Companies

China Huiyuan bets on sparkling fruit juice sales

By Donny Kwok and Huang Yuntao (China Daily)
Updated: 2011-03-24 14:11

HONG KONG - China Huiyuan Juice Group Ltd, the country's largest fruit juice producer and once a takeover target of Coca-Cola Co, expects its new product of sparkling fruit juice to account for about one-fifth of its sales by the end of 2012, and is under no pressure to lift prices of its other products.

About 10 new plants making the drinks called "Juizee Pop" will come on stream in the next two years with a combined annual capacity of about 2 billion bottles, Huiyuan's Chairman Zhu Xinli told Reuters in an interview. Huiyuan grabbed headlines in 2008 when Coca-Cola launched a $2.4 billion bid for the company. Huiyuan accepted the bid, which represented a huge premium to its share price then. But the Chinese government blocked the deal in 2009, saying the proposed transaction would be bad for industry competition.

Months later, US private-equity fund Warburg Pincus sold off its stake in Huiyuan. The move was followed by French food group Danone SA, which sold its 22.98 percent stake in Huiyuan for about 200 million euros ($258 million) in July last year to Hong Kong-based private equity group SAIF partners.

Facing stiff competition from Coca-Cola and PepsiCo Inc in China, Huiyuan said in March last year that it will plough about five billion yuan ($761.6 million) into the production of Juizee Pop over the next three years.

"It is different from Coke. We call it Juizee Pop here, a sparkling fruit juice, an innovative beverage product. We had no carbonated fruit juice in the past," said Zhu, a well-known entrepreneur in China.

"It will account for about 20 percent (of sales) by the end of next year," Zhu said, adding that the company's current production volume of the new product is minimal.

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Charles Yan, an analyst at Yuanta Greater China Equities, said he had just upgraded Huiyuan's shares to "buy" because of optimism over the sales potential of Juizee Pop, and the company's recently launched new products of bottled tea.

"It is a wise move to enter into a new category. First, it can leverage its distribution network, second, it can enhance its operational efficiency," said Yan. "Those products (including tea beverage products) will lead to high growth for the company in the next few years," he said. "I upgraded the company because it has the manufacturing capacity, it has the new products, and most importantly, it has the distribution network."

Huiyuan, which boasts 1.1 million retail outlets and owns more than 40 plants, said in its annual report released on Monday that its sales of core juice products jumped 26.4 percent year-on-year in 2010 to 3.4 billion yuan.

Pure juice accounted for 23.6 percent of the total sales, with nectars making up 39.6 percent and juice drinks 28.4 percent. The remainder of the sales came from other beverages, such as bottled tea, milk juice and water.

Despite rising raw material and labor costs in China, Zhu said Huiyuan - which controls 50.2 percent of the Chinese pure juice market by sales - currently had no plans to raise the prices of existing products following a rise of about 8 percent in February.

"We don't see much pressure to raise prices as raw materials costs are under control. The only pressure is rising labor costs," Zhu said.

Huiyuan, which recorded a 26 percent rise in sales volume of fruit and vegetable juices to 1.06 million tons in 2010, had no plans to bring in new strategic investors or make any acquisitions, he said.

Reuters