NesTea: Coca Cola’s and Nestle’s Defeated In China’s Competive Ice Tea Market

With the Chinese middle class become more and more wealthy in large Chinese cities such as Beijing, Shanghai, Guangzhou and Shenzhen, many multinationals are entering the Chinese market. While big success has been recorded in the sales of foreign goods such as cheese, wine, and milk, this is not the case for tea.

According to the China Daily, it’s hard for foreign companies to enter very localized markets:

The exit of Nestea, an iced tea beverage from the world’s largest food and beverage company Nestle SA, shows the challenges faced by international food and beverage companies trying to compete in a highly localized category.

This is completely true. One of the successful western companies that entered China is KFC, but to do that KFC had to offer bubble tea, 1000 year old fermented egg porridge and rice meals besides their Colonel’s Chicken snacks. KFC managed to succeed by hiring a talented pool of local Chinese managers and executives to get the job done.

This case reminds me of Starbucks that is expanding fast in many countries over the world (including China) with success, except for Italy, the country where the Coffee culture started.

When it comes to Ice Tea, the branding matters the most. Taste is a challenge but can be tested through tasting sessions. The big questions is, how do you get into the mind of the customer and allow them to identify their lifestyle with your brand? After all, tea lovers believe that the tea they drink says something about you. The lesson learned here is that for foreign companies to succeed in any localized market is to listen to the customer and either hire local staff to absorb awareness of local needs or to acquire a local company (or start a joint venture).