Old Company Case Essay

We are a very old company, but we recognise that our customers are changing, so we continually develop new products to reflect this. David Lee, managing director, Lee Kum Kee Company2 The problem with a lot of family-controlled local brands that have a long history behind them is that it’s very easy to become old and run out of steam. – Antony Chow, vice-president for Greater China, RSCG (an advertising agency)3 The sauce company Lee Kum Kee, one of the best known Hong Kong brands, certainly did not have the problem mentioned above, although it did have a long history that began in 1888, and was run by the same family through four generations. The company was founded by Lee Kam Sheung as a small oyster-sauce manufacturer in Guangdong Province, China. It relocated to Macau in the early 1900s, moved once more to Hong Kong after World War II, and was based there in the decades afterwards. Lee Kum Kee was already expanding beyond the Guangdong-Macau-Hong Kong distribution network in the 1920s to North America, when it was also making shrimp paste. In the 1970s and 1980s, after the torch passed to thirdgeneration leader Lee Man Tat, there was a diversification of geographical markets as well as products at a very quick pace. Lee Man Tat’s sons, who were educated in the West, inherited the leadership from their father in the 1990s, and the pace of modernisation and diversification continued while the Company’s marketing strategy remained as vigorous and Vincent Mak prepared this Case under the supervision of Dr. Chi Kin (Bennett) Yim for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. This Case is part of the Trade & Industry Department SME case series funded by the Hong Kong Special Administrative Region Trade and Industry Department SME Development Fund. Any opinions, conclusions or recommendations expressed in this material/event (by members of the project team) do not reflect the views of the Government of the Hong Kong Special Administrative Region, Trade and Industry Department or the vetting committee for the SME Development Fund.  © 2003 by The Centre for Asian Business Cases, The University of Hong Kong. The Company moreover overcame a consumer-confidence crisis — called 3-MPCD crisis — in the late 1990s and early 2000s and continued to thrive. By early 2003, Lee Kum Kee had already developed more than 200 sauces. Its distribution network covered 60 countries in five continents, and its products were available in more than 80 countries. What lessons about strategic brand management can we learn from the way Lee Kum Kee developed, maintaine d and expanded the reach of its products over a whole century? What lessons about crisis management does the Company’s handling of the 3-MPCD crisis offer? Lee Kam Sheung was born in 1868 in Qibao, a village in Xinhui, Guangdong Province, China. Threat from local gangsters forced him to leave his farming life and move to a small island called Nam Shui in the same province, where oysters were abundant. Lee opened a small restaurant there, often using oysters as stock for soups. One day, while cooking oysters, he absent-mindedly walked away for a long time, so that when he remembered the oysters and looked at the soup, it had already become a thick, strongly aromatic liquid, which he found delicious. Hence the birth of Lee’s oyster sauce, which he began producing under the brand name of Lee Kum Kee in 1888 (â€Å"Kee† meaning â€Å"company† in local Cantonese). In 1902, a fire destroyed Lee Kam Sheung’s manufacturing plant, and he moved to nearby Macau, where oysters were also abundant. He began to sell shrimp paste as well as oyster sauce, and his business soon covered Guangdong, Macau and Hong Kong. Of Lee Kam Sheung’s three sons and two daughters, the eldest son died young, and the family business passed to his two remaining sons, Lee Shiu Tang and Lee Shiu Nan. The former was responsible for marketing while the latter took up product quality and improvements to production procedures. The Company’s products were already selling successfully among the Chinese immigrant population in North American cities at that time. The company opened a Hong Kong branch in 1932 while expanding to meet the increasing demands of overseas markets. In 1946, after the Second World War, the two brothers moved their headquarters to Hong Kong, where the prospering economic climate was more conducive for businesses. The 1970s and 1980s5 Lee Man Tat, son of Lee Shiu Tang, took over as Company chairman in 1972, taking the Company to new heights. His era was marked by agile and flexible marketing; production enhancements through the automation and modernisation of production techniques; further expansion of geographical markets and sales networks, and large-scale diversification of sauce products. One of Lee Man Tat’s important early moves was to launch a new brand called Panda Oyster Sauce, capturing the hype caused by the Chinese government’s gift of a pair of pandas to US President Richard Nixon during his visit to China in 1971. The Panda brand was created as a result of slow growth in the Company’s traditional product, premium oyster sauce, which was too expensive for many families. Panda Oyster Sauce was reasonably priced and was expected to have stronger market penetration power. The brand, however, did not secure a good foothold at once, but after some effective marketing efforts it became a hit and outperformed the old labels.   Lee Man Tat learned from the success of the Panda brand that he needed to cater to different market segments. He soon launched a string of new products and brands at different prices and for different tastes, such as chilli sauce, sweet and sour sauce, chicken marinade and curry sauce. These products did well particularly in North American Chinese restaurants. In 1980, the Company, which was still quite small, with only 25 staff, began exploring the Mainland Chinese market. It was extremely difficult for them at the start, as they knew little about the market. Everything they exported to the Mainland was wrong, from the products themselves to packaging and prices, according to Lee Man Tat’s son Eddy Lee Wai Man, who joined the Company in 1980.6 The Company then reduced the number of products for the Mainland market from 50 to 15, in order to focus its promotional efforts. The products gradually became well-received in the Mainland, although delayed payment from retailers emerged as a problem. In the 1980s, Lee Man Tat’s four sons — Eddy, David, Charlie and Sammy — returned with different US degrees to Hong Kong within a couple of years of each other and joined the Company as interns.7 They all started their stints with low-level duties but as their managerial involvement increased, they began to introduce more and more new concepts from the West. When Lee Kum Kee celebrated its first 100 years in 1988, the Company changed its logo to symbolise its vision of â€Å"building a cultural bridge between East and West with our sauce products†. The Company underwent still greater changes after the 1980s. As Eddy Lee took on more and more leadership responsibility, becoming managing director and then chairman of the group, he and his brothers unleashed new initiatives that combined the flexible strategic approach of their father with Western business thinking. Quality and modernised branding were emphasised, as was an up-to-date information technology system. New Products, Brand Building and Market Expansion In 1992, the Company launched a super premium gourmet sauce called XO sauce, which was made from dried scallop, ham and dried shrimp, and had a variety of applications on noodles, porridge, dim sum, sushi, stir fry dishes and other dishes. The sauce’s popularity was a great triumph for the Company. The sauce was later diversified into additional variants such as XO Seafood Sauce and Premium XO Sauce with Abalone. In 1994, the Company started selling soy sauce, a generic product for which there were established competitors. As a result, sales were slow at the beginning.9 The Company then observed that, in most homes, the amount of soy sauce used for dipping was fairly low, both in frequency and in volume. For the Hong Kong market, however, steamed fish was popular among the Chinese, and housewives wanted to make their home-cooked steamed fish taste like those in the restaurants. Lee Kum Kee saw that it could develop a soy sauce that was sweeter than normal soy sauce, specifically for seafood. The strategy led to success, and the Company went on to develop variants including chilli soy sauce, sweet soy sauce, saltreduced soy sauce, mushroom-flavoured dark/light soy sauces, etc. Lee Kum Kee did not invest significantly in its brand until the early 1990s.10 In 1994, it scrapped its old product labels — as David Lee himself said, the old product labels were boring to him.11 The arch of the company logo became a â€Å"Golden Plaque† that implied a guarantee of product quality, while a detail of the traditional Chinese window frame at the border of the plaque reflected the Company’s Hong Kong heritage. By the late 1990s, the Company aimed to use its name and history in Asia and the many Chinese communities around the world to penetrate the general US and European household market.12 On the industry side, the Company capitalised on its status as a premier Asian food brand to expand its network of retailers, restaurateurs and other manufacturers in the West. Most importantly, to make its products even more consumer-friendly and to appeal to young families that did not wish to spend too much time on cooking, the Company continuously widened its product line. Examples included single-use sauce packets with instructions on how to prepare specific dishes, and a larger variety of ready-made sauces that could be used with a range of ingredients. Even its oyster sauce products came in variants such as Premium, Panda Brand, Choy Sun, Vegetarian and others with added dried scallops and mushrooms. In 1998, the Company launched its first five varieties of sauce packets; in the following year, it added 11 more to include dishes such as sweet-and-sour fish, black-bean chicken and spicy tofu. These lines of products became popular in Asia and were then introduced to the West. Throughout the process of geographical diversification, for new as well as old products, the Company observed the different needs of different regional markets. As David Lee said:13 We †¦ have different packaging and tastes to suit different markets, so a chilli product in Japan will come in smaller bottles and be sweeter and less thick, for instance, than it would be in Ho ng Kong. Development in China14 Lee Kum Kee built its first factory in China in 1990; the plant was located in the southern province of Guangdong. Its sales expansion also started with the Guangdong Province but gradually moved north; in 1998, the company began to sell its products in Beijing. In 2002, the Company’s sales in Beijing had already increased more than 10-fold since it entered the market there, while its sales in Guandong were also growing at a double-digit annual rate. The Company had three factories in the Guangdong Province and was considering setting up new ones in northern China. Lee Kum Kee was turning its market development focus back from overseas to the Mainland in the early 2000s. The potential for the development of this obviously huge market could also be seen in the fact that, of the 200-odd products of Lee Kum Kee, only about 60 were sold in the Mainland. As with other markets, Lee Kum Kee was sensitive about different customers’ tastes, so that a Lee Kum Kee sauce in Beijing might taste a little differently from a similarly named sauce in Shanghai. By 2002, the Company had more than 500 distribution networks in the Mainland, and was ranked fourth in total sales in the sauce market, but it had not yet expanded fully into secondary cities in provinces such as Szechuan and Guangxi. In an interview in 2002, Eddy Lee said it would already be great if Lee Kum Kee could secure one per cent of the Mainland market, which was very fragmented.