
Lunar takes the bull by the horns
Nothing transforms the fortunes of a start-up quite like a celebrity endorsement. Twenty-five years ago, former Chinese President Hu Jintao, then still a rising star in the Communist Party, visited Yonghong, a family-owned beef jerky producer based in Guizhou province. He wrote a letter to the three founders suggesting ideas for product development, and they publicized it. Business grew dramatically overnight.
"The way I like to think about it, there are definitely opportunities for people to add value to companies in China, even Hu Jintao," says Derek Sulger, managing partner at Lunar Capital, which last week took a majority stake in the business for $50 million. The founders, now in their mid 60s, will retain a minority holding.
Lunar has a clear plan for Yonghong, better known under its brand name Niutou, which translates as Bullhead: integrate and achieve stability in year one; expand and grow in year two; start trialing new product lines in year three.
An office has already been opened in Guizhou to provide additional staff who will support operations on the ground. Eric Yiming, a former executive with Sampoerna Tobacco Group, Heineken and Tropicana who recently joined Lunar as sector partner for food and beverage and fast-moving consumer goods, has become number two at Yonghong. A new operations manager has also been appointed."We will be bringing in a lot of people at various levels to make sure the integration goes smoothly and to prepare the roadmap ahead," Sulger says.
Yonghong has a nationwide presence, its beef jerky, stewed beef and beef floss sold in more than 2,000 supermarkets and 10,000 convenience stores, but the company has struggled to connect with China's younger demographic. Part of this is due to unsuitable marketing strategy, best exemplified by some uninspiring product packaging. Lunar will invest in this area, as well as modernizing distribution processes and spending more on R&D.
"We will invest in product development and try to reposition some products to target different consumer groups," Sulger explains. "Most of products are beef-flavored now. We might try to expand into other ingredients - there is a big market for tofu jerky (bean-curd) snacks, for example."
There are obvious parallels between Yonghong and another Lunar portfolio company, walnut beverage producer Joysun, another company where the founder was willing to give up majority control for assistance in reinventing the brand. Sulger notes that he has always been more interested in turning around mature consumer sector players as a minority growth investor because there is greater capacity for operational involvement.
This latest acquisition takes Lunar to four portfolio companies in the food and beverage space, matching the four it already has in babywear and kidswear. "Four is an unlucky number in China, so we are certainly trying to do more in these areas," Sulger adds, with a smile.
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