China Consumer & Retail Private Equity - 2010 & Beyond
Consumer-Driven Investment Themes
Updated Aug 2010
Presented by K.C.Yoon
Jan 2010 Version 3.0 by KC Yoon
Presentation Background & Storyline
China Weathers Crisis Well -Emerging with Stronger Economic Foundations
Foreign & Domestic Funds Flow into Consumer Consumption Sectors
Key Consumer Trends and Potential Investment Themes
ONE: Domestic Brands Going
Nation-wide
TWO: Internet – Changing the
Traditional Business
ONE: Strength in Domestic
Consumption
TWO: Broad-based Drive for
Domestic PE
THREE: Govt Focused on
Fundamentals
FOUR: Competitive
Markets
Government taking Active Role to Promote Private Equity investments
Maturing PE Market
Global Trends Impacting
China
Domestic Trends
Impacting Consumption
THREE: Changing Lifestyle of
Middle-class China
Jan 2010 Version 3.0 by KC Yoon
China Weathers Crisis Well -Emerging with Stronger Economic Foundations
Foreign & Domestic Funds Flow into Consumer Consumption Sectors
Key Consumer Trends and Potential Investment Themes
ONE: Domestic Brands Going
Nation-wide
TWO: Internet – Changing the
Traditional Business
ONE: Strength in Domestic
Consumption
TWO: Broad-based Drive for
Domestic PE
THREE: Govt Focused on
Fundamentals
FOUR: Competitive
Markets
Government taking Active Role to Promote Private Equity investments
Maturing PE Market
Global Trends Impacting
China
Domestic Trends
Impacting Consumption
THREE: Changing Lifestyle of
Middle-class China
Focus of Today’s Presentation
In 2009: Macro-Factors Driving China’s Consumer Ec onomy
3
Growth of Chinese Middle-Class
Urbanization and Growth of Cities
Growth and Impact of the Internet
> 200 Cities with >1M residents
By2015, >300M lower-middle class; 100M luxury consumers
NOW >300M users;>RMB 120B online consumer sales
Demand for Home-related products and
services
Demand for lifestyle & convenient services
Demand for better healthcare
Over 110 high-consumer potential cities with 34% of GDP
Most widespread media- access middle-
class consumers
Growth of B2C
IKEA continue to open 2 stores/year
Sunning plans a B2C site
Korea SKTelecom to invest RMB500M in
qingxuan its B2C site
President 7-11 to open3-7 stores in Shanghai plans
for 300 stores in 3yrs
China Chain Nepstar drugstar opem/acquire 700
stores 2008, plans 3000
Letao to open largest online toy store in China
Sunning plans 500sqm stores in the rural areas
targetting for 3000
Retailers continue to expand network
In 2009: Key Consumer Trends with Investment Potent ial
+ 1
Growth of Chinese Middle-Class
Urbanization and Growth of Cities
Growth and Impact of the Internet
Govt Stimulus
“City-Living” Consumer Services
Affordable Luxury for the Young Affluent
“Mass Market” + “Good Enough”
Products
Online Consumer Brands
“Knowledge” Services
“Health”+ “Well-being” Services
Large Market
Criteria for Investment
High Growth
Able to Sustain Good
Margins
Defensible Niche
+“GREEN” - Increasingly
important Global trend
3
2010 & Beyond:Same Core Drivers but with New Focal Points
Growth of Chinese Middle-Class
Urbanization and Growth of Cities
Growth and Impact of the Internet
Broader Consumer Base
2nd/3rd Tier Cities New Growth
Areas
Mobile & Ecommerce
Create Market
Pop
ulat
ion
(mill
ions
) fr
om
2007
-202
5 : 6
Ne
w M
ega
city
C
lust
ers
Onl
ine
Sho
ppin
g G
row
th
2007
-201
3 (R
MB
‘00M
)
3
Chengdu Chengdu
Chongqing Chongqing
Shanghai Shanghai Wuhan Wuhan
Guangzhou Guangzhou Shenzhen Shenzhen
Beijing Beijing
Tianjin Tianjin
14.7 14.7 26.8 26.8 Beijing Beijing
17.1 17.1 25.1 25.1 Shanghai Shanghai
12.6 12.6 Tianjin Tianjin
12.4 12.4 Shenzhen Shenzhen
11.9 11.9 Wuhan Wuhan
10.7 10.7 Chongqing Chongqing
10.3 10.3 Chengdu Chengdu
10.1 10.1 Guangzhou Guangzhou
Beijing and Shanghai already
megacities in 2007
Beijing and Shanghai already
megacities in 2007
Chengdu
Chongqing
Shanghai Wuhan
Guangzhou Shenzhen
Beijing
Tianjin
8.2
6.4
7.9
8.6
8.3
8.7
14.7 26.8 Beijing
17.1 25.1 Shanghai
12.6 Tianjin
12.4 Shenzhen
11.9 Wuhan
10.7 Chongqing
10.3 Chengdu
10.1 Guangzhou
Beijing and Shanghai already
megacities in 2007
Source: McKinsey Global Institute CAC model, McKinsey Global Institute analysis
Source: iResearch report 2009
Page 7
Global Trend (1)- Focus on Capturing “Expanding” Middle-class Consumers
Shifting of Global Consumption to Markets
Creating the Largest “Middle-class”
Foreign Brands & Investors Making Targeted Entries
Acquisition of Strategic Stakes
Significant Stake in Large Meat
Processor “Yurun” by Goldman Sachs
Blackstone Invests in Agro-Wholesale Market & Logistic
Exchange
Rapid Consumption Growth
Domestic Brands are Gaining Recognition
Fast growth in meat
consumption
Suit Brand “endorsed by Warren
Buffet”
Aggressive & New Market
Global Apparel Groups GAP &
UNIQLO aggressive entry plans
Page 8
Global Trend (2) – As well as Capturing “Emerging” Luxury Consumers
Shifting of Growth to “Emerging” Markets i.e.
China
Increasing Trend of M&A of Luxury Brands
Cash-rich Chinese Companies Seeking Foreign Brands
Acquisition of “Volvo” by
Chinese automaker
Geely
Global Luxury Players seeking to Acquire Domestic Brands/Retailer?
Interest in European
Fashion Brands by Chinese
parties
Foreign Brand Expand/Acquire Chinese operations
Increased Market-entry by Foreign High-end Consumer Brands
Fashion Brands Burberry &
Mango Expands Aggressively
Proliferation of International Fashion & Lifestyle Brands..
Page 9
Domestic Trend – Rapid Rise in “Luxury” Consumers
Growth of Chinese “High Net Worth Individuals”
Values Associated with Luxury Drives Consumption
Chinese Luxury Needs Pervades through their Lifestyle (F&B, Clothes,
Personal care, Living..)
By 2009 China will have over 320,000 HNWI with Total Assets of USD1
trillion; Across 1 st to 3 rd Tier Cities
Source: China Merchant Bank & Bain Report 2009
China Herald 2009
“In 2008, Chinese Domestic Luxury Market was valued at USD8.6 billion” Bain “China to overtake Japan as the world’s 2 nd largest luxury market by 2010”
China Herald 2009
Middle-class Chinese Consumers aspire towards
similar value
China Consumer/Retail Investment Themes for 2010 & Beyond
Domestic Consumer Brands & Retailers Going Nation-wide/Capturing Market Share
to be Market Leaders 1
Products & Services Leveraging on Mobile+Internet to Overcome Traditional
Business Model for Rapid Growth 2
New Needs Created by Changing Lifestyle of Middle-class & Emerging Luxury Needs of
Chinese Consumers 3
Investment Theme Consolidation + M&A to Develop Domestic Market Lead ers
Right Strategy = Winning Fund
Factors Supporting & Driving M&A + Consolidation Market Activities Observed Sectors Impacted
EXPAND RETAIL REACH : Fashion brands, Electronic Good Retailer, Beauty Services seeking Nationwide reach
MULTI-BRAND/PRODUCT/SERVICE PORTFOLIO: Market Leaders building brand portfolio to drive
new revenue growth
FRAGMENTED MARKET SEGMENTS: Segments like Food Processing, Supermarket
Retail, F&B where ,market is large but fragmented
VALUE CHAIN INTEGRATION : M&A of upstream/downstream players to
increase margins & competitiveness eg. Food Processing
FOREIGN INTEREST IN DOMESTIC MARKETS: Foreign MNCs seeking market-entry through
M&A or building strategic stake
Ele
ctro
nic
Re
tail,
Mo
bile
Re
tail,
Su
pe
rma
rket
, C
on
veni
enc
e R
eta
il, F
&B
se
rvic
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pro
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cts,
Fo
od
Pro
cess
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S
po
rtsw
ear
& a
pp
are
l re
tail,
Ed
uca
tion
PE investment in mobile retailerFunTalk to acquire 6 regional distributors to become No.1 distributor/retailer of Mobile phones in China…
Tsingtao acquisiition ofJi’an brewery to consolidate Shandong market
1
Acquisition of 14% stake in Chinese shoe retailer to fund domestic expansion
Ctrip’s strategic 9.5% stake in Home Inns
PE Investments into several Chinese dairy companies
Potential Investment Targets
Leading regional brands in cosmetics, personal care, Food &
drinks, fashion wear, etc
Leading Niche Domestic Brands with Strengths in
Growing 2nd /3rd Tier Markets
Regional Retailers/ Services with Strong
2nd /3rd Tier Distribution Network
Strong Brands with Nationwide Potential currently limited by distribution reach
• Dabao domestic personal care brand acquired by P&G for USD300M
• “Yurun” processed ham generating strong sales
Supermarkets in inner cities, restaurant & food service chains,
etc
•Fujian-based supermarket retail chain dominates 2 nd/3rd tier cities and operates at higher-then industry margins
• KungFu Catering invested by leading VCs
Larger well-established brands or global brands that has potential to
be national market leader
• Burberry – franchised operations in China acquired by parent brand recognizing strong market potential • Ladies shoe brand retailer with strong product but growth cpr to industry peers limited by lack of expansion funds
1
Investment Theme 2 : Technology Led Growth of New Business Niches
Right Strategy = Winning Fund
Factors Supporting & Driving Growth Market Activities Observed Sectors Impacted
EXPANDING BRAND REACH TO 2 nd & 3 rd TIER CITIES:
Global luxury brands have successfully created awareness online
IMPACT OF SOCIAL INTERNET :
Peer Interaction & social networks have been used to build brand and product knowldge
IMPROVING TRANSACTION INFRASTRUCTURE: Good Customer online experience due to efficient payment & low cost door-to-door
delivery system
SHIFT IN VALUE PROPOSITION : Online travel has captured major & significant
market share
CREATE NEW CONSUMER RETAIL CHANNEL : Fashion Retail Online experiencing rapid growth
& TV shopping
Ele
ctro
nic
Re
tail,
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, fa
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esp
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ally
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erv
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Explosive growth seen in online retail (eg.clothing in2009 valued at RMB2.4 billion or 9.7% of total clothing retail) VANCL founded in 2007 & invested by VCs SAIF, IDG is leader with 24% market share
2
Lancome pioneered online beauty community “Lancome Beauty Rose” capturing 4M subscribers
Potential Investment Targets
New Business Models Resulting Technology & Change in Value Proposition
+ Create New Market Niche
New Retail Channels with Nationwide Reach +
Ability to Rapidly Build Brand at Low Cost
• Hunan TV & Taobao launching TV Home shopping channel to target lucrative & growing market
• Online Jewellery Retailer with offline retail POS for customer service
•
Sales of China’s TV Shopping will reach RMB 20billion in 2008
Innovative Retail ers Leveraging New Media (internet/mobile/digital TV) – Pure
online or “offline”+ “online”
• Mobile content download retail service as a result of growth of mobile users and obstacle to access conte nt
Propriety Customer Interface + Attractive
Retail Kiosks + Professional Service
Mobile Content Providers
Mobile Operators/
Mobile Retailers
In
nova
tive
Bus
ines
s M
odel
s in
M
obile
+ I
nter
net S
pace
2
• Innovative “group buying” sites driving consumers to bulk buy for high discounts
Investment Theme 3 : Changing “Middle-Class” & “Luxury” Consumer Lifesty le
Right Strategy = Winning Fund
Factors Supporting & Driving Growth Market Activities Observed Sectors Impacted
ENJOY GREATER LEISURE & ENTERTAINMENT : Luxury Travel Services, Niche Luxury Hotels &
Holiday Resorts
SPENDING ON CHILDREN NEEDS: Affordability to spend on “single” child esp
educationi.e. Special K1-12 Schools, Learning Products & Services
FOCUS ON SELF-IMPROVEMENT & PERSONAL IMAGE:
Consumer-focused services from beauty-care, Adult education, Sports Coaching, etc
DEMAND FOR STATUS : Membership Exclusive Social Clubs & Services, Fashion Apparel & Accessories, Premium Food
FOCUS ON HEALTHY LIFESTYLE : Demand for healthcare products/services,
Sports Services, Health Food
He
alth
care
De
vice
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Se
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”Hea
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oo
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Ph
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&
En
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erv
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, Lu
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Ho
tesl
&
Re
sort
s
Pearson acquisition of China’s WSI- leading English learning school
Sequoia’s investment into China’s leading animation company as demand for cartoon/animation content grows
3
Swiss Luxury Travel Group acquisition of strategic 10% stake in Chinese travel service company ET-China Intl.
Legend Capital investment into hair accessory retail with unique service model
Potential Investment Targets
Niche- Luxury Domestic Branded
Products & Services for Status
Sports, Health & Medical Related Products & Services + Retail Service Chains
Domestic Fashion Designer Brands & Beauty Care
services
• Family-focused Chinese history-based themed retail/entertainment venues;
• Regional cuisine themed Food service
Family Resorts & Parks; Themed F&B Chains
Sports & Spa Services; Health Food Supplements & Health Products; Medical Services;
Beauty care & Spa Chains
• Home-grown fashion design houses
• Exclusive Members Social Club
• Family-use home healthcare check-up devices
• Health Supplements • Massage & Fitness Products
• Fitness, Yoga & Sports Coaching Services
• Specialist Medical Services, Hospitals, etc
3
Lifestyle & Entertainment
Services & Retail Chains
Spotlight on Emerging Agro-Food Sub-Sectors (1)
Expenditure on Food still accounts >25% of Spend even in High Income Households
WHY? Chinese Agro-industry the Next Biggest Concer n of the Govt (1)Raise rural income(2) Drives overall consumption
Huge Market with Favorable Consumer Behavior Changes
A.T. Kearney (2007) estimates that the
growing middle class spends an increasing amount on food, with annual sales of
branded food products expected to grow from US $150 billion to US $650 billion by
2017.
Chinese Consumers Willingness for New Taste : DataMonitor’s Survey shows 44% vs 30% for
Global Consumers
Higher Income Consumers Pay for Premium Food :
DataMonitor’s Survey shows 67% of surveyed had purchased Premium Food in last 6 months
Data from DataMonitor’s survey in July 2009
Spotlight on Emerging Agro-Food Sub-Sectors (2)
Life Cycle of Food & Beverage Products in China
DBS Vickers Report 2010
Chocolate
Bakery
Icecream
Wine
Milk
Processed Meat
Sun-Rise Fast- Growth Decelerating Matured
Juice
Bottled Water
Instant Noodles
Beer
15X 17X 5X 4X 8X 5X 3X 2X 1X 1X
20% 20% 25% 30% 30% 25% 35% 40% 75% 80%
Per Capita Consumption
JPN/CHN Multiple
Penetration in China
Spotlight on Emerging Agro-Food Sub-Sectors (3)
Branded Premium Food (Organic, Safe,
GREEN)
Premium Food Products
• Fresh fruits like strawberry, blackberry and their by-products i.e. juices • Baked food & snacks • Premium Beef
TCM-related Health/Nutraceutical
Products
Agro-Food Industry-Focused Support
Services
USD9BN NUTRACEUTICAL MARKET OPPORTUNITY
• China largest worldwide producer of
nutraceutical ingredients; and expected to surpass the US as largest consumer by 2013
• Over 3,000 manufacturers of nutraceutical products in China, with an annual production value of over $6.3 billion
• Sales in China are expected US$8.8 billion in 2009, with CAGR of 15.2%
China produces 80% of the World’s Ginseng and Dominates most other key TCM herbs
Key Services
• National Cold Chain Logistics Service • Food Distribution Services with nationwide reach • Wholesale & Market Making Services
Page 20
Contact :
K.C Yoon Mobile: +86 18675573803 Email : [email protected] Skype: kcyoon07
Linkedin: http://cn.linkedin.com/in/kcyoon