Chocolate Fortunes

The Battle for the Hearts, Minds, and Wallets of China's Consumers

 Chocolate Fortunes

Author: Lawrence L. Allen
Pub Date: October 2009
Print Edition: $19.95
Print ISBN: 9780814438121
Page Count: 256
Format: Paper or Softback
e-Book ISBN: 9780814414330

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Excerpt

Introduction: One Country, Three Centuries

China’s breathtaking transformation from a

command to a market-socialist economy over

the past twenty-five years has turned some 300

million of its 1.3 billion people into ravenous consumers of

everything from candy to cars. And until twenty-five years

ago, almost none of them had ever eaten a piece of chocolate.

They were, to coin a phrase, ‘‘chocolate virgins,’’ their taste for

chocolate ready to be shaped by whichever chocolate company

came roaring into the country with a winning combination

of quality, marketing savvy, and manufacturing and

distribution acumen. In short, China was the next great frontier,

a market of almost limitless potential to be conquered in

a war between the world’s leading chocolate companies for

the hearts, minds, and taste buds—and ultimately the wallets—

of China’s consumers. To the victor of the chocolate

wars would go the spoils of over a billion potential customers

for generations to come.

Despite China’s radical transformation over the past quarter

century, from economic basket case to economic powerhouse,

it is still a work in progress. Figuratively speaking, in

China today there are fewer than 50 million people living in

the twenty-first century, about 300 million living in various

stages of the twentieth century, and nearly a billion people

living in the latter part of the nineteenth century. Nevertheless,

China’s economic renaissance over the past two and a

half decades has been nothing short of astonishing, especially

considering the havoc wreaked by the failed economic, social,

and cultural experiments of the 1950s, 1960s, and 1970s—and

the brutality with which they were carried out. This period

would, however, prove to be the dark hour before the dawn

of China’s emergence, under Deng Xiaoping,1 into the global

economy, a process begun in the late 1970s.

And while China’s transformation is unprecedented, so

too was the establishment of foreign businesses within a

major country undergoing a complete economic and social

transformation from a centrally planned economy to a

market-socialist economy.

* * *

For seven years, between 1998 and 2006, I was a foot soldier

in the ‘‘chocolate war,’’ first as an executive with Hershey, and

later Nestle´, two of the world’s largest manufacturers of chocolate;

as such, I was on the front lines of a battle for the hearts,

minds, and taste buds of more than a quarter billion people

constituting China’s new consumer class.

This book is the story of the five global titans of chocolate—

Ferrero, Cadbury, Hershey, Nestle´, and Mars—that bat-

tled to capture a once-in-a-lifetime opportunity to establish

their brands with one-fifth of the world’s population. It is also

the inside story of East meeting West through the introduction

into China, a xenophobic land of austerity and deprivation,

of an icon of the Western world’s decadence and selfindulgence:

chocolate.

When I first arrived in China in the 1980s, I was a newly

minted MBA; a twenty-something, ‘‘me-generation’’ American

looking for adventure and riches in this vast economic frontier.

The country was then in the early, experimental phase

of its social and economic transformation, and trying to do

business there meant wading endlessly through the detritus

of vestigial government organs and policies while attempting

to find purchase on its ever-changing economic and regulatory

landscape. A high tolerance for ambiguity was essential.

Two early experiences exemplify the Alice in Wonderland

nature of doing business there at the time, and it is a tale

of two cities: Beijing, the belly of China’s centrally planned

communist beast; and Shenzhen, the tip of the spear of China’s

economic reforms.

During my final semester of graduate school at the Thunderbird

School of Global Management, I co-founded Transnational

Trade Services, a general trading company with

glamorous headquarters in my Arizona dorm room. My most

promising client was an American antiques buyer, and shortly

after graduation I traveled to China together with my classmate

and Chinese business partner, Li Jianmin, to find a

source for Chinese antiques.

Upon arriving in Beijing we went to meet a former associate

of Li’s, a branch manager of a state-owned trading company,

to see whether he could help us locate and export

antiques. His office was located in an unimpressive, sootcovered

one-story government building; it was not exactly an

auspicious beginning, and our fortunes didn’t improve from

there. Though we were greeted politely, through Li’s trustworthy

translation and my basic Mandarin Chinese, it quickly became

clear that this gentleman was a midlevel, lifelong

bureaucrat comfortably ensconced in a large bureaucracy. As

we talked, I became increasingly mindful of the portrait of

Chairman Mao,2 literally and figuratively looking over his

shoulder. Throughout our discussion he was consistently

oblique and noncommittal.

The business we were proposing would be new to him and

his department, he said, and would require approvals from

many different people in many different agencies. This would

be difficult and would take time. Finding the antiques we were

looking for would also be a time-consuming process, and even

with the approvals and the goods in hand, export procedures

would be cumbersome. Where we saw opportunity he saw

barriers. Perhaps, we thought, we would make more progress

over a meal, and we invited our host to lunch. By the time we

left the building for a nearby restaurant, we had nearly a

dozen of his colleagues in tow. It seemed he’d invited nearly

everyone in his office. Far too much food and too many bottles

of wine were ordered, and when we parted my lunch guests

were loaded down with doggie bags full of food and wine, a

bounty they would share with grateful families that evening.

As I reflected on what had gone wrong, I realized that, for

many in China, it must be difficult and risky to break with old

habits. This gentleman had nothing to gain from meeting with

us—other than a free lunch with enough left over for his family.

If something went wrong, he would have a problem on his

hands. If he did nothing, he would still get his government

pay, housing, and benefits. Why take a chance? I clearly had a

lot to learn about doing business in China.

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