After years of outperformance, 3G Capital, the trusted investment partner of Berkshire Hathaway, looks to have shed its halo. Apart from facing a probe by the US financial watchdog, its flagship food company Heinz Kraft ran up colossal losses after a $15 billion write-down of goodwill earlier this year. These woes have thrust back into the spotlight the buyout firm’s lean-and-mean cost-cutting strategy and raised questions about what may get sacrificed by the investee company in the process.
Another private equity fund in China has likewise targeted the consumer sector. Yet it does not share the same management style as 3G Capital. In many cases, it chooses to acquire fledgling companies and helps to grow them into national chains with a proposition that positions them as affordable premium brands. Examples include braised duck neck producer Zhou Hei Ya (see WiC445), modern teahouse Naixuecha, pastry maker Bao Shifu (see WiC414), and most recently the coffee capsule company Saturnbird (a local rival to Nespresso).
Based in the tech enclave of Shenzhen, the investment firm Tiantu Capital earned more international attention lately, thanks to its acquisition of the Chinese operations of French yogurt brand Yoplait from US packaged foods firm General Mills. While the latter continues to hold Yoplait’s global trademark, Tiantu will get the rights to control its manufacturing and conduct its research and development in China.
The new arrangement was inked four years after General Mills launched Yoplait in China, where the yogurt market is expected to grow over 11% annually and will reach Rmb220 billion ($32.7 billion) by 2022. General Mills seems to have conceded it needs a local partner to indigenise its offerings and to compete against local rivals such as Yili and Mengniu that have increasingly made yogurt their core offerings.
Tiantu won the deal not least because one of its partners Gary Chu was the former president of General Mills Greater China (among his successes: introducing ice cream brand Häagen-Dazs and Hong Kong-based frozen dumpling maker Wanchai Ferry into the mainland; see WiC441). Tiantu itself also has solid experience in China’s retail industry. The company was set up in 2002. Of its nearly 100 portfolio firms about a third come from the consumer sector, an area that the investment firm has focused on since 2011, according to Singtao Daily. The shift was due partly to the high valuations of tech companies and to the realisation that consumer goods companies tend to be more counter-cyclical.
Apart from Zhou Hei Ya, which has grown from a mom-and-pop operation in Wuhan to a top three player in China’s ready-to-eat braised food market, Pagoda is probably among Tiantu’s savviest bets. With 3,000 bricks-and-mortar stores across China, Pagoda is the country’s largest online-to-offline fresh fruit retail chain with annual revenue reaching Rmb8.5 billion in 2017. Its valuation has quintupled since 2015 when Tiantu made its first investment in the company, Hexun.com reports.
Tiantu has also targeted retail companies focused on supply chains and marketing channels. The strategy has led Tiantu to back cross-border e-commerce platforms like Xiaohongshu (see WiC413) and Mogujie, as well as e-waste recycling company Aihuishou and 51 Credit Card, an online credit card management platform that went public in Hong Kong last July. Its goal is to have a slice of the 50 most iconic brands that represent the theme of ‘consumption upgrades’ in China (see WiC425), according to its chief investment officer Feng Weidong.
To achieve its goal, Tiantu will broaden its investment scope to cover early stage start-ups. In February it raised Rmb500 million from mainly institutional investors to launch an angel investment fund.
Listed on Beijing’s over-the-counter bourse in 2015, Tiantu is currently managing nine yuan-denominated funds and a US-dollar one. Its net profit for the first half of 2018 declined over 73% on the year, due to mark-to-market losses, the company recently reported.
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