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Business

The rocky road of China Mengniu Dairy

After tainting scandal, company hurt by lack of diversity

A Mengniu drink (Photo by Joyce Ho)

DALIAN, China -- The China Mengniu Dairy brand is so famous, or infamous, that hardly anyone in the country has not heard of it.

The company started out as a private enterprise headquartered in the Inner Mongolia city of Hohhot. Offerings ran from milk to probiotic drinks to ice cream. Mengniu went public in Hong Kong in June 2004, becoming the first dairy products maker to join the Hang Seng Index. Mengniu grew into one of China's leading dairy companies, in the league of Inner Mongolia Yili Industrial Group and Bright Dairy & Food.

China Mengniu Dairy CEO Lu Minfang

But powdered milk from competitor Sanlu Group was found in 2008 to have been contaminated with melamine -- a scandal in which babies died. The discovery of the chemical in Mengniu products depressed earnings.

Mengniu sought help the following year from state-owned Cofco, China's largest producer of cooking oils. Cofco became top shareholder. The melamine scandal eventually died down, and earnings found a road to recovery.

But now the company struggles to hold on to its customers. Even as demand for dairy products booms amid growing health-consciousness, the competition has intensified. Consumers' tastes have also diversified, and Mengniu is paying for its lack of innovation. The melamine scandal has also led shoppers to shun domestically made powdered milk.

Sales and net profit in the January-June period fell below the tallies in the previous six months. Sun Yiping took responsibility for the dismal performance and stepped down as CEO in September, with replacement Lu Minfang taking on the task of putting the financial house in order.

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