Monthly Digest: China Food Sector in March 2021

Company Dynamics

1. Danone reached an agreement with COFCO Dairy Investments Limited to covert Danone’s stake in China Mengniu Dairy Company Limited, currently held indirectly, into a direct holding and would consider reducing its holdings in the next step. The move means Danone and its China partner would go separate ways and become competitors. Also in this month, Danone announced to oust Emmanuel Faber as chairman and CEO at Danone.

2. Beyond Meat announced the establishment of a three-year global strategic agreement with McDonald’s Corporation. As part of the deal, Beyond Meat® will be McDonald’s preferred supplier for the patty in the McPlant®, a new plant-based burger being tested in select McDonald’s markets globally.

3. American coffee brand Blue Bottle Coffee posted a job advertisement for a Shanghai-based brand director. The move implies that Blue Bottle Coffee may open its first Chinese mainland store in Shanghai.

4. Nestlé will invest in constructing a new coffee research and development production base and a baby complementary food production base in Qingdao.

5. The Swedish company Veg of Lund announced that its newly launched DUG potato milk would enter the Chinese market this June.

6. Bright Dairy released a preliminary plan for its non-public offering, which planned to raise no more than 1.93 billion yuan to construct five dairy source pastures and supplement working capital.

7. Reckitt Benckiser is considering selling its infant formula business in Greater China in a deal that could be worth more than $2 billion (about RMB 13.016 billion), Reuters reported, citing two people familiar with the matter.

8. Fresh Hema started to adopt the strategy that all domestic low-temperature milk on the shelf "only sells for one day" to ensure product freshness.

Financial results

1. Ausnutria released its 2020 annual results, showing that it recorded revenue of RMB 7.986 billion, a year-on-year increase of 18.6%. As one of the most important businesses, Ausnutria's own-brand milk powder business achieved steady growth in 2020, with overall sales of RMB 6.926 billion, a year-on-year increase of 15.0%, accounting for 86.7% of Ausnutria's total revenue.

2. Fonterra announced its interim results for the fiscal year 2021 (from August 1, 2020, to January 31, 2021), with the Chinese market as the bright spot. In the first half of the 2021 fiscal year, Fonterra’s adjusted earnings before interest and taxes (EBIT) for the Greater China were 339 million New Zealand dollars (approximately RMB 1.583 billion), an increase of 38%. Fonterra continues to reduce its stake in Beingmate and expects to exit the investment completely by the end of this fiscal year.

3. Feihe's sales in 2020 increased by approximately 35.5% year-on-year to about RMB 18.59 billion. The revenue of the infant formula business was RMB 17.674 billion, accounting for 95% of the total revenue. The company has also set a sales target of RMB 35 billion by 2023.

4. According to the FrieslandCampina’s annual report for 2020, its revenue was 11.1 billion euros (about RMB 87.357 billion). The infant nutrition market in China recovered to pre-corona crisis levels starting in the second quarter. Friso Prestige experienced revenue growth.

5. H&H Group announced its full-year results for 2020, with overall revenue up 2.5% year-on-year to RMB 11.19 billion. Despite the pandemic, China market’s revenue increased by 10%, accounting for 82.8% of the group’s total revenue. The overall revenue of milk powder reached RMB 5.123 billion, a year-on-year increase of 2.7%.

6. In 2020, Mengniu’s revenue was RMB 76.035 billion, a year-on-year decrease of 3.8%. Mengniu's low-temperature business has maintained the top market share of low-temperature products for 16 consecutive years in China. Bellamy’s has successfully expanded offline channels in China due to the launch of the Chinese version. By the end of 2020, Bellamy's infant formula products have covered nearly 3,000 stores in 13 provinces across China.

7. In 2020, the total revenue of Bright Dairy reached RMB 25.223 billion, up 11.79% year-on-year. As a domestic fresh milk industry leader, Bright Dairy's liquid milk revenue reached RMB 14.27 billion, up 3.39% year-on-year.

Financing updates

Brand	Sector	Round	Amount	Investors
Tims Hortons	Coffee	Second round after entering into China	/	Sequoia Capital
SECRE	Coffee	A+	Tens of millions of yuan	Wuxi Capital Highlight Capital
minayo	Functional food	Pre-A	Tens of millions of yuan	Northern Light Venture Capital
Chocday	Chocolate	B	Over 100 million yuan	V Star Capital 5Y Capital Sourcecode capital
Yellow Elephant	Children’s food	Angel	Tens of millions of yuan	ZhenFund
Sawada Dorayaki	Bakery	Angel	Tens of millions of yuan	Tiantu Capital
Simple Love	Yogurt	B	RMB 800 million	DCP Capital CITIC Agriculture Industry Fund YF Capital
oatoat	Plant-based beverage	A	Tens of millions of yuan	5Y Capital

Regulation & Policy

1. The group standard of "Good Manufacturing Practice for Fresh Stewed Bird's Nest" was released. The standard is divided into three parts: raw material bird's nest management, production and processing, and logistics management. It makes a systematic specification for the fresh stewed bird's nest whole industry chain involving the operation and management systems.

2. China expanded the CBEC pilots to all cities where pilot free trade zones, CBEC comprehensive zones, comprehensive bonded zones, import trade promotion innovation demonstration zones, and bonded logistics center (B type) are located. See ChemLinked report here.

3. On March 18, China released 50 national food safety standards and four amendments, involving standards for cheese, food additives, maximum levels of contaminants, test methods for food contact material, and GB standards for infant formula.

See the interpretation of new infant formula standards here.

See the following-up notice here.

4. During two sessions, Wei Lihua, chairman and president of Junlebao Dairy Group suggested that more countries like America and Canada should be granted market access approval of dairy cows, and Chinese enterprises could have stronger bargaining power after the expansion of suppliers.

See more Two Session’s proposals for the food industry here.

Data browse

1. The Spring Milk Tea Consumption Report released by Alipay shows that people in southern cities prefer milk tea more than those in northern cities. Guangdong's milk tea consumption ranks first, followed by Zhejiang and Jiangsu. On average, Cantonese people drink 2.5 cups of milk tea per week more than people in Northeast China.

2. According to import consumption data released by Tmall Global this month, in the past six months, the import consumption of women above 55 years old has increased by 59% year-on-year, faster than that of the post-1995 generation. Beauty, health, intelligence, and outdoor are their shopping keywords. The amount of money that elderly women spent on healthy food in the past six months increased by 77% year-on-year.

3. According to civil affairs statistics, the number of married couples registered in 2020 was 8.131 million, down 12.2% year-on-year. The number of marriage registrations has been on a continuous decline since 2013. In 2020, the number of marriage registrations in China hit a new low, with a drop of 39.64% compared with 2013.

4. Weibo released its 2020 User Development Report. The report shows that Weibo users continue to be younger, with those born in the 1990s and 2000s accounting for nearly 80%.

5. According to the Women's Health Consumption Report released by Ali Health, women's health consumption expenditure has been increasing year by year in recent years, with an average annual increase of 20%. The post-20s generation pays more attention to beauty and prefers meal replacement products and enzymes. Those born in the post-90s prefer female probiotics.

New products Launched

See article New Products Watch: China Food Sector in March 2021 here.