Global snacking powerhouse Mondelēz International is putting a bet on that China will become its biggest growth engine in the next five to ten years.

Recently, the company, which operates a number of brands including Oreo, Stride, Milka, and Pacific in the China market, reported its Q1 2019 results. Foodinc noted that Greater China BU made a "single digit growth" in the Q1 earnings call, delivering its seven consecutive quarter of growth in China.

Foodinc recently conducted a face-to-face interview with Mondelēz International CEO Dirk Van de Put at its China head office in Shanghai. During the interview, Dirk elaborated his insight into the company's overall strategy for accelerating growth in China, investment priorities for the year as well as changes in local organizational structure.

Tonight, Foodinc will walk you through the latest insights into Dirk Van de Put.

Growth Space and Trends for China's Snacking Market

In the last two years, the most apparent change with Mondelēz International has been a shift from the focus on cost-control to growth-driven strategy.

Talking about the strategy shift, Dirk said big packaging food companies generally have two ways to increase profits: one is to cut costs, and the other is to grow sales.

"The problem with cutting costs is that it will reach to an end. After a certain time, there are no more costs to cut, and so you arrive at the end of the road," Dirk said, "Then you need to shift to grow your sales which gives you more profit."

As they start to think about how to grow the business, they start to look at global markets, to see where they think in the next 5-10 years the biggest growth in snacking is going to take place.

"Our conclusion was that 80% of the future growth in the next 5-10 years of snacking is gonna come from emerging markets, and of those in emerging markets; and of those in emerging markets, 30% is gonna come from China. So almost 25% of the global growth in snacking in the next 5-10 years will come from China," Dirk told Foodinc.

According to Mondelēz, China is a very unique market with great potential, so we cannot copy the cases in the US.

According to Dirk, Chinese consumers are snacking more and more, but snacking is not as big yet in China as it is in the US where people skip meals. "Millennials in the US eat 6 or 7 times a day, while the Chinese are still much more about the main meals. But the trend is changing, so that's going to be something that is interesting to follow."

In his eyes, Chinese consumers are very particular. They want high quality and quite unique taste. "Some of the flavors here we would not find in the US but in China that is normal. That's very different – the palate of Chinese consumers and what they are interested in. Premium, high quality, health and wellness like anywhere in the world is clearly a trend that you can see also in China."

Dirk also mentioned the importance of digitalization and e-commerce in China. "I think for any company, China is by far the highest in the world. So for our Chinese business, roughly 15% of our sales are from e-commerce; in France and in the UK we are looking at 7-8%; and in the US, it is less than 2%," he said.

Then how about the growth of Mondelēz China by far?

Foodinc learned from the Q1 earnings call of Mondelēz International that, Mondelēz China achieved single-digit growth in the first three months this year. Dirk further pointed out to Foodinc that, the biscuit category is performing impressively, especially Oreo shows "extraordinary performance". The brand previously changed its formula in China by using less sweet and adopted new packaging and marketing methods.

"Pacific as a brand is doing very well, so we're very happy with our Biscuit business," he said, "And then in Chewing Gum, we now have 18% of the market, while we were not existing in the market 5 years ago. So Stride has been very successful for us as it is growing quite rapidly."

But Chocolate including Milka is a slower-growth category for them. "I don't think tablet chocolate which we do is something that Chinese consumers are particularly used to, so that's gonna take a little of time to develop," Dirk said.

"As a whole, China is doing very well. It's a market that has lots of potential, obviously. Chinese consumers are snacking more and more on the daily basis. There are still a lot of opportunities. We think that in the coming years we will see accelerated growth in China, not just growth, but fast growth," Dirk told Foodinc.

Three Strategies for Driving Growth

Speaking about growth, it depends on the execution of the "Three Strategies" of Mondelēz International, i.e. accelerating consumer-centric growth, driving operational excellence, and building a winning growth culture.

For the first strategy, Dirk emphasized that the first priority is to increase sales and achieve revenue growth. For this, Mondelēz China needs to maintain the innovative capability of the products and brands; it also needs to expand distribution to drive fast growth in many regions, for "Mondelēz's products are still not available in many cities"; In addition, Mondelēz can develop new creative products on the basis of existing categories through "cross-over integration and expansion."

It means that this snacking powerhouse will expand into more categories in the future.

"We want to offer the right snack for the right time made the right way. That is our purpose as a company. So we see ourselves it's the moment in playing in biscuits, in chocolate, in candy, in gum and in powder beverages. Over time, I would expect that we will have a portfolio that is wider than that," Dirk said.

He revealed to Foodinc that Mondelēz China will expand into some adjacent categories in the future, "in that we call adjacent categories could be bakery products, could be snack bars as an example, could be other categories we are aspiring."

When being asked whether they have plans to introduce or launch new brands to/in China, Dirk seemed very cautious.

"We think that the growth can be driven through building these brands, the existing brands. The growth can be driven by innovating on these brands. We also, if needed, we will launch new brands, but that's probably a little bit more, requires more reflection. Because launching a new brand in China is expensive and difficult. So, that's probably a little bit less immediate around the corner for us," he said.

Meanwhile, he pointed out that, existing brands can be further expanded into other categories. Apart from classic cookie biscuits, there are many other non-biscuits products under the Oreo brand, such as Oreo ice cream, and Oreo yogurt.

Talking about execution, Dirk thought there are still much room for improvements for Mondelēz China in terms of costs and customer service. He mentioned that the biggest change in the transformation of growth culture is that Chinese local teams are given more say in freely deciding which action is in the best interests of local business development.

He told Foodinc that, under the past operational structure, more decisions were made in the U.S, in Chicago, and then the rest of the world will implement those decisions. Now they are turning the pyramid of the company upside down, hoping to give the local teams to have more say.

"For example in the past it would be impossible for us to launch the spicy chicken ring and wasabi Oreo flavors, because Chicago thought these flavors were quite strange," he said with laughter.

He further noted the key obstacles would be the people in Chicago: "Probably the biggest challenge is for them to give up the power to make those decisions."

Foodinc learned that Mondelēz has scaled back many regional organizational structure with the implementation of the Local First Business Model. "We reduced the regional team in Singapore, so they cannot interfere with China," Dirk said.

According to Dirk, the other "big obstacle" is that the local team has to accept the responsibility of having to delivering the results while being given more freedom.

"The China local team needs to feel they are empowered to and have the courage to go and try to win big in China. And one of the obstacles is the courage of the local people. Are they ready to go and try the big things?" he said.

Four Investment Priorities

"Once we were convinced that China is going to be our biggest source of growth, it is quite easy to make the decision to invest more in China," Dirk said.

Earlier this year, Mondelēz revealed that it will increase investment in the China market in 2019. During the interview this week, Dirk told Foodinc that Mondelēz will focus on four investment priorities in China this year.

The first priority is to build brands. "We want to make sure that Oreo, Pacific, or Stride stands for something in consumers' mind, so we need to strengthen communication and promotion and actively expanding the social media channel." He said Mondelēz plans to heighten brand effects, so that consumers "buy the products because of the brand, not just because of the product."

It is worth noting that Mondelēz China will increase its investment in local jewels with a proportion higher than that in the past years.

"In the past, we were much more interested in pushing and growing our global brands. What we're seeing is that consumers often have a very close relationship with the local brands, and it would be a mistake not to invest in the local brands," Dirk cited an example to Foodinc, Mondelēz China is increasing investment in its local biscuit brand Pacific.

On the desk in front of Dirk and Foodinc reporter, there was a rice wafer, a newly launched product under Pacific. Dirk said in the past Mondelēz probably would not have done that on local innovation. Then, that's sort of a new thing they want to do now. They want to find what is the ideal meets between global brands and local brands that they want to invest in both, "Actually, this year you would expect more investment in both."

The second priority is to innovate and have a pipeline of new products. Dirk described it as "a big investment."

For specific categories, he said Mondelēz plans to increase investment in its global R&D center in Suzhou. The Center will be in charge of developing biscuits, including biscuit brands in China such as Oreo, Chips Ahoy!, TUC, Pacific, BelVita, Prince, and Ritz. In addition, he mentioned Mondelēz was performing very well in gum, and is expected to further drive innovation in the category.

Foodinc noticed Mondelēz had launched an innovation center SnackFutures last year to accelerate innovation. When being asked whether they will seek business opportunities in China, Dirk gave a positive answer.

“We would like to partner up, invest in or acquire Chinese companies that have a very high growth prospects and we can help to grow faster,” he told Foodinc.

In fact, this open innovation model is quickly gaining popularity among large FMCG companies. Dirk believed this is one of the biggest trends in the food industry.

"We want to work with these surging brands or to acquire them. We also believe that some of the innovation that they do or the target groups of consumers that they have are more niche that we would not necessarily invest in. There is an ideal starting point to let them grow and develop, and then it's the moment for us to work with them," Dirk told Foodinc.

The third priority is to invest continuously in the people. And the fourth one is to expand the scope of distribution. "Expanding distribution would be another big opportunity for us in China, and this is also major area for us to invest more in the future". Dirk said.

For offline channels, Dirk told Foodinc third- and fourth-tier cities would he priorities for expansion. Meanwhile, they will need to think about how to enable their own cost input to deliver the most efficient output, to distribute products to more stores and better display and showcase them in the stores.

For online channels, Mondelēz does have a very good relationship with the major e-Tailers in China. He mentioned that eB2B is a new way of cooperation with e-commerce platforms (note: meaning Alibaba's Lingshoutong and xin.jd.com, etc.) to reinforce offline distribution.

"I think one of the first areas where we need to work together is to find a unique thing that we can offer, that drives interest from consumers." According to Dirk, e-tailing is not just about sales; it's also about the relationship with the consumer, about insight in consumers, and about communication with consumers. "So we must invest in that also."