Hsu Fu Chi leads Chinese candy consumer branding presence, says Financial PR's MD Kathy Zhang.

MARKET LEADER without doubt, says Financial PR’s managing director Kathy Zhang of confectioner Hsu Fu Chi after she surveyed supermarkets in China recently.

Hsu Fu Chi has brought China’s top-selling candy to the masses for close to a decade, since 1998.  Its brand name immediately conjures up pictures of brightly packaged sugared candy in the Chinese mind.

Candy gifts to some people may come across as distractions for children.  But it's serious money for Hsu Fu Chi as it sold a whopping Rmb 1.4 billion worth
during its fiscal year ended 30 June 2007.

Its popularity can be ascribed to the Chinese tradition of giving candies to relatives, neighbours, friends and business associates during festive occasions.

Hsu Fu Chi had 4.1% of the Chinese sugar confectionery (boiled sweets, pastilles, gums jellies and toffees) market in 2005, according to Euromonitor International.

Hsu Fu Chi's speciality counter makes its mark using entertainment celebrity endorsement. Photo by Kathy Zhang/Financial PR
Some 35% of the Chinese confectionery market is shared by Hsu Fu Chi and competitors such as Cadbury, says Christine Sun, director of advertising and marketing.

Targeted at the consumer who makes at least Rmb 15,000 per year, Hsu Fu Chi’s confectionery retail for 15 yuan per 500 grams.

In contrast, unbranded confectionery can retail for as low as 3 yuan per 500 grams.  65% of Chinese confectionery consumers buy from cheap unbranded manufacturers.

The company has its own specialty counters in hyper marts and supermarket chains.  Sales personnel stationed at these points of sales promote the company’s products and obtain customer feedback.

Some Rmb 70 million or 13% of the half a billion yuan of gross IPO proceeds raised in December 2006 is earmarked for marketing.  This includes media advertisement and promotion expenditure estimated to range from Rmb 50 million to Rmb 100 million over FY2007-2009.

Distribution via third-parties such as confectionery stores contribute 30% to Hsu Fu Chi sales. Photo by Financial PR / Kathy Zhang
To get an idea of how popular the confectionery is consider this: Over 1,000 containers of confectionery are shipped by Hsu Fu Chi every day.

The goodies are found nationwide in major supermarkets and hyper marts such as Carrefour, RT-Mart, Trustmart, Wal-Mart, Lotus and Metro.

Over 15,500 points of sales at international and national supermarkets and hypermarkets, local supermarkets and convenience shops such as 7-Eleven’s carry Hsu Fu Chi’s confectionery.  These directly generate some 70% of the company’s revenues.

The remaining 30% come from third-party distributors and suppliers who place Hsu Fu Chi’s confectionery at another 6,000 points of sales.

Candy sales with its highly seasonal peak as a result of Chinese New Year festivities, contribute 50% to Hsu Fu Chi’s annual revenues.  The mid-autumn festival is another ‘sweet’ period for the company’s sales.

Hsu Fu Chi mass produces well-loved Chinese egg cookies. Photo by Sim Kih
Revenues during the rest of the year are made up by cookies and cakes, which contribute 28%, and the company’s signature Sachima, 22%.

Sachima is a popular traditional Chinese pastry that has been repackaged into a convenience snack by Hsu Fu Chi.

Competitors in the convenience pastry market include Danone and Kraft Foods.

Rmb 2.7 billion worth of candy, cakes, cookies and its signature convenience pastry Sachima were sold in the year ended 30 June 2007, up 32% y-o-y.

Gross and net profit margins were 39.2% and 9.6%, respectively.

The stock last closed at S$1.22, giving the company a market capitalization of S$970 million and historical price-earnings ratio of about 19 times.

Hsu Fu Chi was one of eight SGX-listed Chinese companies headquartered in South-eastern China  Kathy toured last month.  Next company:  TIME WATCH's top-seller dominates market for emerging middle class Chinese

Read about other companies visited:

CHINA SPORTS: Churning out 24 m pairs of shoes a year!

CHINA LIFESTLYE: Making Labixiaoxin China’s household snack

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