Saturday, August 20, 2005

Chewing Gum and Lollypops

Almost unnoticed, the Chicago-based Wrigley’s, the world’s largest maker and marketer of chewing gum, has built a dominating presence in China. With 60 per cent of the market and a million retail sales outlets, Wrigley’s has probably come closer than any other American company to fulfilling the century-old mythic dream: “If every one of China’s one billion people bought just one …”

In five years Wrigley’s has built an awesome distribution network, making sure that the little green packages of Doublemint gum are available in almost every corner of the country. The company is said to have the widest distribution and sales network of any food manufacturing and consumer packaging company in China, foreign or domestic, a staggering one million outlets, 30,000 in Shanghai alone.

No foreign or domestic gum company comes close to Wrigley’s market share or sales volume. Indeed, the domestic Guangdong Fanyu Candy Co., the once prosperous and well-known maker of Yiqing chewing gum and Dada bubble gum, had to fold its operations in 2002. It could not compete. The only significant competitors left are the South Korean Lotte and the Italian Perfetti Van Melle.

Since 1999, China has become the second-largest market for Wrigley’s, behind only the U.S. “I don’t think people know how global [Wrigley’s] is,” fund manager Rose Papp told Forbes.com. Wrigley’s now counts 14 percent of its sales in Asia, up from 3.3 percent in the year 2000. Industry analysts estimate that the Chinese chewing gum market is worth about $250 million now and may reach more than $800 million by 2008.

Wrigley’s entered China in a big way in 1989, when it built its first wholly owned chewing gum factory Guangzhou. Last October, Wrigley’s opened a 50,000 square-foot factory to make gum base - - the material that gives gum its chewiness -- in Shanghai. Since the opening of the Shanghai plant the company has been able to produce all of the ingredients for making chewing gum on the mainland.

In recognition of Wrigley’s unassailable position in China, Spanish food conglomerate Agrolimen sold its Joyco confectionery division’s operations in China and India and several other countries to Wrigley in 2004 for 220 million euros ($274 million). Joyco had established the joint venture with Guangdong Fanyu Candy Co, that went broke in 2002. But it was still the leading seller of bubble gum and lollypops in China. Also as part of the deal, it bought Cafosa, its chewing and bubble gum base business.

“With the addition of the Joyco brands, we have been able to add complementary confectionery products to our portfolio and take advantage of our robust sales force,” said Wrigley’s spokesperson Kelly McGrail. “That will make these products widely available in China. The Ta Ta bubble gum and Pim Pom lollypops also give us great-tasting and affordable single-piece confections for kids – widening the Wrigley’s product portfolio to this younger market,” she added.

The Joyco deal also gives Wrigley’s a boost in India, where Joyco enjoyed a leading position in those confection products. Before the sale, Wrigley’s gum sales in India accounted for only about 3.5 percent of the market. The acquisition boosted combined confectionery sales to approximately 35 percent. The industry leader, however, is still the Italian firm of Perfetti Van Melle, which had 47 percent, according to Euromonitor International, an industry analyst.

Compared with many other packaged consumer goods sold in China, counterfeiting has not been a serious problem, according to the company. “There are sporadic cases, and when they arise we work closely with local authorities,” said McGrail. Wrigley’s is also a member of the Quality Brand Protection Committee, an anti-counterfeiting coalition in China, which has more than 100 multinational corporations as members and lobbies the government for stricter laws and regulations for intellectual property violations and better enforcement systems.

The Wm. Wrigley Jr. Co. was founded in 1891, originally to sell soap and baking powder. In 1892, William Wrigley Jr., the company founder, began offering chewing gum with each can of baking powder. The gum eventually became more popular and the company reoriented itself to make and sell gum. It is still a family-run business based in Chicago.

Fighting the Singapore banWrigley’s is slowly working its way back into Singapore after having been shut out, along with every other gum maker after the island country famously banned the import and sale of chewing gum for sanitary reasons in 1992. The company was deeply involved in the negotiations leading to the 2003 Free Trade Agreement with the United States. Two issues dominated the negotiations: Singapore’s participation in the Iraq War coalition and chewing gum. Of the two, gum was by far the stickiest.

Somewhat grudgingly, Singapore compromised, agreeing to allow the importation and sale of what it called “therapeutic” gum. “They were tough,” said former Rep. Philip Crane ® of Illinois, who was involved in the negotiations. This opened the way for sales of Wrigley’s Orbit brand of sugar-free gum, which contains calcium lactate intended to strengthen tooth enamel. Another beneficiary of the deal is Pfizer, which makes Nicorette, a nicotine gum meant to help smokers kick the habit.

At the moment, Wrigley’s gum can only be obtained through a licensed pharmacist, and the buyer must provide his name and identity card number. In Singapore, chewing gum is still very much a controlled substance.

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