Dairy gambles on Chinese warming to French Cafe

Namyang Dairy will build a factory in Naju, South Jeolla, to export more of its instant coffee mixes to China, where the market for the sachets of ground coffee, sugar and cream powder has already reached 838 billion won ($716 million), the company said on Monday.

When the production line is completed in October, Namyang aims to compete directly with Switzerland’s Nestle and America’s Kraft Foods, both of which have a strong presence in China. Namyang said it invested 180 billion won to build the new facility.

China’s instant coffee mix market has been growing 12 percent a year on average since 2005, according to industry figures.

The new factory will be able to produce five billion slim pouches of instant coffee a year, the company said.

Monday’s announcement comes just over a year and a half after Namyang jumped into the domestic coffee mix market, which had formerly been a two-horse race between Dongsuh and foreign rival Nestle.

Namyang, which ousted Nestle’s Taster’s Choice from the No. 2 position last June and replaced it with its French Cafe mix, has been churning out the hot product at two milk and baby formula factories in South Chungcheong.

Namyang now controls 20 percent of the domestic market and produces two billion pouches a year. Production capacity will more than triple in October.

“The old production line will keep making products for domestic use, while the new line will focus on goods for distribution overseas,” said Namyang CEO Kim Woong.

Last year, the dairy manufacturer exported 3 billion won of its French Cafe mix in China. It aims to increase this to 50 billion won by 2014.

According to Euromonitor International, China’s coffee mix market stood 5.2 billion yuan (838 billion won) in 2010, up from 2.9 billion yuan in 2005.

“Demand for instant coffee mixes is growing and we believe this trend will continue as Chinese consumers are increasingly seeking convenience,” said Kim Hong-tei, a spokesman for Namyang. “Our exports fell short of Chinese consumers’ demand, but the new production line will help us increase our influence in China.”

Namyang raised 1.2 trillion won in sales and 50 billion won in net profit last year.

By Kim Mi-ju
[mijukim@joongang.co.kr]