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In China, some global brands assailed by consumers, media

BEIJING—It's been a year of consumer scandals for big global brands in China, and Haagen-Dazs, the specialty ice cream purveyor, faced a doozy earlier this summer.

A newspaper report in the southern city of Shenzhen slammed the ice cream maker for keeping a toilet near a production kitchen and for failing to have a sanitation permit. The report, some of it unverified, quickly spread on the Internet.

"I shut down the kitchen. I destroyed all the product. But then it became a national and international issue," said Gary Chu, managing director for Greater China for General Mills, the food giant that owns Haagen-Dazs.

Try as Chu did, he couldn't quell the bad publicity, even after a public apology.

"It really damaged our reputation," Chu said, still simmering over what he claimed were attempts to manipulate the issue to shake money out of the company.

Some of the biggest names in global business—Heinz, Procter & Gamble, KFC, Colgate-Palmolive and Lipton instant tea—have faced consumer crises this year, calling attention to the unpredictability of China's consumer market. Confronting sudden attacks in newspapers and on the Internet has become a vital tactic in doing business here.

Missteps by companies, such as fostering relationships with careless suppliers or placing misleading advertising, have triggered a few of the scandals. But other factors have come into play, experts say. China's government doesn't want to be seen as catering to multinational companies, local competitors sometimes play dirty and Chinese journalists generally can seize on consumer issues without fear of the government censors.

"The press is rather limited as to what it can report on, and if it gets a consumer story on a foreign brand, it has a field day with it," said Paul French, head of marketing at Access Asia, a market research firm with offices in the United Kingdom and Shanghai.

Moreover, Chinese courts are increasingly accepting lawsuits from aggrieved consumers. The change has given rise to what Esmond K.L. Quek, managing director in China of Hill & Knowlton, the global public relations firm, calls "opportunistic consumers who suddenly think, `Hey, there's money to be made going after multinationals.'"

Colgate-Palmolive, which has a major share of the China market for toothpaste, found itself reeling in the spring from state-run media trumpeting stories about a "cancer scare" in toothpaste. The reports, which hurt Colgate sales, were later traced to a reporter who embellished a few lines from a British tabloid.

Concerned with the rising tide of attacks, the American Chamber of Commerce in China hosted a seminar in mid-August on "Foreign Firms Under Fire." One expert, Martin Alintuck of Edelman, a global public relations firm, urged executives to monitor Internet bulletin boards, where negative reports spread, and "aggressively attack misinformation" about their companies.

Procter & Gamble found itself in Chinese headlines twice already this year. In March, a woman in Jiangxi province took the company to court over its SK-II anti-aging cream, charging that the cream had caused a painful allergic reaction. After a month of plummeting sales, the company apologized to consumers and paid a fine.

In a second case, a provincial agency challenged Procter & Gamble's claim that its Pantene Pro-V shampoo would make hair 10 times stronger than normal.

KFC, the dominant foreign restaurant in China, with more than 1,300 outlets in 280 cities, was hit in the spring with charges that a pre-packaged chili pepper contained a toxic substance, Sudan Red food dye.

The packages, bought from an independent supplier, were quickly cleared out of restaurants, said Jonathan Blum, senior vice president of public affairs for Yum Brands, KFC's parent company. Blum said in an e-mail that the "adverse publicity" over the incident slowed growth temporarily, but the chain rebounded.

A July 14 report by a division of the U.S. Department of Agriculture, though, cited a source saying deliveries of frozen French fries to KFC restaurants in China "decreased 50 percent in March and April," an indication of the damage the scandal delivered.

Chu, the General Mills executive who oversees 47 Haagen-Dazs stores in China, paid little heed when he saw a few companies get hit by consumer scandals last year.

"I thought, `We're a high-quality manufacturer. It'll never happen to us,'" Chu said. But then the Shenzhen newspaper report came along, and Chu discovered that "a tiny thing like this can blow up like an atom bomb."

Soon, even the state-run China Daily newspaper was declaring that Haagen-Dazs had made "a mockery of China's law on food hygiene."

Chu said he believes a Haagen-Dazs manager who'd been fired decided to extract revenge by going to a local newspaper.

While a sanitation license had lapsed in the facility in Shenzhen, where local ice cream cakes are decorated, Chu said the rest of the news report "was an exaggeration."

"They said there was a garbage can in the processing room. Every kitchen has a garbage can," Chu said. "Our bathroom was far away from the processing room."

The small Shenzhen newspaper offered to squelch the story if Haagen-Dazs pledged advertising money, Chu said, but he dismissed the offer as a shakedown.

Such efforts to inflate a consumer scandal also hit Chinese companies. But Chinese executives squelch rumors aggressively, hiring specialists to intervene in Internet chat rooms or go after journalists spreading rumors. "In China, we use a very Chinese way: We `talk' to the reporter and make them be silent," said a local publicity professional, who requested anonymity. "Giving them money is the most direct way."

A turning point may have come in July, when a consumer scandal hit the powerful Chinese brewing industry. News reports said breweries routinely add formaldehyde to beer as a stabilizer. Sales dropped. Beijing's largest brewery, Yanjing, said it stopped adding minute amounts of formaldehyde to beer in 2002.

Unhappy that such a report could disrupt domestic industry, the Communist Party's Propaganda Department tightened controls on reports about food safety. The department said journalists would be "strictly punished" unless they check with authorities beforehand "to check facts and solicit opinions" about food safety issues, the South China Morning Post newspaper said.

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(c) 2005, Knight Ridder/Tribune Information Services.

PHOTOS (from KRT Photo Service, 202-383-6099): CHINA-FOREIGNBRANDS

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