Zhou Hei Ya scales back crayfish business amid product shortage

PUBLISHED : Friday, 22 September, 2017, 4:31pm
UPDATED : Friday, 22 September, 2017, 10:42pm

Zhou Hei Ya International, one of China’s biggest braised food retailers, has quietly withdrawn its crayfish products from Taobao and Jingdong, two major Chinese e-commerce platforms, as well as from its own offline stores.

The move sparked speculation from consumers and investors that the Wuhan based company had given up on the lucrative crayfish business, despite its shares gaining 30 per cent since listing on the Hong Kong bourse last November.

Jin Li, a spokeswoman for the company, said it had withdrawn crayfish from online platforms as early as July, and was not offering the seafood product at its offline stores either.

“We have not given up on the crayfish business,” she said. “It is just almost impossible for us to find live crayfish that weigh around one tael each during this season.”

The previous three month period of selling crayfish was “testing the waters”. The products are expected to be offered by the company again soon, but there was no specific time frame, she said.

While Zhou Hei Ya’s previous efforts to makes waves in the crayfish sector were seen as a wise move, it is relatively difficult to grow the business, say analysts.

“Crayfish products are tricky because they have a higher requirement for consumer setting,” said Zhu Danpeng, an associate with China Branding Research Institute.

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

“Chinese people like to eat fresh crayfish because they can socialise over the food, whereas it seems harder for boxed crayfish to offer the same function,” he said.

Valued at 14. 7 billion yuan (US$2.15 billion), the crayfish business will see “explosive growth” fuelled by new crayfish adherents in the next few years, according to China’s Ministry of Agriculture.

Amid the Chinese obsession with what are often called “little lobsters”, which are seen as more affordable substitutes to their expensive cousins, last year alone 18,000 eateries sprang up across the nation dedicated to serving crayfish dishes, up 33 per cent from 2015, according to Citic Securities.

In Zhou Hei Ya’s hometown of Wuhan alone, 1,500 tonnes of crayfish, usually served with Chinese pepper and chillies, were devoured in 2016, Citic said.

Zhou Fuyu to join China’s ultra-rich ranking after IPO in fast-food chain Zhou Hei Ya

Riding on the back of that demand, the company announced its foray into the lucrative business in May this year, saying it would invest 1 billion yuan in a crayfish breeding factory on 450 acres of land in Qianjiang, the largest export base for crayfishes in China. The city, in Hebei province, sold US$150 million worth of the crustaceans to foreign buyers in 2015.

“Imagine carrying two boxes of crayfishes when going to a date after work. How romantic would that be!,” Zhou Fuyu, founder and chairman of Zhou Hei Ya, told media in May when announcing the push into the new business sector.

However, four months after the high profile marketing campaign, the company has quietly withdrawn its crayfish products from both online and offline channels.

With a market cap of US$2.2 billion and a products line mainly consisting of braised duck necks and heads, Zhou Hei Ya has long wanted to diversify into other Chinese snack food to better compete with its rival, Hunan-based Juewei Food Co, which boasts a market cap of US$2.1 billion and made its debut on the Shanghai exchange in March.

With similar product offering and market shares, the two firms have competed fiercely in the sector for some time, with Juewei opening many more packaged snack food stores, around 8,610 compared to Zhou Hei Ya’s fewer than 1,000 stores.

Despite the large difference in the number of stores, Zhou Hei Ya enjoys a bigger profit margin, with its net profit reaching 716 million yuan last year, compared to Juewei’s 380 million yuan. Analysts say the better margins are mainly due to the direct sales store model adopted by Zhou Hei Ya, which gives the company more control over the stores it owns across the nation, whereas Juewei mainly operates franchise stores.

“Despite having fewer than 1,000 stores, Zhou Hei Ya has exhibited extraordinary leadership in the casual braised food space,” said CLSA analyst Terrance Liu.

business-article-page