JD Capital Invests in Fresh Food Dark Horse

2016-12-27

Source: Food Investor
jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Latest statistics show that China’s per capita GDP has now risen from USD 3,000 in 2008 to 8,000 in 2016, and is expected to reach 10,000 in 2020. Experts believe that as consumption upgrades, the great changes of consumption structure and quality will deeply affect the entire industrial chain.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Agricultural products are no exception. Chinese people now focus more on quality than quantity in terms of eating. Consumers prefer goods that are green, fresh, and easily accessible with good quality and taste. Under such circumstances, many agricultural enterprises, including those engaged in fresh food businesses, are faced with the pressure of transformation.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As a fresh food bellwether, Beiwang Agro-Pastoral Co., Ltd. decided to join hands with PE capital in 2013. With the investment from JD Capital, Beiwang Nongmu Agro-Pastoral (hereinafter referred to as “Beiwang”) got on the National Equities Exchange and Quotations (NEEQ) in 2015 and thus completed its transformation successfully. With the help from JD Capital, it has since embarked on the road towards an industrial leader.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Take advantages of investment opportunities brought by consumption upgrade and input more into the fresh industry jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The fresh industry is traditionally fragmented. As consumption upgrades, the traditional supply system can no longer provide products that are up to consumer demands. It is unrealistic to ask big businesses to satisfy the demands immediately, for the larger the businesses are, the harder for an enterprise to transform. To the contrary, some middle and small-sized enterprises operated under innovative models stand out.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “It came to our attention that Beiwang has been growing fast and steadily as a seeded player in the fresh pork segment,” said the head of consumer goods investment team of JD Capital, “Under the traditional distribution system, Beiwang has been trying to build a supply system over which it has complete control from the very beginning, so as to effectively produce quality food catering to consumer demand. Though seemingly an easy process, the fresh industry comes across many obstacles. Still green in the industry, Beiwang performs fairly good.”jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Over the two years after JD Capital invested in Beiwang, the enterprise saw its sales up from RMB 140 million in 2013 to RMB 490 million in 2015. In the first half of 2016, the figure reached RMB 380 million, and the compound annual growth rate exceeded 50%. Yet the fast expansion did not hinder growth of net profits. RMB 140 million earned twice the amount of 2013 in the first half of 2016 alone.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Trend and change are two permanent themes in our investment. We are simply following the trend,” said the head of consumer goods investment team of JD Capital.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Sub-brand Yijiaxian meets the demands of medium and high-end consumersjbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

“Let’s just say that Beiwang has set a pretty high brand position for its green pork. Our products are priced from RMB 30 to 180 per kilogram. A few years back when consumption upgrade wasn’t so obvious, these products only had a small consumer group, like only 1% consumers were willing to pay that much,” said Zhu Yueru, CEO of Beiwang, “Now the percentage has increased to 3%, though still small, but three times the figure before.”jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Market growth like this is exciting. It is learned that one of the key concerns at the monthly strategic workshops of JD Capital and Beiwang is how to satisfy market demands to the largest extent in this era of consumption upgrade. Consumers outside the “3%”, whose demands are also upgrading, are considered critical. The group of “medium-end” consumers is fast expanding, yet there is no supplier in the market to meet their demands.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

After thoughtful survey and feasibility research, and with good results obtained in pilot programs, Beiwang decided to build a “medium-end” brand – Yijiaxian.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Thanks to the mature supply chain system of Beiwang, and with a clear and accurate market positioning, Yijiaxian easily entered the market and gained a foothold in no time. It only took 3 to 4 months for this sub-brand to make its debut. A year into Yijiaxian’s creation now, we learned that its sales volume would probably surpass that of “Beiwang” by the end of 2016, making it another pillar business of the enterprise.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Make way into eastern and southern China to cover all first-tier citiesjbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Beiwang was originated in northeast China. Before JD Capital became a shareholder, the enterprise already had a large market share in the core city belt of Liaodong Peninsula surrounding Shenyang and Dalian, as well as in the Beijing-Tianjin-Hebei Region. It excels in establishing terminal channels. Especially, within four years after it entered the market of Beijing, Beiwang registered a huge increase in both the number of outlets established and sales volume attained.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

With JD Capital’s investment, the enterprise works even harder in expanding under the wave of consumption upgrade. Now it has set up as many as 350 outlets, and the number of outlets in northeast cities has doubled. It has become the No.1 seller of high-end brand pork in Beijing. Meanwhile, new territories are being exploited. It is now aggressively expanding sales to eastern cities with Shanghai at the core. It is expected that by the end of 2016, eastern China will have an equal number of outlets and sales to the north, thus becoming the second largest market of Beiwang.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

But opening up outlets and expanding marketing channels alone are not enough, according to the head of consumer goods investment team of JD Capital. The key lies in supply chain. In the fresh food market, “fresh” makes all the difference. It is essential yet difficult to establish a national supply chain. It takes at least 36 hours for a cold-chain vehicle to run from the northeast to the south nonstop, let alone the divergent consumption habits and complex market environment across regions. It seems that the only solution is to build a “base” in each area based on local conditions.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In this sense, establishing an urban cold chain in each core city becomes a top priority. For each city, products must be timely delivered to 100-200 outlets every day in full quantity. Having reached agreement with JD Capital, Beiwang has established complete cold-chain logistics systems in Beijing and Shanghai, and share the systems with other local fresh food suppliers. A significant move for Beiwang, the establishment of cold-chain logistics system lays a solid foundation for its future expansion into other categories of fresh food.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Equally important is to choose a supply chain base for each region. To help Beiwang build a national supply system, the investment team of JD Capital searched the country and finally decided on several acquisition targets located in strategic areas of eastern and southern China. These targets, once acquired, will strongly support Beiwang in securing the east and exploiting the south. Also, they will very likely boost the enterprise’s sales and profitability.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

With capital, the dream comes true; though small enterprise, the layout is grandjbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “The ability to see at big picture is what we value the most in an entrepreneur. Beiwang has wonderful leaders,” according to the head of consumer goods investment team of JD Capital, “The boss is very insightful and easy to approach. More importantly, he has high hopes for the industry and can always see the big picture.”jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

With the help of JD Capital, Beiwang not only implements its industrial strategies successfully, but manages capital without difficulty. Within as short as six months since the decision was made, Beiwang (833278) went public on the NEEQ on August 20, 2015.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Immediately after its listing, Beiwang issued over 2,300 shares at a price of RMB 3.5 per share, and raised nearly RMB 90 million. Though already doubled the share price when JD Capital first invested in, the price is still considered low by some experts. JD Capital’s head of consumer goods investment team explained that “The market is effective. For an enterprise to achieve more, the best arrangement is to allow investors enjoy incremental benefits at every round, so that we get a steady flow of resources and achieve bigger dreams.”jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

“It’s not an easy thing to run a successful fresh food business. Fresh pork alone requires for 600-700 pigs a year. That is a market worth of hundreds of billion,” the project head said honestly to the team members, “And fresh pork is just the first step. Beef, mutton, chicken, vegetables, fruits, and other food categories are expected to follow suit. But fresh pork is the very foundation of the entire supply chain. With a complete cold-chain storage and logistics system and capital market support, the enterprise will grow faster and better.”jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Industrial leader born out of the “Bellwether Plan”jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to statistics, among all private companies in China, only 11 or 0.39% of them have a market value of over 10 billion dollars, while the figure in America is 659 (9%). The stark contrast prompted JD Capital to put forward the “Bellwether Plan”, a strategic investment plan. jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

By the “Bellwether Plan”, JD Capital will hold some or a majority amount of shares in companies distinctly or potentially leading in various industries. Then, it will usher these companies onto a way of expansion: with sustainable financing from China’s capital market, these companies will expand market shares through horizontal merges and acquisitions, improve their bargaining power on industry chain through vertical ones, go global through cross-border ones, and improve their core competence through Internet and other marketing tools. In this way, these companies will leap into the 10 billion club and become industry leaders not only in China, but also in the world. jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Beiwang is a typical example of the Plan. The JD Capital team wrote in the due diligence report for Beiwang in 2014, “Consumption upgrade in China allows room for rapid growth of domestic high-end pork market, especially in supermarkets and stores. The sector is yet to see a true leading enterprise. So there is much room for the concentration ratio to grow.”jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The judgment proved to be correct. High-end consumption grew exponentially from 2014 to 2016. Leading enterprises sprung up in each industrial segment. With a sales number of tens of billions yuan, Beiwang is a true winner behind all this.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Based on the “Bellwether Plan” designed for Beiwang, JD Capital will continue to help the enterprise to secure its position, grow stronger, and become a leading fresh food supplier in China.jbG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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