Global milk powder firms are scrutinizing Chinese social media reports up to four times a day to gauge consumer reaction to a high-profile pricing probe and food safety scare that threaten their squeaky-clean image in the $14.5 billion China market.
The stepped-up monitoring of microblogging site Weibo and local online forums reflects the outsized role social media plays in China, where access to information is restricted. Chatter about food safety scares spreads lightning-fast on Twitter-like Weibo, so companies are learning to keep constant tabs on their online brand reputation.
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"We work with a number of clients in this sector and we've been busy, very busy, over the last couple of weeks," said a China-based senior executive at a social media analytics firm.
He asked not to be identified because the firm is currently working with industry brands including those owned by Fonterra Co-Operative Group Ltd, Danone SA and Nestle SA.
Earlier this month, five international milk powder firms and one Chinese company were fined a record $110 million after a probe into price fixing in the sector, while a botulism scare at New Zealand dairy giant Fonterra tarnished the wider reputation of imported milk powder.
Reuters analyzed the frequency of Weibo posts mentioning the major infant formula brands and found that the number of posts began to increase as early as May, and then peaked at the start of August, around the time of the Fonterra botulism scare.
The earlier spikes could be explained by the spread of rumors around the milk powder price probe, which was publicly disclosed in July but had been in the works for four months. The viral nature of social media can also amplify the chatter without necessarily reflecting wider consumer thinking because a single message can be re-posted thousands of times.
Nestle, which was named in the pricing probe but escaped a fine, saw the smallest spike in online chatter about its Wyeth infant formula unit, which flattened in July and August. Mentions of Mead Johnson Nutrition Co spiked the most, peaking in June, but then returned close to normal this month.
The frequency of posts about Dumex and Abbott Laboratories, which makes brands such as Similac, remained elevated into August, suggesting the firms may have work to do to reassure consumers.
Chatter about Fonterra, which doesn't have its own-label brand in China, was little affected by the earlier price probes, but saw a sudden steep spike in August at the time of the botulism scare. In August alone, posts that mention Fonterra were five times those in January to July.
Nestle and Danone declined to comment. Mead Johnson, Wyeth and Fonterra did not respond to emailed queries.
Late last year, a Fonterra source told Reuters that social media in China was going to be a priority. Abbott said it is stepping up social media engagement worldwide.
"Our use of social media is increasing globally as we look to better understand, respond to and connect with our customers around the world," Abbott spokeswoman Kelly Morrison said.
Chinese consumers are highly sensitive to dairy safety after a scandal in 2008 involving melamine-contaminated baby milk powder. At least six babies died and thousands more fell ill.
For the international infant formula brands, the recent scandals hit a particularly sensitive spot: their reputation for safety, which was their primary edge over local rivals.
"The picture that is being painted in China is that their quality isn't that much better that local firms," said Torsten Stocker, Hong Kong-based partner at consulting firm AT Kearney.
The social data company executive said that infant formula companies had made use of online media to gauge consumer sentiment, track the spread of conversations related to their brands, and work out how to respond to the crisis.
"There was one brand which was holding out and didn't admit involvement until the very end. That made Chinese netizens angry. Other brands did better, responding quickly and getting opinion leaders to support the brand online," he said.
Consultants will now create detailed reports using the data to identify weak-spots of brands through the crisis, helping milk powder makers create tailored recovery drives, he said, adding that some firms asked for updates four times a day.
Milk powder makers are also using analysis of online Chinese retailer Taobao, owned by Alibaba Group Holding Ltd, to map out demand hotspots in China's multitude of lower-tier cities where analysts predict 80 percent of sector growth.
China has more than 150 cities with a population above 1 million, and the major Western brands have yet to establish coast-to-coast distribution channels.
"Many firms are looking at Taobao, which is a good indicator because it tells you where demand is, but where the physical infrastructure hasn't yet reached," said Jeff Walters, managing director at Boston Consulting Group, which advises a number of milk powder firms in China.
Global infant formula firms in China have traditionally benefited from high prices and a domestic sector dogged by safety fears, but analysts said the recent turmoil could mark the start of a more challenging period for firms in China.
Chinese authorities are also looking to consolidate the sector and create stronger local champions, which means they will be taking on fewer but more formidable competitors.
"Now companies are going to have to get a lot smarter. They're going have to come up with the right pricing, the right brand image and focus on far better distribution," said Shaun Rein, managing director of China Market Research Group.
(Additional reporting by Naomi Tajitsu in Wellington and Ransdell Pierson and Phil Wahba in New York; Editing by Emily Kaiser)