Latest Yili Scandal Puts China Dairy Industry On Edge of Oblivion

Last week, China's Yili brand of milk was making headlines for its bold moves to place its products in American entertainment, including the hit TV show The Big Bang Theory. Yili made its western product placement debut last year — alongside other Chinese brands — in Transformers: Revenge of the Fallen. After that plumb role, Yili claims its sales rose at least 20 percent.

What a difference a week makes. The latest headlines for the Yili brand include the terms "unusual amount"  and "mercury." It's a scandal that leaves China's milk industry teetering precariously at the point of no return. Or at least, at the point of no return for a generation.

During a routine quality check, The Shanghai Daily reports that China's regulators "examined samples from 715 infant formula products, covering all of the country's formula producers" and, ominously, found that "Yili was the only company found to have its products contaminated with mercury."

One of the reasons quality checks of baby formula and milk products has become more routine is that in 2008 several children died after widespread melamine poisoning from China-produced milk. Thousands more were sickened. Large brands such as Starbucks cut off all ties with the dairy. Two men were later executed over the affair.

Despite making promises, China Mengniu Dairy Co, Yili's parent company and China's largest dairy, was again found to have produced tainted milk just last year.

Food quality concerns are one of Chinese consumers' primary concerns. Seemingly every day there is a new report on food contamination, leading many to only trust imports. (Even then, there have been scandals about products produced for export involving, what else, milk.) Indeed, on the same day the new Yili mercury story was in the Shanghai Daily, another page of the same paper reported that "a number of big food and mineral water brands such as Qiaojiashan and Robust failed recent quality tests." Qiaojiashan and Robust, who the heck has heard of them? The report added: "2.37 tons of Evian mineral water imported by a firm in Beijing contained excessive nitrite. It marked the sixth time the high-end water brand failed quality tests." Oh, OK.

Some of those "contaminated" results may be a result of standards as much as a deeply contaminated product, especially in Evian's case. But from a communications perspective, "excessive nitrite" is the only thing consumers — most of whom don't even know what "excessive nitrite" means — take away.

As Reuters' John Ruwitch explained in a breakdown of Yili's latest woes, China's micro-blogging community became the brand's worst nightmare, a negative message multiplier.

Yili's case is especially dire in that bad milk contamination public relations A) seems to happen a lot more often; and B) often impacts children. Since 2008, there have not been the mass illnesses and deaths associated with tainted dairy products. But every instance of tainted milk reopens the bad publicity of that time, after which brands like Yili need too start all over again. In fact, why should Yili even bother to waste a single jiao on a marketing department if the millions of yuan it spends are to be upended every year or so by a story of contaminated product?

More importantly, branding in China's domestically-produced milk industry is beiming completely pointless. The only battle left for domestic brands should be to make sure to guard against any more large scandals. It might just take one more, from any one brand, to wreck it for everyone.

The latest China dairy news moves the entire secretor closer to a point where Chinese consumers will, for a generation, wash their hands of domestic dairy completely, mercury and all.