By Beth Kowitt
June 6, 2013

Hershey Co. (HSY) has announced a new candy brand called Lancaster that is designed explicitly for the Chinese market. It’s the first time the company has ever started a brand outside the U.S. Though it’s a new strategy for Hershey (and certainly key to its goal of reaching $10 billion in sales by 2017), the Pennsylvania-based chocolate maker is in good company. Plenty of other food service and consumer products have approached China — a market that often requires more brand alterations and tweaking than others to guarantee success — with a direct appeal to local tastes. Here’s how others have made the leap.


Yum Brands

KFC is normally the focus when it comes to Yum! Brands’ (YUM) presence in China. But Pizza Hut, another Yum! chain, has seen same-store sales grow at double-digit rates the last three years in the market. The company opened 200 Pizza Hut Casual Dining restaurants in China last year (at the end of the first quarter there were nearly 900 total in the country) and is in more than 200 cities and every province except Tibet.

While in the U.S. the majority of business is takeout and delivery, China’s Pizza Hut Casual Dining is all about the sit-down meal. “It’s positioned as ‘the best Western casual dining experience,'” says Steve Schmitt, Yum! Brands vice president of investor relations. “We don’t go for a local-type experience, but it’s skewed toward local preferences.” The delivery arm in China, Pizza Hut Home Service, is still an emerging brand there.

The broad menu in China sees 25% of its items change twice a year. In addition to pizza and pasta, offerings include appetizers like escargot, entrees such as steak, and a selection of rice dishes. Pizza at the sit-down locations makes up 30% of sales, vs. 70% in the U.S., with toppings focused more on seafood — Atlantic Salmon pizza or Stuffed Crust Jumbo Shrimp Crown pizza. Yum! is also working on utilizing the restaurants all day. Tea time is big, and the company is testing Western-style breakfasts.


General Mills

The Minneapolis-based consumer packaged goods company takes a West-meets-East approach to its Chinese market, says Gary Chu, president of greater China for General Mills (GIS). Take the Bugle, a corn-based chip. In China, mostly teens and younger kids eat salty snacks, he notes. The company offers 20 different flavors, like meat and seaweed, and introduces one or two new varieties annually to keep them interested in the brand. The most popular is American Ketchup, which, despite its clear western influence, is not even available in the U.S.

Häagen-Dazs is one of the company’s biggest brands in Asia. “Our road map and our business formula [for Häagen-Dazs] is very different than the States and Europe,” Chu says. (The brand is licensed to Nestle in the U.S. and Canada.) In China, the company runs full-service Häagen-Dazs restaurants with a luxury vibe in high-end malls and hotels. In the past, most of the flavors had been more oriented toward the U.S. or Europe, and many had a chocolate base. But in the last few years lychee, red bean, green tea, mango, and passion fruit have emerged. They’ve also had success producing mooncakes, which are exchanged widely every year as part of an annual festival. Häagen-Dazs, by putting an ice cream twist on the mooncake, has become one of the top manufacturers of the product in China and sells 2 million boxes every year, says Chu.


Pepsi

PepsiCo (PEP) is hardly new to the Chinese market. It’s been in the country for three decades. But last year the company signaled its growing commitment to localizing its products in the region by opening its largest research and development center outside the U.S. in Shanghai.

Flavors are altered for the market — you can buy Lays potato chips like Baked Lobster with Cheese, Cola Chicken, and the Numb & Spicy Hot Pot — but entirely new products have been developed, too. PepsiCo’s Quaker Oats line offers a breakfast product like congee, a traditional rice porridge. The company’s oatmeal is still sold in China but is not a typical breakfast food for the market, and therefore not as popular. PepsiCo also recently started selling a Quaker instant-powdered hot drink that comes in flavors like purple sweet potato.

Shank Hu, who heads up R&D for PepsiCo in China, explains that the company tries to balance the Western aspects of the brand with Chinese influence. Its Tropicana juice, for example, contains real mandarin orange pieces because Chinese consumers are more used to eating fruit than drinking juice, he says.


Mondelez International

Oreo, the most American of American products, is the leading cookie brand in China. It’s the perfect case study for how the company approaches the market. “We believe in the GLOCAL approach — not just copy everything from global,” writes Fei Che, director of corporate and government affairs for Mondelez International’s China business, in an email.

In 2012, some 30% of revenue for the company’s business in China came from new product innovations, outpacing the 13% posted for Mondelez International (MDLZ) as a whole. That’s why in China, you’ll see the Oreo taking on different flavors and forms. Wafers are a big part of the cookie market, so the company makes an Oreo wafer stick with the regular white cream filling, coated in chocolate.

Cookie consumption drops in China in the summer. The solution? Green tea and vanilla ice cream flavored Oreos, which produce a cooling sensation. The company says the ice cream flavors are its second-most popular — original Oreo is still king even in China. Double-fruit flavor filling combinations like orange-mango and blueberry-raspberry are also a hit.

The Oreo business has helped push Mondelez International’s biscuit category in China up more than 20% in 2012, with the China business growing 25% last year to cross the $1 billion mark. Oreo alone has surpassed the $1 billion dollar brand milestone in developing markets.


Dunkin' Brands

When it comes to innovation, Dunkin’ Brands (DNKN) executive chef Stan Frankenthaler’s mantra is to create familiar items with a twist. He takes the same approach when it comes to China, which has led to products such as pudding doughnuts, Asian Everything Bagels (topped with ingredients like sesame seeds, wasabi, and seaweed), and premium cake doughnuts filled with whipped cream and strawberries to capitalize on the popularity of fresh fruit. “We’re not trying to duplicate,” he says. “We’re trying to capture those aromas, flavors, and excitement and make it something uniquely Dunkin’.”

Dunkin’ Donuts still offers its core menu — items like Dunkin’ Original Coffee, Boston Kreme Donuts — but in China you’ll also find bubble tea and doughnuts filled with papaya and durian rather than the raspberry or apple cinnamon you’d find in the U.S. “Customers who come into the stores in China, they are intrigued by Westernness of the brand,” Frankenthaler says, “but they also need to feel comfortable ordering things less familiar. You’re more likely to try a doughnut if you’ve never tried doughnut before if it has mango filling and you love mango than if it’s apple cinnamon and you don’t know what that is.”

Frankenthaler says a sweet-and-salty flavor profile is becoming a huge trend globally, but it’s already built into Asian cuisine. Dunkin’ played off the taste preference in China with a limited-time offer of spiced Munchkins. Customers could order plain Munchkins and choose between three savory spices — curry, barbeque, and pizza. The crew would put the spices into a bag, add the Munchkins, start shaking the bag while repeating “shake, shake, shake,” and then hand it over to customers who were encouraged to continue shaking up their Munchkins. Frankenthaler says that the products that originate in China will eventually make it to the U.S., but “it might take longer for that one to come back around the world.”

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