Behind the melamine milk scandal lies an emerging crisis in corporate branding. One of the reasons for the heavy promotion of “global” brands was so that consumers wouldn’t know (and would eventually stop caring) where products are made. Now with a major food contamination scandal that has killed at least 4 babies in China and sickened thousands, consumers are asking why their favourite “local” ice creams, biscuits and dairy products are made overseas.
The major transnational food companies spent the 1980s in a frenzy of mergers and acquisitions, buying up local brands and grabbing bigger market shares. The takeover boom continued into the first half of the 1990s and was complemented by a massive shift in company financial resources into marketing these brands, building an image and creating consumer loyalty. By the mid-90’s companies like Nestle, Unilever and Kraft had built up extensive brand portfolios and held the largest market shares in a range of food products – everything from cooking oil to ice cream, instant coffee and biscuits. They were also under investigation for monopoly practices and price fixing in several countries as a result.
By the end of the 1990s the new logic of financialization set in. The brands themselves became valuable financial assets and their value could be boosted through a blend of Wall Street wizardry and aggressive marketing rather than better manufacturing. So there was an irrational shift to rationalization: cutbacks, restructuring and consolidation. Less is more. Now fewer brands were better. By focusing on a few global brands in overseas markets the financial value of these brands would skyrocket. Nestle and Unilever called these their “billion dollar brands”, while Kraft would “shrink to grow” – with just 10 global “power brands” by 2008.
With the focus on “global brands” many of the popular local brands bought up in the 1980s and 1990s were sold off or simply disappeared. Local jobs disappeared too with them as plants were closed, merged or sold-off. In some cases the global brand was simply the logo alongside the local brand name … then the name disappeared, and the jobs. Unilever’s “Heartbrand”” ice cream logo, for example, carries global recognition, but is known as “Walls” in the UK and Asia/Pacific regions as well as Selecta (Philippines), Kwality (India), Algida (Italy), Langnese (Germany) and Kibon (Brazil).
With global brands location no longer mattered. Production was relocated overseas (and relocated again and again), while aggressive brand marketing ensured that consumers continued to believe they were buying a locally made product with a global identity. The locally branded frozen fish stick could make a round trip detour of thousands of kilometers for filleting in China on its way to the supermarket shelf, with no questions asked.
The power of the global brand for companies like Nestle, Unilever and Kraft lies with their ability to shift production to countries like China, while loyal consumers believed it was the same product. As an added bonus, the companies could trumpet their “green” credentials and commitment to tackling global warming while loading up the products with thousands of additional food miles. Behind the familiar local brand stands a caring, concerned global company…
Consumers loyal to the brands would also continue to believe that their favorite Kraft, Nestlé or Unilever products were made by… Kraft, Nestlé or Unilever. The global branding exercise provided a convenient cover for these companies to outsource a significant portion of production to third party contractors, known as “co-packers”, to manufacture their branded products. For example, one of the melamine-contaminated Nestlé Purina pet food products recalled in North America last year, after thousands of pets were sickened or died, was made by just such a North American co-packer.
Consumers who knew the reality of subcontracting were nevertheless supposed to derive comfort from the brand owners’ supposed commitment to rigorous quality control. But finance-driven global branding encouraged a tidal wave of casualizing and subcontracting work within the companies’ own operations. Even quality control personnel are managed and hired as casual employees through labour hire agencies. And since they’re not formally employed by the company, they can’t join the union.
The contamination of milk with melamine in China has now exposed the weakness of these powerful global brands. People throughout the Asia/Pacific region are suddenly finding out that their branded biscuits, ice creams and dairy products are made in China. When did that happen? And how long will it take for these products to find their way onto grocery shelves in the rest of the world – if they haven’t already? Meanwhile the companies are rushing to assure consumers that products made outside of China are safe. But who is going to look beyond the global brand to the fine print that reads “Made in …”? Too late. Companies like Nestle and Unilever long ago obscured the meaning of “made in” to refer to anything from packaging to the printing on the package!
Even the brands of companies like Fonterra and Friesland (both dairy cooperatives that went global) could suffer serious damage. Friesland’s Dutch Lady dairy products were pulled off supermarket shelves in Southeast Asia after contamination was found in Singapore. Instead of importing Dutch Lady from nearby Malaysia (where quality control is strictly regulated and the workplace is unionized) Friesland was importing from its factories in China where it has a minority ownership stake. Meanwhile Fonterra is trying to explain why it is Sanlu (its joint venture partner in China) and not Anmum made in New Zealand (strictly regulated quality control and unionized) that is tainted with melamine….
As the contamination scandal grows there is a greater likelihood that consumers will react against the global brand regardless of whether it contains milk or milk powder from China. The global brand will be tainted. Consumers will now associate Oreo (Kraft’s top global “power brand”, recently pulled from the shelves in Singapore after melamine turned up), Friesland’s Dutch Lady and Nestle’s Dreyer’s ice cream with melamine. Expensive and aggressive marketing may fix this. Maybe.
The financial impact of product recalls and lower sales (and possible lawsuits) and new marketing drives will be passed on through the company and won’t be limited to the operations in China. Workers in other countries will face more cost cutting and restructuring as a result.