Flying high in China
A new advertising law, which came into force across mainland China on 1 September, has dairy brands worried about the costs of compliance. But some believe the law, intended to protect consumers from false advertising, is strengthening the hold of big domestic players on the market.
Advertising is ubiquitous in China, with screens in elevators blaring out adverts for food products, real estate, cosmetics and more. The Chinese advertising market was worth US$70 billion (€62.7bn) last year, according to US management consulting firm McKinsey & Co.
The dairy sector has long been one of the biggest spenders on ads, with giant billboards for leading local firms such as the China Mengniu Dairy and Inner Mongolia Yili Industrial Group hanging over major arteries, such as Beijing’s third ring road through the business district. The battle for sales between Mengniu and Yili has also meant brisk advertising business for China’s Central TV (CCTV) and regional channels. Together, the two dairy firms spent over US$600 million (€537.7m) in 2014 on advertising, according to McKinsey.
New guidelines
Crucially, for the first time the new law (which is an amendment of an earlier advertising law issued in 1994) gives a clear definition of false advertising and updates the law to reflect the huge growth of online commerce in China over the past decade. The new law features a ban on advertisements on mass media and public premises for baby dairy products, drinks and other baby food, which claim to serve as a substitute for breast milk.
However, China’s leading dairy brands appear perplexed by the law. “The law is not affecting big brands like ours, much because we are already complying. But it’s hurting the smaller brands that sometimes use exaggerated claims to get sales,” explains Mr Sun, an executive at Mengniu’s Beijing distribution centre. “Chinese dairy firms are able to capitalise on market share. That’s the whole idea behind the law, to give consumers more confidence to buy Chinese dairy products,” Sun notes, who also helps coordinate Mengniu’s in-store advertising in retail outlets in Beijing.
That’s perhaps an optimistic take, but the new advertising law is indeed one of a flood of legislation introduced by the Chinese government aiming to encourage consumers to buy locally-made products, rather than the imported goods they now purchase for perceived better quality. Other recent laws put the onus on retailers to prevent the sale of counterfeit goods. Another law curbs the collection and use of consumer data by retailers, and a new food safety law seeks to reassure consumers buying Chinese products.
False advertising
The advertising rule also holds retailers accountable for false advertising and now explicitly covers online advertising, according to Huang Xinmin, deputy director general of the department of advertisement, supervision and management at the State Administration for Industry and Commerce (SAIC), the state agency overseeing the legislation. “One major change to the amended law is that celebrities or other endorsers endorsing a product or service may be held liable if they know, or ought to know that the advertisement amounts to false advertising,” Huang says. The law provides for a three-year ban on engaging endorsers who fall foul of the amended law, she adds.
This rule could be significant for Yili, which engages actress-singer Faye Wong to endorse its Satine brand, which it has positioned to overtake Milk Deluxe, and which provides the bulk of revenues for Mengniu. It hires several celebrities, including musician Jay Chou, to endorse its products.
Under the law, endorsers have to be users of the products themselves. How this will be proven, however, has not been set out, Huang says, who also explains how the law prohibits the advertising of foods and drugs in the guise of ‘health information’ programmes or columns.
For the dairy sector, competition is sharpened by awareness that theirs is far from a mature market. The value of imported milk products grew 12.9 per cent in 2014, compared to a 8.9 per cent rise in 2013. Chinese consumers spend US$78 (€69.90) per year on dairy products, whereas the South Korean average is US$152 (€136.25), according to Kantar Worldpanel.
Marketing strategies are complex, as they are increasingly multi-channel, and the law will now force brands to be more careful about how to educate consumers. They will almost certainly have to certify and test the nutritional count (calcium, vitamins, etc.) on dairy products like yogurt or cheese, but the identity of the regulator is unclear.
