State-backed Chinese food giant Bright Food Co continued to make progress with its “go global, bring in” ambition when it acquired a majority stake in Italian olive oil manufacturer Salov Group last week. The move is typical of Bright’s international strategy as the group continues to further its agenda to grow globally and bring overseas brands to Chinese consumers. Katy Askew reports.
State-owned enterprise Bright Food Co. is China’s second-largest food processor, with activities spanning agriculture, sugar, dairy, canned foods and cereal. And it is working to further a clear agenda.
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By GlobalDataThe company has controlling stakes in four publicly-traded Chinese companies, including dairy products manufacturer Bright Dairy, canned food processor Shanghai Maling Aquariua and confectioner Big White Rabbit. Bright’s interests also span food retail, rice wine and logistics businesses.
In line with goals espoused by Beijing, Bright is operating under a mandate to secure China’s food supply, providing high-quality, safe products to meet the growing demands of the country’s increasingly wealthy population.
Food safety is key to the group’s mission. According to the company: “Food is the most important thing for people and safety is the most important thing for food.”
Bright has set out an ambitious three-year expansion strategy that aims to grow total revenues by more than CNY50bn (US$8.2bn) in the period. The company has targeted sales of JPY150bn by 2017 – implying an average annual growth rate of around 12% a year.
International sales are an important plank of this target – and its drive to improve product safety. The company has said international sales should account for 25% of group revenue by 2015, up from 15% at present.
For Bright, the extension of the company’s influence in the global food sector carries a number of meaningful benefits.
Increasing its exposure to international companies secures lines of global supply for Chinese consumers. Significantly for a company which has had a major weakness historically of failing to identify problems in the production process, M&A enables the group to learn from the expertise of global food makers, delivering safe, reputable brands to shelves throughout China.
Bright has leveraged its financial clout to this end, using M&A as a tool to step up its overseas presence.
In recent years, Bright has gone on something of an acquisition spree. In 2010, the group snapped up a stake in New Zealand’s Synlait Milk. In 2011 the group purchased 75% of Australia’s Manassen Foods. Last year the company took a controlling stake in UK cereal group Weetabix. This year, the company has entered an agreement to acquire a majority stake in Israeli food company Tnuva. And, last week, the company announced plans to take what it termed a “majority” stake in Italian olive oil maker Salov Group.
While Bright’s international acquisitions span various markets and straddle a number of packaged food categories, common patterns have emerged.
Bright is buying up stakes in companies that manufacture reputable brands in areas of Chinese consumption growth.
Generally speaking, Bright appears to be targeting companies that are privately-held or owned by private equity.
And the Chinese firm is stopping short of taking full ownership (although speculation is mounting in the UK that Weetabix could become fully owned as other shareholders including Lion Capital look to exit their investment cycle). Rather, a majority stake gives Bright the final say in the boardrooms of these businesses, which continue to operate on a stand-alone basis, without taking away any of the managerial experience that has gone into building their success.
Bright can bring a lot more to the table than hard cash. The company offers a leg up for these international brands as they look to tap into the opportunities on offer in China.
Take Weetabix, for example. In 2013, the UK cereal manufacturer was facing a stagnant domestic market. While international expansion opportunities in regions including Asia and the Middle East were – and are – significant, securing distribution and reaching critical mass remained challenging.
Enter the dragon. Bright’s already strong distribution channels and customer relations in China appear to be proving a massive benefit. According to the Chinese group, Weetabix has showed some progress in China.
“Generally speaking, Weetabix faces challenges in British market, but its international market has developed quickly,” Bright revealed. “Weetabix’s Chinese team brought forward clear objective and concrete measures for 2015, striving to achieve [a] great breakthrough on the existing basis.”
Having established a foothold in the market, Weetabix is now working to grow its Chinese business through initiatives such as the launch of a range of Alpen bars designed specifically for Chinese tastes. The company hopes flavours such as green tea and chocolate will help drive growth in what remains a fledgling category.
Euromonitor International analyst Pinar Hosafci believes these efforts could well pay dividends for the cereal group.
“Chinese consumers usually start the day with hot savoury foods such as noodles and rice but snack bars and cereals are growing trends, especially among working women and office workers in urban areas,” Hosafci tells just-food.
“There is no reason why the new Alpen green tea snack bar would not work in China. In fact, over 2009-2014 snacks bars in China is expected to record a 30% value CAGR in fixed constant US dollar terms, well above the global average of 3.5%, making China one of the fastest-growing markets globally. The product is convenient, tasty, relatively cheap and has a Western brand attached to it – all of which could contribute to its success.”
Bright’s most recent announcement that it is to take a stake in family-owned Salov was a deal cast in this mould.
The company revealed last week it is taking a “majority” stake in the Italian olive oil maker from the founding Fontana family, who will remain with the business.
Headquartered in Tuscany, the olive oil maker exports to more than 60 countries worldwide and generates annual revenues of approximately EUR330m (US$417.7m).
Salov manufactures the Sagra and Filippo Berio brands and its messaging around quality and provenance is strong. The group boast “leading positions” in the US, with a market share of 19%, and the UK, with a share of 23%.
However, the mature olive oil categories in Europe and North America have felt the squeeze of growing private-label penetration in recent years.
Prices have been forced down by increased uptake of supermarket own-label products and growing incursions from new entrants to the olive oil scene. Manufacturers in countries such as Chile and Australia are playing a growing role and competition is rising.
The situation has been compounded by poor macroeconomic conditions and soft consumption.
In order to deliver top-line growth, Salov’s leading brands need to make headway in emerging markets where consumption is growing and the Mediterranean provenance message remains a strong selling point.
Bright could be just the partner to help Salov achieve this. In a statement, Bright said it plans to grow the business by “leveraging the growth opportunities in the Chinese market”.
Olive oil remains a relatively niche product in China but the scale of the opportunity is nevertheless significant.
According to data from the China Chamber of Commerce of Foodstuffs and Native Produce, the amount of olive oil China imports has jumped in recent years. Total olive oil imports rose to 43,400 metric tonnes in 2013, up from 14,700 metric tonnes in 2009.
“As with many other food categories, exposure through travel and eating out in particular, as well as through the media, is driving demand and olive oil’s positioning ties in nicely with Chinese consumers’ desire for healthier and – given that it is imported – safer food choices,” Torsten Stocker, partner at consulting firm AT Kearney, notes.
“The common challenge in growing broader adoption will be to educate Chinese consumers on when and how to use it and overcoming possible resistance to changes in the flavour of a dish.”
Like Manassen, Weetabix and (the closing of the deal notwithstanding) Tnuva before it, in Salov Bright has taken control of a branded player that operates in an area of strong consumption potential in China.
The involvement of the Chinese giant in the operations of these international businesses is a win-win for each group as they look to benefit from their respective strengths: brands and expertise on the one hand, access to Chinese consumers on the other.
As with so many of the narratives surrounding China, Bright’s international expansion drive has its roots in feeding the Chinese consumption revolution.
With growth continuing apace in what is already the world’s largest grocery market, it is highly likely Bright has more deals in the pipeline as the Chinese state-owned enterprise works to extend its global reach and secure domestic supply.
