Chinese snack giant charged millions for alleged false advertising

By Gill Hyslop contact

- Last updated on GMT

Copico Potato Chips are the signature dish of Dali Foods. Pic: Dali
Copico Potato Chips are the signature dish of Dali Foods. Pic: Dali

Related tags: Dali Foods, Lawsuit, Potato chips, China

Dali Foods has been given a whopping fine for allegedly using misleading advertising messages that have a ‘substantive impact on consumer behavior’ to punt its popular potato chips.

Dali – one of China’s largest snack food companies – has been slapped with a 36.73 million yuan ($5.3m) fine for alleged false advertising.

Lianshui County’s market supervision administration imposed the hefty fine on Dali Foods Group Co. following a consumer complaint about a misleading promotion.

The consumer from Huai’an in eastern China’s Jiangsu province had followed directions on one of the company’s signature products – Copico brand potato chips – to win a virtual red envelop filled with cash.

The snack company claimed it had distributed 145 million winning chip cans around the country.

Upon winning, the consumer was given the choice of accepting the cash or donating it to one of two charities indicated on the packaging.

However, after entering, Zhong found the promotion had ended and reported the incident to Lianshui County’s market supervision administration.

Eight months of investigation revealed several big discrepancies.

According to Guo Bo, an official at the regulator, his office could find no evidence that one of the charities – the China Cultural Protection Foundation – ever existing, while the other – the China Intangible Cultural Heritage Public Welfare Fund, affiliated with the China Foundation for the Development of Social Culture – had been discontinued in 2011.

The latter charity said it has never cooperated with Dali Foods Group on any promotions.

Serious violation

Moreover, the regulator’s investigation calculated that just over 90 million cans bearing the promotion had been distributed – far fewer than the 400 million claimed on the packaging.

“The actual number of red envelopes was way lower than promised, and neither of the two charity organizations currently exists,”​ said Guo said.

“This is considered false advertising and is a serious violation of the relevant regulations of China’s advertising law,” ​said Guo, noting the country forbids using misleading messages that have a ‘substantive impact on consumer behavior.’

According to the national advertising law, a fine imposed for false promotion should be between three and five times the company’s advertising expenses. The regulator arrived at Dali’s 36.73 million yuan fine by calculating that 91.82 million cans of Copico chip had been distributed at 0.1 yuan per can in advertising costs – totalling 9.18 million yuan – and multiplying that figure by four.

Printing error

Dali Foods Group has objected to the fine, which it claims is 'not in accordance to legal principles' and  stating that a printing error occurred, placing the wrong charity name on the promotion’s packaging.

The company said the charity it had actually collaborated with for the promotion was the China Foundation for Cultural Heritage Conservation – known for its efforts to restore the Great Wall – however, this has not been confirmed.

Fujian-headquartered Dali Foods Group was founded in 1989 and produces potato chips, cakes, herbal teas and other food and beverage products.

The company went public on the Hong Kong Stock Exchange in 2015, placing its chairman and founder, Xu Shihui, as Fujian province’s richest entrepreneur.

Earlier this year, Dali cracked Forbes’ list of the 2,000 largest companies in the world.

Related topics: Emerging Markets, Snacks, Markets