 China Star Food's new product pipeline. (Photos: Company)
CHINA STAR FOOD's expansion strategy may be summed up as follows:
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China Star Food's Executive Chairman Liang Cheng Wang spoke with NextInsight on 14 February (Tuesday) about the Group's expansion plans.
1. Exciting product pipeline
"Next month, we will begin rolling out our two latest products from our new factory: frozen sweet potatoes and nougats. We intend to roll out 2 new products every year. Our product pipeline will include popular Taiwanese-style baked confectionery," said Mr Liang.
Other products in the pipeline include rice cakes, baked sweet potato with cheese, jelly, fried dough twist, Japanese-styled mochi, batter biscuit, sweet potato stick, and honey baked sweet potato.
2. More sales promotion and advertising
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We hope to increase sales contribution from e-commerce from less than 5% currently to over 10% by FY2018."We drive sales mainly through sales promotion and advertising. Recently, we offered a 2-for-10 promotion, which was more attractive than our usual 1-for-1o.
"We are also placing our products on WeChat's in-app consumer e-commerce platform and producing a WeChat video ad," said Mr Liang.
The Group's products are already available on leading consumer e-commerce platforms such as T-Mall, yhd.com, and JD.com.
3. New distribution channels
"Roasting of frozen sweet potatoes at our specialty stores is a novel way of appealing to consumers' sense of smell and sight. Our frozen sweet potatoes will be roasted at specialty retail stores operated by our franchisees, at convenience grocery stores operated by other third-parties, as well as by independent street side hawkers," said Mr Liang.
The Group currently has more than 10 franchised specialty retail outlets. These outlets are part of the Group's branding strategy whereby it undertakes the cost of shop renovation while rental and labour overheads are subsequently borne by the franchisee.
"We are targeting to open another 30 franchised specialty retail outlets this year," he said.
The Group has been expanding its distribution network. Stores carrying wholesale inventory for the Group's products are now found in Yiwu, Hefei, Shenyang, Jinan, Shenzhen, and Xi'an. As at 31 March 2016, the network had close to 400 distributors in Fujian, Shandong, Guangdong, Zhejiang, Jiangsu, Liaoning, Hunan, Jilin, Guangxi, and other provinces.
Yeo Choon Tat, who was appointed Deputy CEO on 30 Nov 2016, spearheads the Group's sales expansion regionally.
The push for more widespread market recognition resulted in a year-on-year increase of 89.2% in marketing and distribution costs to RMB 32.9 million for 3QFY2017.
As a result, the Group posted a 28.3% decline in net profit year-on-year at RMB 12.1 million for 3QFY2017.
For its 3QFY2017 financial results for the 9 months ended 31 December 2016, click here.
4. Expansion in production capacity
In FY2016, the Group had 2 factories in Liancheng, Fujian with a total capacity of 28,800 tons of sweet potato snacks a year. Utilisation rate was 88.7%.
During the Chinese New Year, the Group received a local government directive requiring sweet potato factories in the county that do not meet pollution control requirements to halt production.
As the Group's 2 existing factories fall into this category, it decided to relocate all of its production to its new facility at Liancheng Industrial Park, Food Processing Area. The new plant has a total capacity of 30,000 tons. Mr Liang expects the new plant to commence operations next month when all necessary approvals are received.
The Group is constructing a second new plant adjacent to its new facility. The second new plant will be four times as large, and is scheduled for completion next year.
It expects 4QFY2017 production volume to be affected by the relocation and by the Chinese New Year holidays.
5. Reliable supply of quality raw sweet potatoes
| Stock price | 16.4c |
| 52-week range | 16.8c - 42.5c |
| Market cap | S$43.2m |
| PE | 2.79 x |
| Price-Book | 0.55 x |
| Debt/EBITDA | 0.12 x |
| Source: StockFacts | |
The Group is finalising talks to increase its 2,000 mu of farmland leased from local agricultural cooperatives by 4 times to 8,000 mu for a 15-year period.
Once this kicks in, uncertainties over procurement will be eliminated for as much as 60% of its raw sweet potato needs. About 10% of its raw sweet potato is already produced on farmland owned by cooperatives and leased by the Group.
"We station our people at these leased cooperatives' farmlands. This arrangment ensures that the quality of our raw sweet potato will be up to expectations," said Mr Liang.
Cultivation of sweet potato on these farmlands will continue to be undertaken the local cooperatives that are more experienced and have dedicated resources.
