Chinese firms boosting nutrition market share by shopping overseas
Swisse, an Australia vitamin brand, led the way in 2015 when it was famously sold to Hong Kong’s Biostime for US$1.7bn. At the time, Swisse chief executive Radek Sali said: "What's changed for us have been all really positive things. We've turned into an organisation that can now take on a global opportunity.”
Other foreign natural health companies have also been on China’s radar, such as Australian vitamins and supplements manufacturer Priobiotec, which established a partnership with Hong Kong-listed CSPC Ouyi in June. The companies are now negotiating the terms of investment, distribution and product lines.
CSPC’s general manager, Chen Haixiang, said he had spent some time hunting for buying opportunities Down Under.
"After a free trade agreement with China and Australia, the economic relationship is getting a lot closer than before, and a lot of Chinese consumers are really interested in Australian quality health products, so that's why we're interested in buying these Australian brands," Chen said.
Nature's Care was another of CSPC targets, for which the Chinese company bid US$1bn to acquire after the Sydney supplements producer had established a name for itself in China with Chinese consumers following the marketing of its Healthy Care and NC Pro Series line through online platforms.
Activity is not just limited to Australian businesses. In Canada, Jamieson Laboratories attracted the interest of two Chinese companies, Shanghai Pharmaceuticals and By-health, who bid upwards of US$1bn for the natural health manufacturer at an auction before was cancelled by its private-equity owner, CCMP Capital Investors earlier this month.
It is significant that neither of the bidders had ever previously completed an acquisition worth more than US$50m despite their significant influence in the Chinese market.
In March this year, Hong Kong Bai Rui, a wholly-owned subsidiary of By-health, planned to set up a joint venture with NBTY, a well-known American dietary supplement manufacturer for up to US$18m for 60% of its shares.
“The potential of China’s healthcare products market is very appealing for both the Chinese pharmaceutical manufacturers and foreign targets,” said Shi Xuejian, chief editor of Vitamins China News.
“It’s actually a win-win situation. For both of them, it is a good opportunity to capture the market together.
“After all, Chinese enterprises are very active in mergers and acquisitions. Foreign takeovers look more attractive when China’s economy is slowing down,” Shi added.
China’s natural health market was valued at over US$30bn last year, having grown at an annual rate of around 20% since 2011, according to China’s National Bureau of Statistics.
China Consumer Association found that over 40% of Chinese consumers said they preferred foreign healthcare products and only 9.5% held the view that “domestic healthcare products are better”.
“Recognition of foreign developed brands in China is the key reason for Chinese firms to acquire overseas healthcare products firms,” said Shi.
The top natural health five brands captured a 35% market share in China in 2015. Amway retained the top position with 10.9% of the market, followed by Infinitus of China, Tiens Group and By-health.
Under Chinese ownership, foreign-developed brands will find it more convenient to enter China’s market, said Shi, especially after authorities began cracking down on illegal sales from overseas, with customs departments embarking on more frequent checks on shipments.
Moreover, the implementation of new registration regulations for health foods this month require foreign products to be registered in China before being sold, which will add to the cost of operating in China.
