The More Things Change in China – Hershey’s Chocolate Edition

The other day I was scanning headlines and came across an interesting item: earnings are suffering at Hershey’s chocolate due to a disappointing China performance. That’s not how it was supposed to work out: back in 2013 Hershey, in an expansionist mood, acquired candy maker Shanghai Golden Money for $584 million, in hopes that it could become China’s biggest chocolate player.

hershey

What went wrong? Was this just another case of China’s souring economy  dragging down another venerable American company? Or was there something else at play here – something more subtle. In search of an answer, I emailed a gentlemen whose judgment on foreign investments in China I trust, and who asked that – for the purposes of this blog – he be referred to as “Cocoa.” He took a look at Hershey’s attempt at an explanation, and used it to form his own. So, with Cocoa’s permission, I reprint Cocoa’s sound explanation for why Hershey’s is tanking in China.

“I think Hershey’s problems in China – and as judged by China – have nothing to do with Hershey’s chocolates taste which is acceptable, design and packaging which is okay, price which is reasonable and all in all an acceptable value (I pointedly dismiss all other products but the chocolates no matter in what form; peanut butter cups probably make the average Chinese gag). Rather, the company bought a pig in a poke, to wit Shanghai Golden Monkey which Hershey now understands has an “unstable distributor network” (call that distributors disloyal to the brand who can’t be won over to push sales without hefty rebates coming into their pockets) and so the “retail customer reach is not as broad as we (Hershey) believed it to be” (meaning the customer base is much, much smaller than was presented to Hershey) and so the consequence that sales in 2015 are US$90 million less than the US$200 million they expected – well, that’s 45% below projections which to anyone in industry is a sure-fire pink slip to all involved. In short, Hershey’s problems in China have nothing to do with chocolates but everything to do with newbies coming to China and being sold a bill of goods. Yep, it’s that simple.”

I have nothing to add to this except to say that, a) I agree, and b)  it’s remarkable that after three decades, well-heeled, established companies continue to allow their enthusiasm to run past their common sense when seeking growth in China.

Other China correspondents write about politics; I write about carp.

It is not lost upon me that this week saw perhaps the biggest political story to emerge from China in two decades. Thus, it only seemed right that my Bloomberg World View column this week would focus on how Chinese netizens feel about the Asian Carp that are rampaging up the Mississippi, into the Great Lakes. I know, I know – how can you write about Asian carp when Bo Xilai is being relieved of his duties in Chongqing? And the answer, dear readers, is two-fold: a) sometimes these columns are turned in before breaking news, and b) I believe that most readers outside of China are more interested in rampaging Asian carp than Bo Xilai. I realize that’s a debatable, somewhat hard to swallow point for many of my China readers, but I stand by it. In any case,  I invite you to debate this and more in the comments to Chinese Fish for Meaning in US Carp Rampage.

Rich Gluttons Hold Extravagant Meal at US Embassy, Beijing, Congratulate Selves for Promoting Healthy Eating in China.

Bear with me, for a moment, as you read a passage from a dispatch now available on The Atlantic’s website:

[Alice Waters] put me to work beside her, cutting grilled slices of locally Beijing-made sourdough bread (from a bakery with the jaunty name Boulangerie Nanda) already soaked in olive oil from the McEvoy Ranch, in Petaluma, California; the oil, along with five donated Californian wines, was the only American ingredients used. I spread the bread with a crumbly, nicely cheesy handmade ricotta made by Liu Yang–a Beijing native who spent six years in France making cheese before moving back and starting a business he calls Le Fromager de Pekin–and drizzled more oil on top. And I broke into bite-sized chunks a Parmesan-like gouda made by Marc De Ruiter, a Dutch cheese maker in Shanxi, for his Yellow Valley cheese company (he recently closed it, unable to afford the expensive milk-testing equipment the government told him he must buy).

This is not, despite every indication, the account of a novelty dinner held at Waters’ famous, and famously expensive Chez Panisse restaurant in Berkeley, California, but rather the truthful account of a meal recently held at, and partly sponsored by, the US Embassy in Beijing, ostensibly to “build awareness of organic food being grown by Chinese farmers for Chinese food.”

No doubt, that is a laudable goal. As someone who has been eating in China for nearly a decade, I’m quite aware – indeed, probably more aware than most of the organizers – of the food scandals that have plagued China for years. But I am also aware that food inflation is a serious quality-of-life issue ( and sometimes, a life issue) for hundreds of millions of Chinese, and thus I have no doubt that the visit of a wealthy Western chef promoting more expensive food is more likely to be ignored by, rather than improve, contemporary China. Alas, the effect of food inflation on a developing nation, it seems, was of little concern to Waters or the organizers of the event (I’m looking at you, US Embassy staff), who apparently couldn’t see past their own stomachs, to notice the needs of the Chinese stomachs just past the embassy gates. Writing of the fine cheese served at the event, the Atlantic’s correspondent, Corby Kummer, made it clear – and without irony! – that this event was first and foremost an opportunity to satisfy Western appetites (according to the Wall Street Journal, less than 1/3 of the attendees were Chinese):

Cheese is a great rarity in lactose-intolerant China, and many of the guests wanted to know where they could find it.

I’m sure they did.

There is much low-hanging fruit to shoot here (the image of Waters, and her well-known eco-grounded belief in locally-sourced produce, jetting over to Beijing with her staff and bottles of olive oil to cook a feast that is both unaffordable and unappetizing to 99.9% of China, is but one). But what really troubles me about this dinner is the lack of introspection that led the organizers, Waters, and the correspondent to believe that, via their own gluttony (and visits to expensive organic farms), they are somehow promoting healthy eating in China.

They’re not. Continue reading

Instant (Noodle) Inflation

How hot is inflation running in China? Fast enough that store clerks at my local convenience store don’t bother to replace the computer-generated price tags for instant noodles at a nearby convenience store. They just cross them out and write in the new (substantially higher) ones. Below, three impromptu price hikes on three well-known brands of instant noodles – low, medium, and “premium” priced.

[UPDATE: Though the size of the increase is obvious, the value – for those outside of China – is not. So, for you folks, keep in mind that the conversion rate this morning is US$1 = RMB 6.61. And that means the value of the cheapest brand, up top, has gone from US$.41, to US$.45. The rest of the math, dear reader, is up to you.]

For those outside of China, you may be asking: why instant noodles?

Well. I once had an argument with a friend from Beijing about what, truly, is China’s modern staple food: the instant noodle, or the bowl of rice. We couldn’t come to agreement on that question, though we did, in time, agree that the disposable paper instant noodle bowl is a far more apt symbol of Chinese job security in the 21st century, than the iron rice bowl of Mao’s day (ie, today’s modern Chinese job seeker wants a disposable instant noodle bowl to sustain his/her family until the next disposable instant noodle bowl[®]). Point being: Chinese people eat lots of instant noodles, and thus the Party has long taken a keen interest in keeping the price of instant noodles stable. Thus, in 2007, in a country where price-fixing is as common as instant noodles, and mostly tolerated, the powerful National Development and Reform Commission went after instant noodle manufactures for, yes, price fixing (an excellent WSJ report on that episode here). Chinese inflation was running hot in 2007, and it’s running even hotter now and, as a result, it’s time to smack around the instant noodle makers again. This time, though, it’s the retailers doing the smacking: French hypermarket operator Carrefour is in the midst of a stare down with the Mainland’s most popular instant noodle manufacturer over price hikes due to rising raw material costs.

For more on rising wages among people who actually work with raw materials (and, presumably, eat instant noodles), see this recent Shanghai Scrap post.

Conspicuous Consumption, Ningbo Edition: the Case of the Gold Dust Dumpling

The price of gold is currently hovering around a record US$1400/oz, leaving the sensible investor with, as I count them, three options:

  1. Buy it.
  2. Run from it.
  3. Eat it.

Per the last option, I direct my readers to the Shang Palace Restaurant at the Shangri-la Hotel in Ningbo, China where, per chef’s instructions I suppose, shrimp dumplings are served with a light garnishment of 24k gold leaf.

Now, I may be a rube, but I’m no simpleton, and so I’m well-aware that edible gold leaf has been used to decorate desserts and cocktails for years, now. But adding gold leaf to dumplings strikes me as something a little different. Desserts and cocktails, after all, are already luxury edibles, whereas dumplings – shrimp or not – are staples of sorts. Seven floors down and around the corner from my Shanghai apartment dumplings like those above (minus the gold leaf) are available for RMB 20 (US$3) for 12 (given, pricey by China standards). In American terms we’re talking the relative equivalent of sprinkling a mushroom cheeseburger with 24k gold leaf (though I guess it wouldn’t surprise me if somebody was doing that before the housing bubble burst). [UPDATE! In fact, they were: in comment six, below, my friend Karen McGrane points me to proof that at least one New York chef was serving a mushroom cheeseburger sprinkled with gold leaf around the time of the housing crash.]

If I were an Old Testament prophet, a Calvinist, or a New York Times columnist (“when the revolution comes …”), I’d have more to say about this. But I’m not, so I’ll end this post by pointing to a delightful 2005 Q&A regarding edible gold that ran in the Washington Post. Worth a read.

[End note: I was a guest at the meal at which those dumplings were served, and didn’t have a chance to learn their cost. Still, I must admit, the commodities reporter in me was tempted to scrape the gold off mine, and into an envelope, in anticipation of US$1500/oz.]

In praise of the English spoken at Chinese McDonald’s outlets.

In case you’ve never had the experience, here’s what it’s like to walk into a Chinese McDonald’s and have the cashier assume – on the basis of your looks – that you’re not Chinese: You are greeted in English, and then handed a bi-lingual English-Chinese menu (typically kept beside the register). More likely than not, though, you won’t need to point at the pictures or the English/Chinese menu items, because, typically, the cashier has enough English to understand when you’re ordering a McChicken, a small fries, and a large Coke. In fact, in my experience at least, many Chinese McDonald’s cashiers are eager to brush aside my attempts at Chinese so as to prove that they can speak English.

This is a rather remarkable phenomenon when you think about it. After all, how many other places in the non-English speaking world, much less the non-English speaking developing world, have the luxury of being able to stash English-language speakers behind the counter at McDonald’s? Not many. Indeed, in my travels, I’ve found that English or other foreign language training is reserved for the “educated” -ie, those not destined for McDonald’s. But China, which requires English language study by all of its students (of varying quality, of course), has English-language McDonald’s cashiers aplenty – supplementing its considerable and impressive ranks of English-language service workers elsewhere in the economy.

It’s something that I’ve noticed over the last few weeks, as I traveled to several developing, and developed nations (and their respective McDonald’s restaurants – a story for another time), not one of which struck me as being as English-language friendly as China. For example, consider this Brazilian McDonald’s, visited this past weekend at a hypermart in São Paulo.

Signage aside, there was no bilingual menu, no eager English-speaking cashier. Instead, I found myself pointing at the pictures on the overhead menu, and miming the act of carrying a bag so that the cashier would know that I wanted my Salada to go. And, by and large, that’s the experience I had, two weeks ago, at a McDonald’s in the Ukraine (trust me: order the McBlintzes), where – in addition to my own troubles – I watched an American basketball player (mind you, a professional in the Ukraine) convey his order through an accompanying team assistant because the cashiers simply couldn’t get his meaning.

Now, before anyone misunderstand my meaning: I’m not advocating for English-language imperialism, or for Americans (like me) to remain linguistically oblivious when they travel abroad. Rather, I merely want to point out that – for the most part – it’s much easier for an English speaker to travel in China, than it is to travel in Japan (for starters: far more English in Chinese subway stations than Japanese ones), the Ukraine (try to find an English-language immigration officer at Lviv’s “int’l” airport), Brazil (see above), or any number of countries that are culturally, geographically, and politically closer to the Anglo-American axis. Continue reading

Shanghai Scrap’s Simple Guide to Expo 2010: Go After Dark.

Early yesterday afternoon I found my way down to the Expo 2010 (World’s Fair) site for what was supposed to be a ninety-minute visit, at most. But when I arrived the grounds were so empty (under 100,000 visitors yesterday), and the weather was so good, that I found myself spending the remainder of the day, into the night, down there with a friend whom I texted on the spur of the moment (“Nobody’s here. You should come down.”). Below, the view of the UK pavilion and, in the background, the Lupu Bridge, as viewed from the Dutch pavilion (Happy Street) around 8:30 PM.

It’s a gorgeous view, and what’s best about it is that – despite all of the reports about lines and waits (yes, at Shanghai Scrap, too) – there wasn’t any waiting at all. We just walked into Happy Street, just as we walked into every other pavilion but the UK and German ones (30 – 60 minute waits at both). It was a good antidote to all of the negativity that’s been swirling around Expo since the first day of the soft opening.  For an evening, at least, you could see that the Expo is an interesting and fun place to go (I try to get at the fun in this recent interview with China Beat) – especially in the dark, when the crowds mostly disappear.

And the night-time benefits go beyond just being able to walk into pretty much any pavilion whenever you like. Restaurants are empty. Entire squares are empty. Best of all, the grounds are filled with terrific performances. Last night, alone, I came across a wonderful jazz-funk outfit from Italy; street performers from Prague; a boy’s choir from South Africa; chamber music from Austria; some kind of wicked wild percussion thing (not sure what that was) in the square in front of the Pacific pavilion; a folk ensemble from Romania; and some skinny, hairy Danish dudes rocking out with toy-store keyboards in front of the Little Mermaid at the Denmark pavilion. Why the Expo organizers aren’t doing more to promote all of these great performances in the face of so much negative publicity about long lines, I’ll never understand. But whatever – take it from your friendly Scrap blogger and go to Expo after dark. It’s great.

A couple of additional notes on visiting the site … Continue reading