Click the image for details A true hit product is one that people use daily without knowing it. A true hit product is one that people use daily without knowing it. Few people notice the small label on the side of juice and milk cartons—Tetra Pak. It is a product that is everywhere yet often overlooked. Last month, Tetra Pak issued a statement that its Foshan factory in China would cease production on July 28, 2017. This meant the closure of the old factory that had been in China for 26 years. However, closing the old factory does not mean Tetra Pak is exiting the Chinese market, nor does it affect its continued dominance as the world's largest packaging company, with annual net revenue exceeding 10 billion euros globally. Despite being accused of "earning three-quarters of the profit from every carton of milk" and being penalized for monopolistic practices, the seemingly simple packaging box has dominated the world for 66 years, and its secrets are still worth exploring. ● ● ● Twenty Years of Effort ▲ Tetra Pak founder Ruben Rausing In 1929, Ruben Rausing and his partner Erik Åkerlund founded a packaging factory named after the two of them—Åkerlund & Rausing, which was the predecessor of Tetra Pak. This packaging factory was also Sweden's first professional packaging company at the time. Although it quickly became the industry leader, it was more of a paper bag factory than a packaging company, with its main business being the production of paper bags for vendors to hold flour, wheat, corn kernels, and other food items. In 1933, the packaging factory began to conceive of producing packaging for milk and juice. At that time, a large number of farmers flocked to towns, and the demand for milk and juice increased significantly. However, milk and juice were then packaged in reusable glass bottles, which were not suitable for long-distance transportation or long-term storage. In Ruben Rausing's view, "the savings brought by packaging should exceed its own cost." At the same time, with the advent of self-service grocery stores in Europe, Ruben Rausing realized that traditional distribution methods would inevitably affect milk sales in self-service stores. If disposable packaging for beverages could be made, sales would certainly be good. Ruben Rausing began to conceive his new invention in his mind—a packaging paper lined with plastic film that was not only waterproof but also simple to produce and inexpensive. Based on the original paper bag design and with the help of engineer Erik Wallenberg, Ruben Rausing's vision became a reality. In 1944, Ruben Rausing applied for a patent for this design and named it the "tetrahedron," which is the prototype of today's Tetra Pak. ▲ Advertisement for the tetrahedron Tetra Pak Although the patent was obtained in 1944, Tetra Pak was not quickly put on the market. Ruben Rausing had a longer-term business plan—he could not simply sell this packaging to beverage companies; he had to design a perfect beverage filling line to win over beverage companies. How to add beverages to the box? How to make the machine know how much beverage to add? How to seal the package after filling? Ruben Rausing spent another six years solving these problems. It is said that his wife Elisabeth solved the final sealing problem: she suggested filling the beverage to the brim before sealing, and the sealing would press directly over the beverage, so there would be no air in the package, reducing the possibility of spoilage. After nearly 20 years of refinement, in 1951, Ruben Rausing finally developed aseptic processing and packaging technology, and Tetra Pak's first filling line was officially put into production, packaging 100 ml of cream for a local farm. In addition, the filling machines were sold directly, and within a few years, they were exported from Switzerland to Germany, France, Italy, and Japan. ● ● ● The Driving Force Behind Changing the Industry Landscape In history, aseptic processing and packaging technology brought disruptive changes to the food industry, even driving the transformation of a product and an industry. In the Chinese market, Tetra Pak is used for packaging by major dairy companies. But few people know that it is the driving force behind changing the landscape of China's dairy industry. In 1979, Tetra Pak entered the Chinese market, with the sale of filling machines as its main profit model. Over the next decade or so, it had almost no reputation in the Chinese market. The turning point came in the mid-1990s. At that time, the national dairy market demand was strong, and low-temperature fresh milk occupied the vast majority of the market share. Southern dairy companies were competing to plan their listings. At that time, Yili was still a small enterprise nestled in the Inner Mongolia grasslands. Due to the short shelf life of low-temperature pasteurized milk, Yili's products were difficult to sell in the south, and the company struggled to expand. Yili's leader, Zheng Junhuai, was extremely anxious. During a market inspection trip to the south, Zheng Junhuai discovered that Tetra Pak could help Yili preserve milk for a long time, while Tetra Pak saw the strong demand in China's dairy market. The two companies hit it off, with Tetra Pak providing equipment to Yili, and Yili shifting to the room-temperature milk market. In 1999, Niu Gensheng founded Mengniu. At that time, Tetra Pak sold valuable equipment worth tens of millions to Mengniu at a very favorable price. Since then, the two sides have forged a deep connection, and there are even rumors that when Mengniu successfully listed, the Tetra Pak team serving Mengniu and Mengniu's management team cried together in joy. ▲ Mengniu Tetra Pak pure milk For its support to Yili and Mengniu, Tetra Pak adopted a strategy of bundling equipment with packaging materials and innovating in payment methods. In the early days, these dairy companies had strong demands for capital, technology, and processes. Filling equipment costing millions to tens of millions of yuan deterred many dairy companies and greatly limited the sales of Tetra Pak filling equipment. Therefore, Tetra Pak allowed dairy companies to pay 20% of the cost upfront to purchase the filling equipment outright, with the remaining 80% used to purchase filling consumables. After the initial success of this payment model, Tetra Pak even adopted a model of giving away machines with paper purchases—providing dairy companies with filling machines worth millions for free, in exchange for them buying Tetra Pak packaging materials. Tetra Pak not only provided equipment to the two companies but also guided them on how to advertise and market. With Tetra Pak's support, Yili and Mengniu leveraged room-temperature milk to expand nationwide. Taking 2000 as the dividing line, before that, low-temperature fresh milk held the vast majority of the market share; after that, the situation changed dramatically. From 2000 to 2004, the market share of low-temperature fresh dairy products fell below 35%. During the golden age of room-temperature milk, the only factors that truly constrained the expansion of dairy companies were two: milk sources and the production capacity that Tetra Pak could provide. Therefore, when Yili and Mengniu drove the sales of room-temperature milk and changed the landscape of China's dairy market, Tetra Pak-packaged dairy products gradually gained market acceptance, and more and more dairy companies began to cooperate with Tetra Pak. In addition, at that time, China's packaging industry was a brand-new sector. Due to the rapid development of the dairy industry, which outpaced the packaging industry, Tetra Pak's emergence filled the capacity gap and gradually captured the Chinese market. To this day, Tetra Pak still holds a 75% share of China's room-temperature milk packaging market. At least 8 out of every 10 paper packages for liquid milk and soft drinks are produced using Tetra Pak's production lines and packaging materials. ● ● ● Tetra Pak-style Innovation The birth and rise of a category invariably require technological innovation and large-scale application, which is also an opportunity to seize the high ground in the market. From developing aseptic processing and packaging technology and creating the "tetrahedron" Tetra Pak, to the widespread application of "Tetra Brik" and "Tetra Fino," Tetra Pak's ability to dominate the world for 66 years, or even longer, benefits from its continuous investment in innovation. 1. Problem-backward method Although Tetra Pak is a B2B manufacturing company, from its inception it has thought about innovation from the perspective of the entire industry chain, by observing and researching end-consumer needs and then working backward to its innovation methods. Take the birth of Tetra Pak as an example: through the rise of self-service stores, it discovered that traditional milk packaging directly affected sales and could not meet the demand for drinking milk anytime; subsequently, consumers naturally needed convenient packaging, and paper packaging was undoubtedly both lightweight and environmentally friendly; then it further introduced, after providing paper packaging, how to ensure product safety and quality, and what kind of machine to use for filling. 2. Consumer laboratory In addition to market research and trials, Tetra Pak's innovation also includes the establishment of a "consumer laboratory." For example, through the study of consumer behavior, Tetra Pak's design team found that people have different drinking habits in different situations. When sitting and resting versus after exercise, people need different flow rates for their drinks, which involves the size of the opening; the way to drink different types of beverages, such as refreshing or stimulating ones, also differs. The design team would invite consumers into the "consumer observation room" to experience the appearance, size, convenience, and other aspects of alternative packaging solutions in all dimensions. R&D engineers also went deep into in-transit drinking scenarios such as subways to conduct pouring and opening/closing experiments on packaging, thereby discovering the most user-friendly opening designs. 3. Feasibility of creativity A Tetra Pak executive once said: "Innovation is doing what has never been done before. An innovation team may generate countless ideas every day. The key to turning 'ideas' into 'innovations' is to accurately grasp the feasibility of the ideas." Tetra Pak's "feasibility of creativity" aims to achieve a balance in three aspects: first, the benefits to the business; second, the impact on the environment; and third, the technical feasibility. This ensures that every innovation implementation yields good economic, environmental, and social benefits. For example, Tetra Pak uses sugarcane as a raw material instead of petrochemical products to produce bio-based polyethylene plastic. This innovation increases the proportion of renewable resources in the packaging, achieving low-carbon and environmentally friendly effects. Environmental protection has also become a brand image that resonates deeply with consumers. ● ● ● Final Thoughts Admittedly, in the nearly 40 years of development in China, Tetra Pak has been repeatedly accused of "bundled sales," and it has even been exposed that for every pack of Tetra Pak milk consumed, Tetra Pak takes a cut of more than 20%. Yili's financial reports have mentioned that its packaging costs account for 40% of total costs. But it is undeniable that Tetra Pak's success also tells us that when a company has super-strong core competitiveness and has cultivated a market large enough, it is time to "pick the peaches." In addition, innovation always starts from the consumer. Click the image for details The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in October 2017. The conference will closely focus on the theme "New Forces, New Ecosystem" and invite 1,000+ distributors, 500+ brand owners, founders of 200+ B2B platforms, and 100+ investment and financing institutions to jointly explore a new chapter of cross-industry integration! Core topics of this conference:
How can the FMCG industry leverage B2B to achieve new growth opportunities?
How should the new supply chain behind new retail be built?
How can intra-city logistics help B2B achieve leapfrog development?
Highlights of this conference:
The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
Case sharing of excellent distributors in transformation and upgrading
Upgraded conference + exhibition, Hall 6 Internet Technology Exhibition strengthens networking
Leaders from various fields, including Alibaba Retail Link, GLP Finance, Eternal Asia Supply Chain, Best Store Plus, Yijiu Pai, Unilever, Hitech Technology, and Yunmei Co., will deliver speeches on-site, presenting pioneering viewpoints.
October 17-18, 2017 Chongqing International Expo Center Registration is now open. Long-press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend with note "Conference Registration" Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum 2017 (2nd) China FMCG + Internet Conference Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum -END-