China’s traditional food giants struggle to stay relevant in digital age

PUBLISHED : Friday, 25 August, 2017, 6:26pm
UPDATED : Friday, 25 August, 2017, 9:42pm

Among the string of Hong Kong-listed companies filing earnings results this month, food companies whose focus is mainland China have reported mixed performances, with those seen as technology savvy having the upper hand in attracting young customers and growing revenues.

Taiwan based Want Want China, the largest rice cracker and flavoured milk producer in China, saw a 14.5 per cent fall in net profit to 1.5 billion yuan (US$225 million)for the first half of the year, while Ajisen China, a ramen chain founded by Hong Kong billionaire Poon Wai, registered 80.9 per cent slump in net profit for the period amid its ongoing store closures and after last year’s one off gain from its investment in Baidu Takeout Delivery, which added 500 per cent to net profit last year.

In contrast, boasting a market cap of only HK$17.8 billion compared to HK$64.7 billion for Want Want China, braised duck neck supplier Zhou Hei Ya posted a 5.3 per cent gain in first half net profit to 401 million yuan, mainly lifted by surging online sales and increased number of retail stores across the country.

“The group has established a strong presence in 11 major domestic online marketplaces, including one newly operated storefront on Jumei.com, in the first half of 2017,” Zhou Hei Ya said in a filing to the Hong Kong stock exchange. “By leveraging its own social media channels, the company enhanced customer loyalty by active interaction with the customers.”

The Wuhan based company, built by self made billionaire Zhou Fuyu, has been reshaping its brand into a trendy snack in an attempt to lure young customers, especially millennials, into buying what used to be seen as an old fashioned snack food.

The company made headlines in 2014 when its logo briefly appeared on screen in the Hollywood blockbuster Transformers: Age of Extinction, creating valuable media buzz for the brand.

Zhou Hei Ya has also sponsored popular idols’ concerts, as well as collaborated with live stream hosts to boost the sales among young customers.

“Our real competitor are young people and we will adapt our marketing strategy according to their needs,” company chairman Zhou Fuyu said at a press conference on Wednesday in Hong Kong.

Which is hotter – duck neck or chips? Ask China’s millennials

As such, the company’s revenue derived from online channels increased by 51.2 per cent from 113.7 million yuan in the six months ended June 30 last year to 171.9 million yuan in the corresponding period in 2017, according to its statement.

Want Want China, on the other hand, found itself struggling to stay relevant.

Having registered its main brand Want Want on the mainland in 1989, the Taiwanese giant was one of the first non-mainland companies to tap into the then undeveloped mainland China food market.

Almost three decades later, however, the brand that was an affectionate memory for lots of Chinese born in the 1980s seems no longer attractive to the more tech savvy and picky younger generation.

“Want Want China is experiencing its mid life crisis,” said Zhu Danpeng, an associate with the China Branding Institute.

“Now, if you take out a Want Want rice cracker and start eating it people will think you are uncool,” he said.

Want Want China said in its statement that the fall in profit was due to a relatively early arrival of the Chinese New Year holiday this year compared with a year ago, shortening the sales period for its gift sets, reflecting the fact that most of its sales still come from off line channels such as supermarkets and convenience stores.

“Currently, our sales through modern channels accounted for a relatively low proportion of

the group’s total sales,” Want Want China said in a statement.

The company has started to collaborate with e-commerce giant Alibaba Group with online promotions such as the “511 Want Want Day” in a bid to boost its online sales. Alibaba owns the South China Morning Post.

Ajisen, meanwhile, has also realised the importance of e-commerce, saying it would actively develop intelligent technologies to meet consumers’ diversified needs.

As much as the traditional giants want to catch up with their younger rivals, they have to act quickly, according to analysts.

“The next two to three years will be key for traditional food giants to grab the online market place and reshape their images to be more cool,” said Zhu. “Otherwise their market share will be further eaten up by younger rivals and the situation would be more risky.”

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