Last year, more than 400 local companies in Dongguan, a major manufacturing city in China's southerly Guangdong province, went bankrupt as China's economy slowed. In stark contrast, one local bakery company – Dongguan Kam Tai Foods – earned CNY1.1bn (US$177.1m) in revenue and it is expecting to see sales grow 20% in 2015. Wang Fangqing investigates Kam Tai's recipe for success.
As one of China’s top biscuits and cake manufacturers, the privately-owned Dongguan Kam Tai Foods, known in the marketplace by its umbrella brand Silang, has a good reason to forecast strong revenue growth this year. Its newly-launched Chinese health biscuits series (first released this March) seems set to generate strong sales, following the success of its long-established digestive biscuit collection Xianfu, meaning 'fibre bran' in English.
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"Health is the core strategy at Kam Tai. We realised two decades ago that with China’s rising middle-class, more and more people would see health as a vital part in their lives and be willing to pay for it. Bearing this in mind, we make sure each of our product lines is based on a healthy concept with healthy ingredients," Yuan Weicheng, vice general manager at Kam Tai, tells just-food.
This strategy is easy to see from the Xianfu collection, which includes a range of natural flavours such as sesame, peanuts and seaweed, as well as a sugar-free line. The health biscuit series takes this positioning to the next level. Not only do the two variants, for boosting the immune system and reducing constipation respectively, have specified, proprietary formulas selected by TCM (traditional Chinese medicine) experts, they also have been approved by the Chinese Food & Drug Administration (CFDA) to be sold as nutritional supplements. Kam Tai is the first company to secure this certification for biscuits sold in China.
"Gaining the CFDA’s approval really means a lot to us because it proves our value as a supplier of healthy foods," Yuan says, adding these biscuits are also sold in pharmacies, just like supplements.
Owned by the Hong Kong-based Kam Tai Investment & Trading, Dongguan Kam Tai has two sister companies – Dongguan Silang Foods, also based in Dongguan, and Silang Foods (Huaibei), which is based in Anhui province. Together, the three companies pump out over 40,000 tonnes of biscuits and cakes annually. Yuan said a new plant in Dongguan with an annual capacity of 20,000 tonnes is due to be opened later this year.
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By GlobalDataIn the future, the Chinese health biscuit series will also include cakes and eventually all Silang products, adds Shen Bohong, marketing director at Kam Tai.
"The CHBS [Chinese health biscuit series] is a big family. We plan to add more healthy ingredients in other products such as moon cakes and soda crackers to make them more appealing to our target market," Shen says.
For example, Silang launched a cake line last year under the brand name Zao Dian Dao. It has a variety of healthy-sounding ingredients including honey-ginger, milk-pumpkin and a special yam, which is known in China as a vegetable that helps digestion, prevents type II diabetes and combats lung problems. "These are not common flavours for cakes but we got very positive feedback from the market," Shen says. He added because the company is relatively new to the cake business, its cakes are only sold in the local market in Zhengzhou, Shanxi province, which is next to Anhui province, where Silang Huaibei is located.
Compared with affluent, large first-tier cities such as Shanghai and Beijing, smaller second-tier cities like Zhengzhou (albeit with eight million people in its metropolitan area) are usually thought to have less sophisticated consumers with less income, and so have sometimes been neglected by branded food companies.
"But such idea is just obsolete," Shen says. "Thanks to the Internet, consumers in smaller cities, even villages, are growing much more knowledgeable than before. With average income in China actually growing, consumers in these areas, just like their counterparts in first tier cities, have the money and are eager to invest in health," he added.
In 2014, China’s gross national income per head (adjusted for purchasing power parity) was US$13,130, according to the World Bank.
Moreover, Kam Tai has been taking note of China’s booming e-commerce sector. According to the China Internet Network Information Centre, 361m people are now shopping online – so opening an online store is essential for most consumer-facing companies. Kam Tai opened its online flagship store at China’s largest online shopping platform Tmall four years ago. Today, this store brings in CNY2m on average each month. Together with its online distributors at other popular platforms such as Yihaodian, now fully owned by Wal-Mart, as well as JD.com, Shen estimates online sales account for about 10% of its revenue.
"We think e-commerce is the future and we will continue to invest in the sector," Shen said.
However, like other big food companies, Kam Tai has to guard against any quality-related risk resulting from selling online that could directly lead to a brand crisis. For example, it developed an approval system to make sure all Silang products are sold by certified online distributors.
"We also have people regularly go online to see if there are uncertified individuals or companies selling our products. If we find any we will complain to the platform, which will close these stores," Shen said.
A food company in a country known for food crises, Kam Tai knows well about the challenge, and says it invests more than 30% of its revenue in quality control. This includes hiring talent to ensure each process follows ISO9001 standards, building an international–standard lab to sample materials and conducting regular supplier audits. Exceptionally good suppliers will be signed as exclusive suppliers for Kam Tai.
"We have no other option because we can’t afford any quality scandal," Yuan said. While most its suppliers are from mainland China, Kam Tai also has major foreign suppliers, such as those for almond and palm oil.
When it comes to quality control, Kam Tai learned a lot from its early days in 1990s, when the company supplied foreign food buyers such as the US retailer Costco and several big South Korean and Japanese food companies. Such experience is one reasons why Kam Tai exports its products to Japan, Australia, the US and Canada.
Yuan reveals overseas business contributes roughly 10% of its revenue but says the mainland Chinese market is the company's priority, regardless of the slowing economy and China’s ongoing anti-corruption campaign, which hurt the company’s gift business last year – presenting cake and biscuit packages to officials is now frowned upon.
"We actually welcome the anti-corruption campaign because eventually it will benefit the market by leading it to sound development," Yuan says.
And as for China’s stock market falls, Yuan is sanguine. "China’s macro economy is going through an adjustment, but it doesn’t mean people are going to have less income."
