Baoke Ben: Zhongpin has been shifting our product mix over the last several years to focus on chilled pork, which is in high demand by Chinese consumers and requires very strong logistics capabilities. There is also a focus on low temperature prepared meat products which require a strong brand promotion and product development but offer the highest margins. The annual sales from chilled pork increased from US$17 million in 2004 to US$289 million in 2008, with CAGR of 200%. For the first quarter of 2009, sales from chilled pork were US$86.3 million, representing 56% of the total revenue for this quarter. The segment of prepared meat products achieved the fastest CAGR of 212% from US$2.5 million in 2004 to US$53.7 million in 2008. As the new middle class grows in China, our market share of chilled pork has steadily increased. Meanwhile, demand for highly convenient low temperature prepared meat products is also increasing gradually due to the increasing pace of life in large cities of China.

Zhongpin’s brand is associated with high quality, safe and nutritious meat products. The company's in-house R&D team continues to develop new products that cater to the tastes and demands from the increasing number of middle-class Chinese consumers.

 

MI: What are Zhongpin’s main markets and what future markets are you targeting?
Baoke Ben: Our extensive sales network covers 20 provinces and 4 cities with special political status in China, including 111 second-tier cities and 337 third-tier cities as of March 31, 2009. We have been heavily focusing on the market of Henan province, but will target meat markets in the middle-north and middle-east areas of China where several first-tier cities are located, like Beijng, Tianjin and Shanghai. We have also started building our own production capacities in the above targeted areas, e.g. the new facility in Tianjin for pork and prepared meat products commenced construction in April. Once the new facilities are built and integrated with the existing facilities, a complete network of R&D, production and sales will definitely help Zhongpin gain greater market dominance in these areas.

 

 

As part of our market expansion strategy for 2009, we will also expand our distribution channels by targeting leading national supermarkets and high-end restaurants. Well-educated consumers normally shop in these two types of outlets and they place more emphasis on the quality rather than the price of meat products.

 

MI: Regarding retail outlets, how much revenue from meat products is generated and as a percentage of total revenue?
Baoke Ben: For the first quarter of 2009, our 3,097 retail outlets generated US$68 million, representing 44% of the total revenue for the quarter.

 

Baoke Ben: The new facility in Tianjin City will add 100,000 metric tonnes in annual capacity of chilled and frozen pork, and 36,000 metric tonnes of low temperature prepared meat production capacity. Among 100,000 metric tonnes of chilled and frozen pork production capacity, 70% will be used for chilled pork processing and 30% for frozen pork processing. The production lines for chilled and frozen pork products will come on line at the end of Q1 of 2010, and are expected to reach our targeted utilisation level by the end of Q3 2010. The investment cost is estimated to be US$62 million.

 

Baoke Ben: The new prepared meat facility in Changge will add 56,000 metric tonnes production capacity with $27 million investment cost. The new facility is expected to come on line by the end of 2009, and achieve target utilisation rate by the end of Q2 2010. Most of the equipment will be imported, but we will not use robots.

 

Baoke Ben: Zhongpin sources hogs from hog farms and major hog raisers near the company’s production facilities across the country. The company doesn’t import any hogs or meat at the moment. Zhongpin so far only processes pork products.

 

Baoke Ben: We expect that the global economy will bounce back and revive at the end of 2009 or early 2010 and pork demand in international markets will also improve. As the Chinese economy bottomed out earlier than other economies, the domestic demand for pork is under steady improvement. We expect the meat market in China will further expand in 2010 and Chinese consumers will have higher standards and stronger demand for quality meat products.

 

Baoke Ben: For the company one of the biggest challenges is how to manage its rapid growth in China and overseas markets. The company has been doubling its sales each year and such rapid growth rate requires Zhongpin to continuously improve its management infrastructure, staff training programmes, logistics systems and production efficiency. The company also works hard to help overseas investors to fully understand the market potential and investment opportunities in China’s meat industry.MI

 

Source: Meat International magazine Volume 19.5/6