
Deal focus: CDH plays Asia wellness card

CDH Investments turned The Better Health Company from a New Zealand-only player into a brand with regional recognition. COVID-19 proved a minor obstacle to an ultimately successful trade sale
For CDH Investments, it was clear that efforts to build an Asia-centric customer base for New Zealand-based supplements manufacturer The Better Health Company (TBHC) would fall short unless Australia could be used as a staging post. It was an issue of brand credibility more than anything else.
The acquisition of TBHC in 2016 came amid a flurry of Chinese interest in vitamin and nutritional supplements businesses out of Australia and New Zealand. Health and wellness had become a consumer priority and consumers were willing to pay a premium for product quality and safety. Australian and New Zealand brands were perceived as having those characteristics.
Investors knew where to look – they could follow the daigou channel of personal shipments entering China and track what Chinese tourists were buying. Consortia of strategic and financial investors picked up Biostime International, Nature’s Care Biotech, Lifespace Probiotics, and Vitaco. Meanwhile, an assortment of non-local e-commerce only players masqueraded as the real thing.
“The heyday of daigou trade was 2016-2020 and a lot of brands were designed to sell into Asia through e-commerce channels,” said Thomas Lanyi, a managing director at CDH, which primarily invests in China but considers opportunities overseas where there is a China angle.
“But consumers wanted brands respected by Australian and New Zealand consumers; they didn’t want products made for them because they were an easy trade. We had to work to get on to real shelves in real retailers before attempting to promote the brand in Asia.”
TBHC formed an alliance with Australia-based Chemist Warehouse, which has 400 outlets nationwide as well as a strong China online presence through Alibaba Group’s Tmall platform. The company carved out a 3% market share in the drugstore channel, enough to propel Go Healthy – its main brand – into a top-10 position. Markets like China, Singapore, Korea, and Vietnam followed.
CDH’s six-year holding period recently came to an end when Nestlé Health Science acquired TBHC for an undisclosed sum. Nestlé New Zealand CEO Jennifer Chappell noted that the company’s broader Asian platform was as much a selling point as its commanding position in New Zealand.
Expansion initiatives
Prior to CDH’s arrival, TBHC was a New Zealand-only brand with a single product aimed at the aspirational to premium market and primarily distributed by local pharmacy chain Green Cross. The four co-founders had scaled the business as far as they could. Lanyi recalls seeing little supporting infrastructure and CDH ended up filling most of the senior management roles.
However, the founders had successfully identified a gap in the market. Most brands did not integrate product development and manufacturing, resulting in a paucity of innovation. TBHC turned dosage strength into a differentiator. The company worked with in-house manufacturers to ensure its products had up to 4x as much strength and efficacy per capsule as those of most industry peers.
It pioneered the one daily dose, one capsule format, which led to higher levels of consumer compliance, superior repurchase rates, and higher sales velocity in retail outlets.
“An elderly person might already be taking drugs prescribed by a doctor. On top of that, they are supposed to take vitamins and supplements and the recommended dose is four pills at once – no one is going to keep that up for long,” said Lanyi. “Formats like 1-A-Day helped Go Healthy rise from nothing to become the number one brand in New Zealand in specialty channels with a 20% share.”
Integrated manufacturing also translated into fleetness of foot – TBHC could bring products to market within three months. Its competitors typically needed more than twice as long and had to accommodate the risks tied to sizeable minimum order requirements when using third parties.
CDH quadrupled capacity, adding three new production lines to an underused 6,000 square-meter factory that housed only one and renting more warehouse space. It also introduced upgrades that automated a larger part of the manufacturing process. Annual output rose from 400m to 1.5bn units.
International outreach efforts started in New Zealand. “They didn’t have any Mandarin speakers and they hadn’t started talking to Asian kiosks and pharmacies, wholesale exporters, and souvenir stalls,” said Lanyi. “It was low-hanging fruit. We translated out marketing materials into Chinese and hired people who could sell into that Asia-owned channel. It became 20% of domestic revenue.”
The move into Australia increased points of sale (PoS) from 1,000 to 4,000, including the 400 large-format Chemist Warehouse stores that are 3-4x more productive than the average pharmacy. Demand out of China, Korea, and Vietnam is met through exports from Australia and New Zealand, but THBC opted for a partnership in Singapore, securing space in Guardian’s 100 local stores.
In 2017, the company acquired Egmont, a local manuka honey brand, with a view to leveraging the TBHC distribution network. EBITDA grew 5x in four years, but the payoff was broader. “Egmont was a great spearhead for exports because its team was already set up for that,” said Lanyi. “They’d talked to Holland & Barrett in the UK and to Wholefoods in the US and sold into those channels.”
The Asia revenue web is now multi-faceted, taking in local partnerships, exports, contract manufacturing for Asian accounts, and sales within New Zealand and Australia to Asian-owned wholesalers and retailers. Taken together, these account for 30% of overall revenue.
Impeded exit
CDH launched a sale process in the first quarter of 2021, receiving interest from more than 50 private equity and strategic buyers. However, momentum was short-lived. Pandemic containment policies limited access to foreign labour, led to intermittent retail shutdowns, and created significant supply chain disruptions.
“Our suppliers were slipping, and we couldn’t get product out. Then our workers stopped coming in. For a while, we had massive drops in productivity because our forklift drivers were down with omicron and without them you are stuck. We had 35% of our people not showing up for work but productivity would drop by 50%,” said Lanyi. “And these are capital intensive businesses.”
With performance on a last-12-months basis deteriorating quarter to quarter and little near-term visibility, the process was suspended. CDH maintained dialogue with a handful of investors that had strong conviction and were prepared to look beyond COVID-19. Nestlé was one of them.
“It was strategic investors who could take that longer-term view; the private equity firms were more cautious,” Lanyi added. “This was one of the last independent assets of quality and size available for sale – most of the others have been picked up by strategics or listed companies.”
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