In China, Nestle and Danone play it by the book

Sat Jul 6, 2013 3:31am EDT
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By Kazunori Takada

SHANGHAI (Reuters) - Swift responses from Swiss food company Nestle NESN.VX and French rival Danone (DANO.PA: Quote) to Beijing's announcement that it was investigating possible price-fixing of instant milk formulas are textbook examples of how firms should deal with such crises in China, executives and consultants say.

Just a day after official Chinese media reported the top economic planning agency had launched the probe into six firms, including Nestle and Danone, the two companies said on Wednesday they would cut prices of some instant milk products.

It was not clear how long the companies had known they may become the subject of investigation. But once it became public, they had to respond quickly before negative reports were circulated on Chinese social media, which could harm reputations and sales.

The strategy seems to have worked - there has been limited comment on the subject so far, both in state media and online.

"The media environment here has absolutely changed. Social media has revolutionized what companies do in a crisis situation," said Kent Kedl, in charge of Greater China and North Asia for risk consultancy firm Control Risks.

"It needs to be taken into account because the chatter out there really creates a voice of its own."

KFC-parent Yum Brands (YUM.N: Quote) came under heavy fire from both mainstream and social media after the official China Central Television (CCTV) reported in late December that some of the chicken supplied to KFC and McDonald's Corp (MCD.N: Quote) contained excess amounts of antiviral drugs and hormones used to accelerate growth.

McDonald's responded by saying its chicken and raw materials pass through independent, third party tests. Analysts said KFC was dealt a heavier blow because it sold mainly chicken products and its bigger presence in China made it a bigger target.   Continued...

Nestle products are seen at a Nestle research and development center in Shanghai October 18, 2012. REUTERS/Carlos Barria