By Lisa Lupo
Operating a Foreign Facility
In March 2018, QA Editor Lisa Lupo was given the singular opportunity to travel to China to get the inside story on conducting business in and with the Chinese food industry. During her 10 days in the country, she traveled from Shanghai to Xi’an to Daba Shan, with visits in Ankang, Hangzhou, and Xitang. She received exclusive tours of the new Shanghai facility of McCormick and the tea fields and production of the local Chinese tea producer Qinba. And she witnessed, and participated in, the daily lives and meals of the Chinese people.
The country has seen significant change and fiscal growth since China’s economic reforms and “opening up” policies of 1978. According to Credit Suisse, the wealth per adult nearly doubled between 2000 and 2017, and the country’s household wealth is expected to increase by about $10 trillion by 2022. As stated by Standard Chartered CEO Bill Winters in a CNBC interview on China TV (https://cnb.cx/2rdLGZe), “If you look at the long-term trend over the past 20 years and, I think, for the next 20 years to come, you’ll see that there’s a gradual and persistent opening up of China.”
It was, however, just before QA’s visit that the Trump Administration began discussions on imposing tariffs on Chinese imports, which led to China’s announcement of retaliatory tariffs that would take effect if the U.S. took action. At the time of print, the potential trade war was pending, so its impact on either country was, as yet, unknown.
This issue’s cover story on the following pages discusses McCormick’s history in China and the challenges and opportunities of doing business in the world of this global power. In the July/August issue, we will take you into the tea fields to discuss the processes of Qinba Tea and its partnership with U.S. Sommelier Joe Montaglione, who has struck an exclusive rights agreement to bring the rare Qinba Tea to the U.S.
If you haven’t been to China in the last decade, you haven’t been to today’s China. If you’ve not been to China at all, you’re likely to find it to be everything you expected and nothing like you’d thought it would be.
China is a country of vast historical influence that is changing and growing at a rapid pace. Technology and innovation have become the new driving engine, and successful companies working in or with China are embracing the country’s culture while changing and growing with it.
Nearly 30 years ago, McCormick opened its first China plant in Shanghai through a joint venture with a local food company. Its growth since then has followed a track similar to that of China — and of Shanghai itself, which is one of the fastest developing cities in the world. Since 1989, McCormick China has outgrown two facilities and become one of the most important markets for McCormick and Company, Inc. The company manufactures spices and herbs at its new Shanghai facility which opened in October 2017, and condiments, salad dressings, and jams at its Guangzhou plant. It also is building out a new area in its Shanghai facility for wet production.
“We have consistently received high recognition from customers for the past 30 years, including quality awards from a number of key global customers,” said McCormick China President Benjamin Lee.
His assertion is borne out by recognition the company also has received from the Chinese government, including being named as the Designated Supplier for the Beijing 2008 Olympic Games, the Guangzhou 2010 Asian Games, the 2016 Hangzhou G20 Summit, and the 2017 BRICS Summit in Xiamen; and its 2011 consumer accreditation as a Renown Brand.
“Every time there is a major government event, they consider McCormick, because of our consistent quality and food safety,” Lee said. And it’s not a simple process to be selected as a food provider for China’s government events. Rather, Lee explained, representatives come in months in advance to sample and test product. “During production, the CFDA (China Food and Drug Administration) and policemen come onsite to monitor the whole production and seal the trucks,” said China Quality Assurance Vice President Haizhou Han. “They are very, very strict. It is time consuming, but it is our pleasure to work with the government to gain their trust.” This June, McCormick China will again supply products for the Shanghai Cooperation Organization Summit in Qingdao.
McCormick is held in high esteem with consumers, government, and customers, Han said. “With our emphasis on quality, we received the first 50-year land lease under the new industrial land-lease program from the Shanghai government for our new facility in Jiading.” In China, where the land is owned by the government, 25- and 30-year rights are more the norm.
McCormick’s new facility in Shanghai’s Jiading District was built for catering to the rapid business growth of China, Han added. The company has made a significant capital investment to develop the 40,000-square-meter facility. Key investments were made in automation, machinery, worker safety, and a Technology Innovation Center (TIC).
FOREIGN OPERATION SUCCESS. One of the most critical factors that enables a company to succeed — or causes it to fail — in its foreign facility operations, is an understanding of consumer preferences. “Appeal to local taste, respect for local culture, and following the digitalization trend is crucial to winning China,” Lee said.
Food preferences in China lean more to sophisticated tastes, like blended flavors, but there also are very strong regional differences. For example, foods from the Shanghai area tend to be sweet and soy-sauce based, while the Sichuan tastes of the Xi’an area are pungent and spicy. Beijing is primarily salty with a strong focus on meat.
To develop and refine these varied tastes, McCormick’s new facility holds the company’s second largest innovation center. At 2,700 square meters, the Shanghai TIC includes culinary and analytical labs operated by more than 40 food and sensory scientists and technicians, enabling the company to create on-trend flavors for both its consumers and commercial customers.
But such innovation is not conducted in a vacuum; rather, the innovation center is built to advance both commercial and consumer input. Its technologically advanced “Create IT” room — in which consumer focus groups and customer creative idea sessions are held — is colorfully designed to reflect its spices; is environmentally focused to impart a natural interior feel; and includes advanced technology such as an outer wall that can change from transparent to opaque with the flick of a switch. The TIC’s advanced sensory lab “uses red lights (to mask sample color) so testers don’t judge the taste based on color, and iPads on which to comment,” said TIC Director Juliet Bao. Additionally, the “triangle testing” process is used, in which three samples are given, two of which are the same to discriminate or ascertain similarity between products.
The company has a significant focus on sensory science to test and develop products because, said Corporate Vice President of Global Quality and Regulatory Roger Lawrence, “It’s crucial to our business, because we’re in the business of flavor.”
The center also includes a flavor lab, food studio, and culinary area where new products are developed and tested; separate areas for Western-style and Chinese-style foods; and separate dry- and wet-application labs. The equipment and set-up of its pilot plant, which is undergoing further development, model the commercial kitchens of its key customers — from fryers to cook lines to bakery set-ups. “We have the same equipment so we can reproduce as closely as possible what they are doing in their stores,” Han said.
“Globally, we are the leader in flavor, and we are the herbs and spices expert,” Lee said. “In our China TIC, we are localizing the knowledge to create the flavors that match the Chinese consumers’ taste preferences.” McCormick also is able to leverage consumer insights and transfer that knowledge to its industrial customers which can be particularly beneficial in helping retail and foodservice customers follow regional tastes and trends. “That’s a strength that McCormick has,” he said.
“An exciting part of the ‘McCormick of the future’ includes utilizing artificial intelligence or AI to develop new products,” Lee said. “Using advanced analytics and machine learning combined with an unparalleled repository of consumer preference data, McCormick looks to accelerate the new product development process and develop winning products for our customers.” McCormick is live with this technology for a portion of the business and will expand globally over the next 24 months. McCormick China will benefit from the collective knowledge and innovation capacity of the entire McCormick global technical community.
Besides catering to local tastes, respect for local culture is also important. Take branding for example: McCormick seasonings and spices in the U.S. are recognized by their red caps and labels, but Chinese consumers recognize the brand by its green branding. This is important because in China, green is perceived as reflecting qualities of purity, reliability, and safety. It’s no accident that McCormick’s brand name in Chinese Pinyin is WeiHaoMei, which roughly translates to “tastes good.”
Growing with the digitalization trend in China also will play a significant role in one’s success in foreign facility operations. During the last decade, China has experienced a digitalization uprising. Consumers can now take orders via scanning QR code and pay with Alipay on their smartphones. They also can scan the QR code on a product with a smartphone to learn its source of origin and manufacturing information.
“Technology makes our product even more transparent to consumers,” Lee said. “McCormick China has a pilot project to promote our product superiority on the retail packaging. In the near future, QR codes will not be an option on food packaging; they will be unavoidable.”
FOOD SAFETY CHINA. It’s no secret that China has faced a number of food scandals over the last ten years. In fact, it is such incidents that have caused its government to increase its focus on food safety. With a continually growing population — now at 1.4 billion people, and a population density of more than 146 inhabitants per square kilometer, according to Statista.com — China had previously focused its efforts on simply feeding its people. “But in the last five to ten years, the government realized it had to do more to improve its quality and food safety standards,” Lee said. Since then, food companies in the country have faced ever-tightening food safety regulations.
McCormick itself has always set a goal to not only meet but exceed quality and safety standards. In fact, Lee sees that as the most important of the company’s five operating principles which include:
- Passion for Flavor. “At the heart of everything we do.”
- Power of People. A culture that encourages teamwork, global collaboration, and respect for the individual.
- Taste You Trust. With an exemplary record of food safety, it is committed to quality and purity in all products.
- Driven to Innovate. Not only creating great-tasting new products, but also embracing new ideas, technology, and ways of working.
- Purpose-Led Performance. Generating top business results, while doing the right things for people, communities, and the planet. McCormick was recognized at the Davos World Economic Forum 2018 as one of the 100 most sustainable companies in the world, and was ranked number one in the food industry for the second year in a row.
“Quality is always the key thing,” Lee said. “And after quality comes people.” Not only is a focus on the safety and welfare of the people important, but, he said, “You need to put the right people in the right place and let them perform. I think that’s why McCormick has achieved double-digit growth each year.”
AT MCCORMICK SHANGHAI. As a 24-hour operation, McCormick Shanghai runs two shifts to produce herbs, spices, coatings, marinades, and seasonings on its 20 production lines. With each line surrounded by stainless-steel clapboard, separating it from the next, the plant not only reduces the potential of cross-contact, it keeps the potentially strong odors of spices (e.g., garlic and pepper) from impacting a less piquant spice being run on a nearby line.
While China’s food safety regulations have become increasingly stringent, McCormick’s food safety and quality efforts go well beyond those to include:
- To thwart food scandals, the government now requires that food manufacturing facilities be monitored by video camera. McCormick’s 286 cameras located throughout the plant take its monitoring to a high level. Records are retained for at least a year, depending on the area being monitored.
- Worker safety is enhanced with an automated gate in the warehouse area. If a forklift is coming through, the gate is down.
- By regulation, all additives (colors, flavors, acids, etc.) are kept within a locked area.
- The microbiology and chemical labs are separate as are the routine microbiological and pathogen testing rooms.
- Only plastic pallets are used in deliveries and storage. Wood is not allowed as it is more conducive to insects and mold and can easily chip and tear packaging.
- Packaging operations are kept separate from processing, with incoming packaging sterilized in an ozone-treated room before being used.
- For its gravity-fed production, raw material is lifted up to the facility’s third floor by elevator, then piped down to the second floor for blending, then to the first floor for packaging.
- The ingredients of the blended products are pre-weighed in a separate room, with all weights checked by two people before being released to production.
- Use of an advanced cone mill grinds out any lumps to ensure uniform granule sizes.
- Products intended for customers which have higher microbiological requirements are produced in separate, closed rooms.
- All mixers have dust collectors, which reduce environmental accumulation, worker exposure, and cross contamination.
- While the equipment used for each process is optimized to the product, ingredients are completely enclosed throughout the process to final packaging to prevent cross contamination.
- Smaller, lighter runs are primarily packaged and loaded by hand; advanced automation is implemented for larger, heavier volumes, for both efficiency and worker safety.
INTO THE FUTURE. Having been in operation for less than a year, the Shanghai facility’s systems, equipment, and processes are all state of the art. But with 80,000 metric-ton capacity still being built out for its wet processing, additional warehousing, and other growth, McCormick Shanghai has plenty of room left for innovation and continuous improvement. And that is exactly what it plans to do, Lawrence said. “You have to make improvements and drive down costs, because if you don’t, others will.”
Spices have long played a significant role in China’s culture and history, and with the country’s household wealth increasing each year, consumers have become more willing than ever to pay for what they want. “If we are able to capture that trend, we see a bright future in this industry,” Lee said.
The author is Editor of QA magazine. She can be reached at email@example.com.