December 16, 2016 5:00 pm JST

China's pork giant WH expanding presence in US

Industry leader sees acquisitions as key to boosting market share, efficiency

DAISUKE HARASHIMA, Nikkei staff writer

WH's acquisitions in the U.S. are aimed at greater market share in the country, as well as exporting American pork products to China.

DALIAN,China -- Major Chinese pork processor WH Group is expanding and enhancing operations in the U.S., the company's largest market that accounts for half its sales and profits. 

Last month, WH, formerly Shuanghui International, announced it would acquire Clougherty Packing, a U.S. supplier of meat products, for $145 million.

And in 2013, WH acquired Smithfield Foods, one of the world's largest producers of pork products, for $7.1 billion in a move that catapulted the Chinese company to the status of a leading global player in the industry.  

Cutting costs and increasing market share are crucial for WH's growth in the U.S., said Wan Hongwei, a member of the company's founding family who serves as a senior executive in charge of overseas investment.

The U.S. market accounted for 56.4% of WH's sales and 48.1% of its operating profit in the first half of 2016.

Acquisitive mood

WH is facing an increasingly difficult business environment in the saturated U.S. market, where pork prices are sinking. One way the Henan Province-based company is responding is by making acquisitions. 

Clougherty Packing, a subsidiary of meat-processing giant Hormel Foods, has a customer base mainly on the West Coast, centered around California.

Under its food brands Farmer John and Saag's Specialty Meats, Clougherty offers pork products such as bacon, sausage and ham, racking up annual sales of about $500 million.

After being acquired by WH, Clougherty will share sales channels with Smithfield for further business expansion. The two companies will also consolidate their marketing bases and distribution centers.

Clougherty's marketing infrastructure on the West Coast will help WH cut the time required for its exports from the U.S. to major Asian markets, the Chinese company noted.

In an interview before WH's move to purchase Clougherty, Wan said the company was interested in acquisitions that serve its strategic goals, such as enhancing its marketing capability -- indicating that WH will remain on the lookout for more deals in the future.

Operational efficiencies

Meanwhile, Smithfield is stepping up its efforts to boost the efficiency of its marketing workforce and distribution network.

The company's marketing operations were riddled with structural inefficiencies. Previously, for instance, sales reps were devoted to promoting specific product brands and different marketing teams were responsible for different kinds of dealings with the same retailers, such as the perishable product, wholesale and processing food businesses.

To tackle the problem, Smithfield has adopted a new system in which one sales rep is in charge of selling products of all its brands to one company.

Smithfield has also reviewed transportation routes between production facilities and retailers in order to cut costs.

These efforts led to a 2% rise in the company's net profit in the first half of 2016, according to Wan. The company plans to continue taking steps to boost operational efficiency.

In China, where concerns about food safety are growing, WH has built a plant dedicated to making Smithfield products. It is pursuing a safety-focused marketing strategy for ramping up sales of Smithfield brand products in China by importing materials from the U.S. The company hopes this strategy will have a positive effect on its other businesses as well.

In recent years, Chinese companies have made a series of headline-grabbing overseas acquisitions, however it remains unclear whether these purchases will generate expected synergies. But with the home market for pork products leveling off, WH needs to expand internationally to secure growth.

Asia300

WH Group Ltd. (HK)

Hong Kong

Market(Ticker): HKG(288)
Sector:
Industry:
Consumer Non-Durables
Food: Specialty/Candy
Market cap(USD): 11,458.16M
Shares: 14,651.06M

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