China’s appetite for buying international food producers has grown at a record pace so far this year, reflecting growing middle-class hunger for a more affluent diet in the world’s second-biggest economy.
Outbound mergers and acquisitions in the food and beverage industries accounted for 17 per cent of total M&A in China in the year to date, almost on a par with the 20 per cent from the energy and power sector – traditionally the biggest deal generator, according to Thomson Reuters.
The targets include Hollick, the Australian winemaker, and Tnuva, the Israeli cheese and consumer foods supplier, as well as the trading arms of companies involved in the pricing and flow of agricultural raw materials around the world.
The shopping spree comes a year after US pork producer Smithfield Foods was gobbled up by Shuanghui International, now known as WH Group, in a $7bn deal that remains the largest ever outbound acquisition by a Chinese company, according to Thomson Reuters.
Yang Zhizhong, chairman and chief executive of Nomura China, says: “There is an upward trend in China’s overseas investment in the consumer sector which will grow at a much faster rate than its investment in other sectors – including natural resources.”
The reason for the wave of dealmaking is China’s transition from an export-led economy hungry for energy, natural resources and infrastructure into one driven by a surging consumer class.
In a special report on changing food consumption patterns in China published on Friday, the World Bank said that the country’s rapid growth over the past three decades had “vastly improved diets”.
Each person is eating on average 40 per cent more calories a day than in 1980 with a “shift to a more ‘affluent’ diet” – away from basic staples to livestock-based products, such as meat and dairy.
“Over the next two decades per capita food consumption will continue to grow rapidly, with somewhat faster growth during the coming decade, driven by income growth,” according to the World Bank.
Growing wealth is also leading to demand for better quality and safe, reliably-produced food – which some western brands are perceived as offering – after several scandals involving tainted food, including baby formula.
Wan Long, chairman of WH Group, cited “Smithfield’s leading production and safety protocols to provide safe, high-quality products”, and its higher-margin pork products – such as ham and sausages, increasingly favoured by Chinese consumers – as key attractions of the US company during the takeover.
Nomura’s Mr Yang says: “As China’s middle class becomes richer, their taste for goods and services will become more sophisticated. Local supply is not sufficient, so they have to look outside of China. Food security and safety has been a pivotal issue for China. With abundant capital, China would rather buy than simply import.”
Many Chinese acquirers are national state-owned bodies, such as grain trader Cofco, which recently spent $1.5bn on a stake in a sugar, soyabean and wheat joint venture with Noble Group, the Singapore-based commodity group.
A second group of buyers belong to local governments. These include Bright Food, owned by the Shanghai municipal government, which has already bought Weetabix, the UK breakfast brand, and last month paid just under $1bn for a controlling stake in Tnuva.
Private sector companies such as WH Group have also become active, and all the buyers’ overseas shopping lists are selective.
“Chinese companies are looking for opportunities which make the most strategic sense,” says Camillo Greco, head of M&A advisory for Europe, the Middle East and Africa at JPMorgan. “We see them acquiring businesses for technology and competencies they don’t have or for a brand that they can develop in China.”
Bright Food has said that one of its target areas is modern agriculture – one reason for its interest in Tnuva. It has also said it is looking for dairy, sugar and sweeteners and spirits and wine.
Lacking the expertise to manage companies, bankers say that Chinese buyers are also becoming more comfortable with keeping existing management in place.
Florian Fautz, global head of M&A at HSBC, says: “They are also going into situations where they acquire minority positions. They are not necessarily just looking for 100 per cent stakes any more.”
But for even greater outbound investment to take off more needs to be done at a policy level to integrate China into the global economy.
Mr Fautz says: “Europe continues to drive a lot of interest and there are strong economic ties between China and EU, which is its largest trade partner in the developed world. A bilateral investment treaty would make investment flows much easier.”
Weetabix eyes Chinese breakfast tables
When Weetabix announced its launch into mainland China at a recent Shanghai trade show, its stand was topped by a cardboard canopy in the shape of a huge, gold crown.
The display – trading on the British breakfast cereal-maker’s royal warrant – sent out a simple message: if Weetabix is good enough for the Queen of England, what better guarantee of safety and quality for Chinese consumers?
That was in the back of the mind of executives at Bright Food, the Chinese state-backed group, when it acquired a controlling stake in the 82-year old cereal brand two years ago.
Bright Food also hopes to exploit growing domestic demand for health-oriented foods, since Weetabix also owns Alpen muesli and Ready Brek porridge oats. “Chinese consumers have the chance to have authentic, healthy and British-style breakfast cereals,” said Bright Food at November’s launch of Weetabix into 4,000 outlets in the Shanghai region.
“Food safety is a big issue, and in addition the middle class in China, particularly in cities such as Shanghai, aspire to western brands,” says Giles Turrell, Weetabix chief executive.
But adapting a western brand to Chinese local tastes takes time and research. While British consumers usually pour cold milk into cereal, which is often sweetened, the Chinese prefer a hot, savoury and often rice-based, breakfast.
“We’ve gone into Chinese homes and eaten breakfast with families. We’ve even been on breakfast safaris – following consumers to work to study their breakfast habits,” said Mr Turrell. “The traditional Chinese breakfast can take a lot of time to make. So we believe there is a role for western-style breakfast, which is much quicker to prepare.”
The Chinese ready-to-eat breakfast market is dominated by Switzerland’s Nestlé and General Mills of the US, according to data from Euromonitor.
Torsten Stocker, partner at consulting firm AT Kearney, says: “If Weetabix can create its own version of Chinese cereal, for breakfast or other ‘ready-to-eat’ occasions, it should be able to get good traction, given Bright’s distribution network, as well as rising consumer demand for healthy and convenient foods.”
He cites PepsiCo’s Quaker Oats as having adapted successfully, by offering “sweet and savoury congee [China’s traditional rice-based breakfast cereal] containing ingredients said to be particularly healthy and nourishing such as wolfberry, white fungus or red dates”.
Mr Turrell is considering green tea flavours, cranberries and sesame seeds to appeal to a savoury palate. Its Alpen muesli and cereal bars are selling well, says the company, partly because of China’s snacking culture.
“Alpen bars and porridge will be easier to adapt to the Chinese market,” says Mr Turrell. “Weetabix will take time.”
在中国掀起这股海外收购热潮的一年前，美国猪肉制品生产商史密斯菲尔德食品(Smithfield Foods)被双汇国际(Shuanghui International)斥资70亿美元收购，两者整合之后形成了万洲国际(WH Group)。来自汤森路透的数据显示，这笔交易目前仍是中国企业有史以来规模最大的海外收购。
这一展示——炫耀了这家英国早餐谷物生产商的英国皇家认证资质——传递出的信息非常简单：如果维他麦对英国女王(Queen of England)来说已经足够优质，中国消费者还需要什么更好的安全和质量保证呢？
咨询公司科尔尼(AT Kearney)的合伙人唐仕德(Torsten Stocker)表示：“如果维他麦能够开发出中国特色的谷物食品，适合于早餐或者其他“立等可食”的场合，那么，考虑到光明食品的分销网络，以及中国消费者对健康方便食品的需求日益上升，该公司应该有能力形成很强的市场抓力。”