Case study: Tetra Pak

How to restore faith in your brand

The story.
Tetra Pak is the world’s leading maker of food packaging, with net sales of nearly €9bn in 2009. The company has been operating in China since 1979, and Tetra Pak China accounts for nearly 10 per cent of the company’s global revenue.

In 2008, the Chinese dairy industry was shaken by a scandal when contaminated milk formula sold to infants led to the deaths of six children. More than 300,000 others became ill, and Chinese consumers quickly switched to imported milk brands, which were considered safer.

Though Tetra Pak China was in no way responsible for the contamination, which happened on the farms, the company suffered. Tetra Pak China had forecast growth of 16 per cent in 2008; the final figure was 5 per cent.

Consumers became far less trusting of the food industry and so the Chinese government tightened regulations on safety as well as environmental standards.

The challenge.
The company needed to help re-establish consumer confidence in the dairy industry and protect market share. In the long term, this also meant helping the Chinese dairy industry meet tough new regulatory standards concerning both food safety and environmental protection.

The strategy.
Many Chinese companies, lacking the necessary expertise and technology, would struggle to meet the government’s new targets and deal with consumer expectations. So Tetra Pak China decided to take a direct role in improving the food safety of the dairy industry. This was not a philanthropic act but a way of establishing a long-term future for itself.

Tetra Pak China has begun to provide training to Chinese dairy farmers, advising them on management methods and on how to improve food safety. A training school for dairy farmers has been opened. The company also produced a DVD and books on improving farming methods. These have been highly successful – the DVD has been widely pirated, evidence of strong demand – and Tetra Pak China reports that more than 30 of the farms it works with have reached European Union quality standards. These farms are able to compete on quality terms with foreign rivals.

Through its efforts, the company has built strong partnerships up and down the value chain and strengthened its competitive position as a leading producer of food packaging in China.

The company has also been working with dairy wholesale companies to help them improve standards and cut costs. This has included a major push to reduce waste. Tetra Pak has been advising its customers on creative recycling programmes. All of Tetra Pak China’s big customers are now asking the company for advice on recycling and waste management.

In collaboration with the World Wildlife Fund, Tetra Pak China has also been working to reduce carbon dioxide emissions.

When the company first began talking to customers about renewable energy and recycling in 2004, no one was sure what these words meant. Now, in the face of rising public pressure and tougher government regulations, Chinese companies are turning to trusted partners to help them improve.

By helping the Chinese dairy industry become safer and more efficient, Tetra Pak is helping to reinforce its own position in the country by ensuring there will always be a market for its products.

Lessons.
Dynamic markets such as China appear to offer the potential for rapid growth. But they are also subject to sudden fluctuations and are highly risky.

Tetra Pak’s response has been to draw on its own experience and skills to strengthen the entire dairy value chain.

The case shows how collaboration, sharing skills and investing in partner companies can strengthen a company’s own competitive position over the long term.

This case also shows that companies need to work together to solve systemic problems within industries. Had Tetra Pak chosen not to get involved in this way, the Chinese dairy industry could still be plagued by inefficiency and safety scares. Tetra Pak’s leadership has helped to transform the industry.
- Financial Times, 29 June 2011