Mengniu Dairy

• 1. Introduction

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  Mengniu Dairy was founded in 1999 in Hohhot, Inner Mongolia, and within a few years had swept across China with what observers called textbook growth. The man behind it was Niu Gensheng, who had worked for Yili, the very company that would become Mengniu's fiercest rival. How does a company built in the shadow of a giant outgrow it? And what happens when a meteoric rise collides with one of the most damaging food safety scandals in modern Chinese history? Those are the threads this documentary follows.

• 2. Founding and Early Backing

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  Niu Gensheng left his position at Yili and, together with co-founder Sun Xianhong, built Mengniu from scratch in 1999. Sun would go on to hold the Vice President of Marketing role, shaping how the brand spoke to consumers across China. The company's full legal name, Inner Mongolia Mengniu Dairy (Group) Limited by Share Ltd., carries a name that translates from the Chinese as Mongolian Cow, a nod to the grassland heritage of Inner Mongolia.

  By 2002, international investors had taken notice. Morgan Stanley, CDH Investments and China Capital Partners signed an agreement to invest US$26 million for a combined stake of 32% in the company. That capital helped propel Mengniu toward a listing on the Hong Kong Stock Exchange, which it achieved in June 2004. Headquartered in Hohhot, the company produces liquid milk products, yogurt, milk beverages, ice cream, powdered milk and milk tablets, operating across three distinct business segments.

• 3. Advertising and National Symbol

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  Mengniu built its dominance in mainland China in part through campaigns that tied the brand to national pride. After the successful launches of the Shenzhou 5 and Shenzhou 6 spacecraft, the company ran advertising that called its products "special milk for China's astronauts." The company sponsors the Chinese space program, and the astronaut campaign gave Mengniu an association with achievement at the highest level.

  Sponsorship of the popular SuperGirl contest brought the brand into a different kind of spotlight. SuperGirl Zhang Hanyun, also known as Baby Zhang, appeared in Mengniu commercials, and the exposure was instrumental in her rise to fame. The company also used the slogan "中國牛 世界牛 蒙牛", which translates roughly as Mengniu striving to be outstanding in Inner Mongolia, then in China, then in the world. Mengniu later extended its global profile by sponsoring the 2018 FIFA World Cup and the 2022 FIFA World Cup. The company became widely regarded as a symbol of entrepreneurship in China.

• 4. The 2008 Milk Scandal

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  On the 17th of September 2008, trading in Mengniu shares on the Hong Kong Stock Exchange was suspended. The cause was the 2008 Chinese milk scandal, in which Mengniu was among the companies whose powdered milk samples tested positive for melamine, a chemical compound that can be added illegally to inflate apparent protein content in tests. The company recalled the tainted products and issued a public apology.

  The fallout spread quickly. Shares in other dairy companies fell sharply the following day. When tests then showed that Mengniu's liquid milk was also contaminated, the company was stripped of its status as a Chinese national brand. Supermarket chains delisted Mengniu products immediately after contaminated samples were found on the mainland, even though government tests in Hong Kong had returned negative results for Mengniu.

  The company's CFO attempted to restore consumer confidence by drinking liquid milk in front of reporters and offering refunds on all products without question. His comment that export products were less likely to be contaminated prompted accusations on Internet bulletin boards that the company viewed Chinese lives as worth less than those of foreign consumers. In 2011, Mengniu stated that moldy cattle feed had led to excessive toxin levels in its milk, a separate incident that kept quality concerns alive well after the 2008 crisis.

• 5. Nationalization and COFCO

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  The financial damage from the 2008 scandal pushed Mengniu into serious trouble. In July 2009, the company sold a 20% stake to a consortium led by COFCO Group, a state-owned enterprise and China's largest importer and exporter of food. That transaction made the state the largest shareholder and effectively nationalized Mengniu. COFCO Corporation has since remained Mengniu's largest strategic shareholder.

  The shift in ownership changed the company's governance structure fundamentally. A company that had been launched by a former employee of a rival and backed by international private equity was now majority-controlled by a state enterprise. Yili, the rival Niu Gensheng had left to found Mengniu, remains Mengniu's main competitor to this day.

• 6. The Arla Joint Venture

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  Two years before the scandal, in 2006, Mengniu had already been building international partnerships. China Mengniu Co. Ltd teamed up with Arla Foods, the largest producer of dairy products in Scandinavia, to make and distribute solid milk products in China, including Hong Kong and Macau. Mengniu held 50% of the joint venture, while Arla Foods owned 48%. The venture was named Mengniu Arla.

  When the melamine contamination came to light, Arla Foods CEO Peder Tuborgh spoke directly about the crisis: "The situation is extremely distressing for all the families who need milk of the highest quality to feed their children." He added that getting to the root of the problem was essential to restoring confidence in the Chinese dairy industry. The Mengniu Arla venture had given Mengniu a foothold in Scandinavian dairy expertise; by the time of the 2008 scandal, that partnership carried its own reputational weight.

• 7. Scale and Production

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  By the year ending on the 31st of December 2015, Mengniu operated 33 production bases with an aggregate annual production capacity of 8.68 million tons. That figure places the company among the largest dairy operations by volume anywhere in the world. The three segments it operates, liquid milk products, ice cream products, and other dairy products, each serve different parts of the Chinese market, from everyday UHT cartons to powdered milk for households across the country.