China Consumer

Fancy a bite?

Leading snack firm to IPO

Latiao-w

China’s answer to jerky

The origins of latiao (辣条) are said to date back 1998. At the time, a flood swept through Hunan province, which led to a shortage of soybeans and the price for the crop skyrocketed. Several chilli sauce makers switched to gluten and began selling dried noodle with a spicy flavour. It started as a staple food substitute but as the new product’s popularity grew among kids, sugar was added into the mix. And latiao was born.

Since then, the snack has developed a devoted following among younger consumers in China. Many say the spicy gluten sticks taste like beef tendon and pair well with beer. Henan, with the largest wheat production in the country, has subsequently displaced Hunan as the ‘capital’ of latiao makers, accounting for over 50% of national production.

In late November, the snack was in the headlines again when Henan-based latiao maker Weilong Food applied for a listing in Hong Kong early next year. Positioning itself as the leading snack provider in China, Weilong is reportedly aiming to raise $1 billion from the IPO.

Founded in 1999 by Liu Weiping, Weilong’s revenue in 2019 exceeded Rmb4.9 billion ($735 million), a 43% increase year-on-year. The company expects sales will grow to Rmb10 billion in 2021. It is also hugely profitable: gross profit margins for latiao are about 50%, according to Tencent News, a news portal.

Besides latiao Weilong also makes potato chips, guocha (a type of snack made from rice) and packaged soy eggs.

A big part of the company’s success comes down to Liu’s savvy marketing. When he first founded the company, he set up food stands near high schools, offering free samples. To make it easy for customers to snack on-the-go, Liu also made sure his goods were individually packed so they could easily be stuffed into backpacks and lunchboxes.

To differentiate itself in a market crowded with low-cost manufacturers, Weilong began hiring celebrities like Zhao Wei and Yang Mi to endorse its products about 10 years ago. When the reality competition Keep Running took the country by storm in 2015, the latiao manufacturer launched a campaign with the slogan “Keep Running, Latiao”, to capitalise. To combat the perception that latiao production was unhygienic, Weilong also embraced livestreaming to give audiences a virtual tour of its factory.

“While a lot of old brands have slipped into oblivion, Weilong has not disappeared from the public’s sight, but kept up with the trends of the times. Other companies can also learn from Weilong’s marketing tactics. Its survival method is worth adopting,” Tencent News advised.

Industry insiders say Weilong has been mulling an IPO since 2018 but the plan was put on hold after the company became embroiled in a food safety scandal. Shanxi province’s food safety authority had declared that Weilong’s latiao did not meet its standard because of a type of (fairly common) food additive approved for use in Henan but not in Shanxi.

The truth is that latiao has little nutritional value. It is highly calorific as well: 357 calories per 100 grams, compared with French fries, which contain about 150 calories. Small wonder that people describe the snack as ‘the three-highs’: high in sodium, high in sugar and high in fat.

Weilong is not without competition. Rival Yankershop, for instance, has launched a new type of latiao that includes ingredients like oats and corn, that claims to boost fibre intake. It also increased spending on R&D to reduce the amount of oil, sodium and additives in the core product.

Another rival Mala Wangzi has also launched a new product line that uses natural ingredients to appeal to increasingly health conscious consumers.

That explains some of Weilong’s need to raise capital from the forthcoming IPO. “It’s obvious that competition in the latiao market has become increasingly fierce. In the face of all the challengers it is only a matter of time before Weilong Food’s competitive advantages are eroded. To that end, Weilong Foods has tried to make a big splash in new categories in the past two years, such as the development of a self-heating hot pot brand and the launch of other ‘self-cooking’ spicy hotpot products, and the sale of hot and sour noodles,” commented blogger Zhengjingshe.


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