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Yurun eyes expansion in minor cities

(CE.net)
Updated: 2007-04-17 11:45

China Yurun Food Group, a leading meat product supplier in the mainland, plans to expand into less developed cities and make acquisitions as part of its strategy to capitalize on the fragmented market.

Chairman Zhu Yicai said since its US$1.53 billion Hong Kong initial public offering in 2005, the firm had been on an expansion drive, particularly in the second half of last year.

Yurun was "working hard" in expanding its facilities, but the effect would only be noticeable when new production lines came on stream, he said.

"After tapping a foothold in the well-developed cities like Beijing, Shanghai and Nanjing, we're going to penetrate the inland and second and third-tier cities such as Henan, Shandong and Hubei," Zhu said.

Mainland meat product suppliers have been gaining attention from foreign investors after Yurun's Hong Kong listing. Goldman Sachs bought 60.7 percent of Yurun's rival, Henan Shuanghui, for 2.01 billion yuan (US$260 million) in May last year.

Zhu said there was abundant room for meat product suppliers to expand as the top three domestic suppliers had only a combined 5 percent market share.

One catalyst for industry consolidation was the government's growing concerns about food safety, as those who failed to meet official standards would be forced out, he said.

"There are about 1,100 meat product suppliers in the mainland, so the consolidation will provide acquisition opportunities for the company," Zhu said, adding that the company was hopeful of finalizing some deals this year.

Yurun, which has a 50 percent share of sales in Shanghai, also planned to strengthen co-operation with high-end hotels on top of its supermarket sales, Zhu said. "We have a contract with Shangri-La hotel until next year. We'll keep exploring the possibility of supplying four- to five-stars hotels with our products," he said.

Sales to high-end hotels accounted for 8 percent of Yurun's total sales volume of low-temperature meat product last year, and Zhu estimated the level to reach 15 percent to 20 percent by the end of next year.

Shares of Yurun slumped 12.83 percent on Friday to HK$8.70 after an announcement that its chief executive, Bi Guoxiang, had resigned, cutting this year's gain to 21.34 percent.