Doug Klein’s Observations on the Taiwan Retail Sector

A beverage industry executive shares insights based on long experience in the Taiwan market.

Doug Klein has lived in Taiwan for 17 of the past 28 years, on three different tours of duty separated by stints in Hong Kong. In 1987, Klein was working for McCann Erickson Advertising in his native Perth, Australia, assigned to the Coca-Cola account, when he became aware of an internal job posting that seemed perfectly suited to his talents and interests. The agency was looking for someone with a background in marketing, promotion, and media buying to handle the Coke account in Taipei. Klein applied, was offered the position, and arrived in Taipei for what was to be a two-year assignment.

His career path then took him to The Coca-Cola Company and subsequently to Swire Beverages, the Coke bottler in the region. From 2005 until last year, he was Director and General Manager of Swire Coca-Cola Taiwan, and since 2008 has served as a member of the AmCham Taipei Board for  six years and as co-chair of the Retail Committee for  seven years.

Currently General Manager for Business Development at Swire Beverages, Klein reaches the company’s mandatory retirement age of 60 at the end of this month, but plans to remain in Taiwan in another capacity. Klein recently sat down with Taiwan Business TOPICS to talk about the changes he has witnessed in Taiwan.

On the development of the local retail sector:

When I came in the 80s, more modern retailing was just coming to Taiwan, including the introduction of convenience stores, McDonald’s, and Wellcome, Carrefour, and Makro (which later moved on). A whole revolution in the business took place in that era, so it’s now a very, very different world for the companies supplying those retailers. The general trade – the mom and pop stores and the independent supermarkets – used to be a very significant part of the market. That’s not the case anymore.

Last November, Klein spoke to business students at Fu Jen Catholic University as part of a CEO Lecture series sponsored by AmCham's Innovation Council.
Last November, Klein spoke to business students at Fu Jen Catholic University as part of a CEO Lecture series sponsored by AmCham’s Innovation Council.

Instead, you’ve got much more professional retailers and a greater concentration of retailers. For Coca-Cola,  over half of our business now is with just 10 customers. And if I were at Procter & Gamble or Nestle or Unilever, it would be even more concentrated, because  Coca-Cola  also sells to restaurants, entertainment, vending and other on-premise channels.

Retailing has become better in many ways for the consumer in terms of variety, safety and cleanliness, while from a supplier point of view it’s more challenging – and of course this is a worldwide trend. Retailers now have much better knowledge and they’re rightly more demanding than they used to be, so the suppliers have had to lift their game

Retailing has become better in many ways for the consumer in terms of variety, safety and cleanliness, while from a supplier point of view it’s more challenging – and of course this is a worldwide trend.

In other ways, though, things haven’t changed all that much. When I first arrived and was undergoing orientation, I was told that this is a very competitive market, with 200 new beverage products introduced in the previous year, and that the situation couldn’t last. There had to be a shakeout, there had to be consolidation after a while. Well, 28 years later it still looks the same.

Almost the same list of companies is still here. A few have disappeared, a couple have come in, but for the most part it’s the same cast of characters. That makes for a very fragmented market, with the result that many companies struggle to achieve economies of scale. Each one holds just their little piece of the pie, and it’s hard to get a significant share of the market.

Whereas in the huge market of China we compete against five or six major companies, in Taiwan I can think of 30 competitors. In our system Taiwan is recognized as one of the most challenging markets in Asia. And the fact that we’ve had such little inflation adds to the problem. Prices are very low for what is really a developed country and haven’t gone up for a long time, while a lot of our raw material costs are international and are rising. So margins are always under pressure. That’s great for the consumer, but not so easy when you’re doing business. It means you have to work harder on your marketing and cost control.

Prices are very low for what is really a developed country and haven’t gone up for a long time, while a lot of our raw material costs are international and are rising. So margins are always under pressure.

On changes in the beverage market:

Klein with some of his company's products, including Coke in bottles and cans, as well as Minute Maid orange juice and Japanese green tea.
Klein with some of his company’s products, including Coke in bottles and cans, as well as Minute Maid orange juice and Japanese green tea.

In our case, our original, core brands are centered on sparkling beverages. You have to keep refreshing those and giving consumers a reason to keep coming back to them. At the same time you’ve got to extend into other categories. In many ways we follow what Coke does in Japan, where we compete in many non-sparkling categories. The Coca-Cola Company sells the number one coffee, the number one sports drink, the number one green tea, and the number one blended tea. We’ve tried to adapt some of those products into Taiwan.

We really have had to transform the portfolio over the years. Since I came back in 2005 for my third time in Taiwan, we’ve initiated many new products. We’ve gone into juice with Minute Maid, and we’ve introduced various Japanese teas since 2010 – and we’ve also had Nestea lemon tea going back 20 years.

Interestingly, everyone thinks of Coca-Cola in terms of sparkling drinks having plenty of calories, but 20% of our sales today have no calories at all, between the two Japanese teas, Coke Zero, and water. That’s a huge change from just a few years ago.

Interestingly, everyone thinks of Coca-Cola in terms of sparkling drinks having plenty of calories, but 20% of our sales today have no calories at all, between the two Japanese teas, Coke Zero, and water.

One of the challenges here, of course, is that the demographics are working against us. As the population ages, our core target – the age group between 12 and 24 – is smaller every year. As that shrinks, you’ve got to compensate for it in some way, and that comes back to putting a lot of stress on marketing. That includes developing new channels, new packaging, and linking with food – for example, we do a lot of promotion with food occasions. It also entails a lot of work with social media. It’s all about how to take an old brand and keep it relevant.

The other interesting thing for beverages in Taiwan is the popularity of bubble tea, which is massive here, and brewed coffee. In fact, the two biggest developments for Taiwan beverages in the last 15 years have been the growth of brewed coffee and bubble tea. Not so many years ago, Taiwan wasn’t a coffee market at all. When I first came here, coffee was either Mr. Brown, which was a coffee-flavored soft drink, or sweet and creamy 3-in-1, which was invented for the Taiwan market. The whole brewed coffee culture is really a phenomenon of this century. Last year a BBC article even included Taipei on a list of the six top coffee cities in the world, along with Seattle, Melbourne, and a few others.  It’s incredible, considering that Taiwan is so strong on tea and came to coffee so late. But it’s just embraced coffee in a big way.

And there’s still a lot of tea consumption. Visitors from abroad are just amazed at how much tea is consumed. In most soft-drink markets, our colleagues talk about the number of “black doors” in a convenience store, exclusive for Coke and Pepsi. Here you have “green doors.” And perhaps one shelf of soft drinks.

 

On the spate of food-safety incidents of recent years:

If you go back to the melamine episode of 2008, that was a serious health issue. Babies died – not here, but in China. But a lot of the “crises” since haven’t proven to be so serious in terms of their effects. A lack of leadership and a lack of respect for science allows them to become a scare, and everyone panics. Too many of the people in the media and in politics and NGOs are interested in turning it into a bigger issue instead of trying to exert a calming influence. It becomes a contest over who can grab the latest headline with the latest scare tactic. I don’t think you can blame a particular political party or individuals, but it rather reflects the changing social environment and shifts in the power base among stakeholders.

It becomes a contest over who can grab the latest headline with the latest scare tactic.

Unfortunately all these little things become distractions, causing some big things to be ignored. Taiwan has some major long term infrastructure challenges, such as the water supply, which we’ve known was a problem for a long time but haven’t addressed.  Electrical power supply is another major crisis coming up. It doesn’t help to allow distractions to keep you from dealing with such major infrastructure challenges.

How could the process be managed better? Right now there’s too much of a tendency to point fingers and blame people. Something goes wrong and you change the premier and reshuffle the cabinet. It becomes a real disincentive for good people to go into government service. Ministers come into office knowing that if a problem comes up they’ll have to fall on their swords, whether or not the problem really had anything to do with them.

Ministers come into office knowing that if a problem comes up they’ll have to fall on their swords, whether or not the problem really had anything to do with them.

The food issue is really symptomatic of larger issues in Taiwan. In the U.S., if there was a food crisis and the leading government scientists and academics gave reassurances, 95% of the people would listen. Such authorities would have credibility, and that applies in many countries. But here those same types of people aren’t accorded a similar level of respect.

With its aggressive media, heated opposition politics, and active NGOs and Legislative Yuan, Taiwan is very different from what it used to be. Maybe some of the problems just stem from this being a learning curve for a young democracy. Adding to that now is the existence of social media and the 24-hour news cycle. There’s a worldwide phenomenon of shorter attention spans, and Taiwan democracy, without a lot of history behind it, is developing within that cauldron. It becomes hard for government to come out and make long-term commitments.

 

On living in Taiwan:

Klein served as master of ceremonies at AmCham TaipeiCreativity Night last October. Here he poses with the top team in identifying CLIO-award winning advertisements and ad campaigns.
Klein served as master of ceremonies at AmCham Taipei’s Creativity Night last October. Here he poses with the top team in identifying CLIO-award winning advertisements and ad campaigns.

On my first trip to Taiwan, I was staying in what was the Hilton Hotel, now the Caesar Park, opposite the train station, with four lanes of traffic each way and buses belching exhaust fumes into the air. Having just come from a very clean and quiet city, Perth, it was rather off-putting. Plus, I was alone and everything seemed so foreign and unfamiliar. But if you got through the first six to nine months, you were okay. You got a different perspective, and what you at first had considered crazy or at least disconcerting became the charm of the place.

The living conditions these days are so much better. In the early days, my wife and I would say ‘let’s fly over to Hong Kong for some fresh air and cheap meals out.’ Not now. Taiwan today is so much cleaner and nicer, partly due to positive initiatives and partly because many industries have relocated offshore. The traffic is much better, the air quality is better, and the introduction of the MRT in the 90s has made Taipei a much easier place to live.

I’ve also enjoyed working with the people – employees, customers, suppliers, the whole network. Despite the bureaucratic problems, Taiwan really is very welcoming to foreigners. Our company has brought a number of people in from other countries and they all settle in very well, from singles to people with families and kids.

Hong Kong in many ways is operationally more efficient, but you don’t have the same personal relationships. I’ve enjoyed that opportunity to build relationships, and it’s possible to do even when you may not have a language in common.

I’ve just recently received my Permanent ARC, and so look forward to many more happy years in Taiwan.

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