safety.
 5-7 cents per sticker
Taxes
Personal income tax rates:
• A proportional tax rate of 20 percent shall
apply to the income from franchise royalties,
interest, dividends, bonuses, any other types
of income.
• At the beginning of 2001 the average tariff on
imports was reduced to 15.3%.
• Progressive tax rates in excess of specific
amounts shall apply to wages and salaries, the
rates being 5 percent to 45 percent (see
graph).
Monthly Taxable
Income (RMB)
Personal Income Tax Rate Schedule (applicable
to income from wages and salaries)
>100000
60001-80000
20001-40000
2001-5000
<500
0
10
20
30
40
50
Tax Rate
The monthly taxable income means the balance of the monthly income after
deduction of 800 RMB in expenses
Promotion
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All forms of media are directly controlled by the Chinese
government.
China has more cable television subscribers (around 100
million) and mobile phones customers (270 million) than
the US
Types of media available
• Television
 Time watching television averages 215 minutes/day
 94.6% of households have television in urban areas
 750 cable television stations
• Radio
 Time listening to the radio averages 83 minutes/day
 1100 radio stations
• Print ads
• Internet
 Average time spent on internet is 115 minutes/day
Promotion
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United States
• Event Sponsorship
 Figure Skating
“Stars on Ice”
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China
• Sponsorships
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Sports teams and
some other events
are also permitted
• Possible promotion
opportunity during
the 2008 Summer
Olympics in Beijing
Advertisements
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Can not Contain:
• The national flag, national emblem, or the Nation
Anthem of people’s Republic of China
• Names of state organizations or staff of state
organizations
• The words “state level,” “highest level” or “best”
• Matters hindering the public order or violating good
social customs
• Matters hindering social stability or endangering the
safety of life or property or harming the public interest
• Pornographic, superstitions, offensive, violent or
unpleasant matters
• Discrimination on the grounds of ethnicity, race, religion
or sex
• Matters hindering environmental and natural resources
protection
• Matters that are prohibited by laws and administrative
regulations
Advertising Restrictions
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Direct marketing is banned in China.
• Samples may be sent after receiving the
approval of a consumer in advance
Tobacco ads: banned
Alcohol ads: restrictions on the number of
advertisements per time slot
Children’s ads:
• Must be suitable for developing “moral
character”
Advertisements should be written in Mandarin.
They should uphold national dignity and respect
Chinese culture.
The comparison between competing products is
prohibited.
Advertising Restrictions
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The State Administration of Radio, Film
and Television (SARFT) is set to publish
new rules by April 2005.
Guidelines will focus on the design, image,
taste and possible psychological impact of
advertisements.
SARFT recently tightened controls on the
use of English words on TV, and programs
that promoted "Western ideology and
politics."
Advertising Costs
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The state controls the price of advertisements in
the various media forms, and foreign advertisers
pay a premium.
Television:
• Channel 1: 198,000 RMB/30 sec. peak rate ad
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Most Expensive ($22,758.62 US)
• Channel 11: 9,000 RMB/30 sec. peak rate ad
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Least Expensive ($1,034.48 US)
Print ad:
• People Daily: 280,000 RMB ($32,183.91 US)
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full page black and white
daily circulation of around 3 million
Trade Groups
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China & European Union
• Hold annual Summits
• Allow political leaders to update each other
on progress made and to plan for the future
• Working to further co-operation in all areas
on the basis of equality and mutual benefit
and to promote the development of a
partnership between the EU and China.
Trade Groups
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China & World Trade Organization
(WTO)
• Accepted into WTO December 11, 2001
• Given “Most Favored Nation” status
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offers low tariffs and treats countries as normal trading
partners.
With this status, imports from China have a maximum tariff
of 2% while China maintains a 30% to 40% tariff on US
goods.
China & Asian Pacific Economic
Cooperation (APEC)
• Consists of 18 Nations
• Committed to creating a free-trade zone around the
Pacific
Conclusion
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In 2008, the Chinese frozen food market is
forecasted to have a value of $12.51 billion, an
increase of 30.3% since 2003.
The population of 1.3 billion will make China an
industrial powerhouse within the next few
decades.
• Companies not located in China will miss out on their
great consumer & labor markets.
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"China is a big prize," says PepsiCo's Asia
president, Ron McEachern. "As the Chinese have
opened up in the past ten years, there's been an
inherent demand for foreign products. An
aspiration aspect of that is a willingness to try
new things.“