GLG seeks damages from bottler after ‘substandard’ product losses

By Ben Bouckley

- Last updated on GMT

Related tags Coffee

GLG Life Tech Corporation (GLG) claims it has made a ‘strong impact’ on the ready-to-drink (RTD) tea market in China, despite serious production issues in the third quarter of 2011 and warmer weather that hit consumer demand.

The Canadian firm, based in British Columbia – which specialises in stevia-based, ‘all-natural’ and ‘zero-calorie’ food and beverage products – was updating the market on both its RTD tea and stevia businesses in China.

GLG said its Chinese division AN0C was rocked by complaints from RTD tea distributors regarding “product packaging and product appearance”​, and a subsequent review by the firm and its OEM bottler determined that potentially up to 200,000 cases were affected.

With 2,000 cases to date found to be “substandard”​, GLG said it management estimated that less than 2 per cent of potentially affected batches would be accepted back from distributors in exchange for new shipments.

Damages settlement reached

Similar OEM production issues also affected up to 85,000 cases of AN0C’s vitamin-enriched water products, “a material portion of Q3 expected shipments”​ but the firm said these were not shipped to distributors.

AN0C said it withheld additional RTD tea and vitamin-enriched water orders from its OEM bottler until production issues were resolved at 2 plants and a damages settlement was reached, but that the problems were sensitive given the firm's positioning as a “higher quality product than other national brands”.

GLG said it expected to resume production orders with the OEM bottler after the Chinese national holidays, and GLG chairman and ceo Luke Zhang described the incidents as a “bump along the road”​ to building a successful consumer brand in China.

AN0C first launched vitamin-enriched water across 41 Chinese cities in August, and despite the “significant’​ OEM production issues, the firm said it expected to have reached 68 main cities and 43,000 outlets by the end of October.

The company said that vitamin-enriched water was a “relatively new beverage category”​ with only a few market brands.

It added: “AN0C management expects that this new category needs more time to grow and gain traction in the Chinese beverage market, however, the initial feedback from the market for this product has been encouraging.”

Production problems had also affected AN0C’s plans for new product launches, the company said. It now expects to launch soft drink, herbal tea, juice milk, protein milk, children’s drink and functional health lines between November and January.

Major stevia innovation

Within its Chinese tea division AN0C, GLG said its products had a point of difference in a highly competitive RTD market, citing a July survey of 1,300 consumers of whom “about half”​ linked the AN0C brand to ‘key messages’ of zero-calorie and non-fattening.

A custom-branded bottle for RTD teas launched in the third quarter (Q3) helped product differentiation, the company added, but unusually cool Chinese weather meant the sell-through of older bottles had taken longer than expected, thus affecting the new packaging launch.

Within its stevia business GLG said weaker demand from global distributors in August due to formulation challenges had led it to launch AN0C Stevia Solutions, to provide pre-mix solutions and other products.

Two new zero- and low-calorie stevia-based products represented a “major innovation”​ for food and drink companies in China, GLG said.

This was because these products enabled firms to substitute such products for higher calorie sweeteners without having to spend time masking stevia’s aftertaste, the company added.

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