Yonghong Food seeks to expand with PE backing

Beef jerky seen as 'next big thing' in China's rapidly evolving food sector

In the mind of manager Yi Ming, no matter how niche a market is in China, if a type of consumer product can achieve a leading position, the economic benefits can be huge.

Yi, who led operations for brands including Marlboro, Heineken, Tiger and Dole Juice in the past 25 years, is the new chief executive officer of Yonghong Food Co Ltd, one of the top three players in the Chinese beef jerky market.

"I have missed opportunities for water and herbal tea products that were huge successes in China; beef jerky can be the next opportunity and I must seize it," Yi told China Daily.

Yi was referring to water brand Wahaha and herbal tea brand Jiaduobao, two of the most successful products in China in terms of sales performance. In 2009, Jiaduobao's annual sales totaled 19 billion yuan ($3.1 billion).

Four months ago, the China-focused private equity firm Lunar Capital Management invested $50 million in Yonghong to buy a 70 percent stake in the company. Yi was then invited by Lunar Capital to lead Yonghong.

Set up in 1984, Yonghong is headquartered in Huishui country, Guizhou province, and owns the Niutou, or Bull Head, brand, which is recognized as a China Famous Trademark.

However, as the company's three founders - rural entrepreneurs Tang Kelin and Tang Kexiang and their neighbor Liu Zhongying - became older and the second generation didn't want to take over the business from them, they started to seek outside talent. Lunar Capital as well as Yi were their choices.

Lunar Capital has advanced management experience, which may allow the company to go public and boost exports, said Liu.

Derek Sulger, founder of Lunar Capital, said that after controlling a company, the private equity firm seeks to improve its management.

In the past 14 years, Lunar Capital has focused on the Chinese market. The firm has invested in Beihai Perfuming Garden Co Ltd, a leading processor of tropical fruits; Yeehoo, the largest domestic babywear brand by sales; and Sichuan Zhiqiang Group, which sells beverages under the brand name Joysun.

Yi said that for nearly 30 years, Yonghong has been synonymous with quality and taste, but it's not popular among younger customers.

"So our goal is to make the brand younger, change the packaging and strengthen promotion efforts," said Yi.

He added the company will carry out different promotion activities and launch advertisements based on different lifestyles.

In addition, besides traditional distribution channels like supermarkets, e-commerce websites such as 360buy.com and Dangdang.com will be more commonly used.

Yi said that beef jerky has many advantages compared with other snacks. For instance, its target consumer group is large because people aged between eight and 48 can eat it. Also, the product is easy to store and doesn't need preservatives.

"The beef jerky sector has a low policy risk and few strong competitors," said Yi, adding that they are also considering merger and acquisition opportunities in other sectors of the leisure food sector, such as melon seeds.

Besides Yonghong's Bull Head brand, the other famous brand in the sector in China is made by Mother of Yang Shengtang Co Ltd.

"Yonghong Food's annual sales are now about 300 million yuan, and we plan to make it 3 billion yuan in five years," said Yi.

Yi has visited about 80 countries around the world and has accumulated lots of sales experience in places such as Pakistan, Afghanistan and the Middle East.

"Beef jerky is a Muslim Halal food, so we are considering selling it to Islamic countries," said Yi, adding that they will step up promotion efforts in countries including Iran, Iraq, Indonesia, Tajikistan and Uzbekistan.

Yi said that the company will be cautious to guarantee that its business runs smoothly in new markets.

"We're not satisfied with owning a brand in one country, both Lunar Capital and I are aggressive and we want to achieve something," said Yi.

Consumption-related companies have recently attracted attention from many private equity investors. According to the ChinaVenture Group, there were 29 private equity deals made in the consumption and service sector in the first half of this year and their value totaled $553.74 million. In 2012, 72 deals worth $2.28 billion were made.

David Liu, a partner at KKR and chief executive officer of KKR Greater China, told China Daily earlier that they are long-term investors in China.

"We believe that over time, the restructuring of the Chinese economy and continuing urbanization will lead to an increase in domestic consumption, which will in turn generate attractive investment opportunities," said Liu.

Wang Chaoyong, chairman and chief executive officer of China Equity Group Inc, a Chinese private equity firm, said the firm had amassed a fairly diversified portfolio to prepare for the era when consumers become the pillar of China's economy.

caixiao@chinadaily.com.cn

(China Daily 09/24/2013 page17)