Japan IT Week 2024 Brochure by 47Billion (English)
2010 Potential China Pe Investment Themes Updated Aug
1. China Consumer & Retail Private Equity
- 2010 & Beyond
Consumer-Driven Investment Themes
Updated Aug 2010
Presented by K.C.Yoon
GLOBAL CHINA CAPITAL
2. Presentation Background & Storyline
China Weathers Crisis Well -Emerging
with Stronger Economic Foundations
ONE: Strength TWO: Broad- THREE: Govt FOUR:
in Domestic based Drive for Focused on Competitive
Consumption Domestic PE Fundamentals M arkets
Foreign & Domestic Funds Flow into
Consumer Consumption Sectors M aturing PE
Government taking Active Role to M arket
Promote Private Equity investments
Domestic
Trends Key Consumer Trends and Potential Global Trends
Impacting Investment Themes Impacting
Consumption China
ONE: TWO: THREE:
Domestic Brands Going Internet – Changing the Changing Lifestyle of
Nation-wide Traditional Business Middle-class China
Version 3.0 by KC Yoon
Jan 2010
3. Focus of Today’s Presentation
China Weathers Crisis Well -Emerging
with Stronger Economic Foundations
ONE: Strength TWO: Broad- THREE: Govt FOUR:
in Domestic based Drive for Focused on Competitive
Consumption Domestic PE Fundamentals M arkets
Foreign & Domestic Funds Flow into
Consumer Consumption Sectors M aturing PE
Government taking Active Role to M arket
Promote Private Equity investments
Domestic
Trends Key Consumer Trends and Potential Global Trends
Impacting Investment Themes Impacting
Consumption China
ONE: TWO: THREE:
Domestic Brands Going Internet – Changing the Changing Lifestyle of
Nation-wide Traditional Business Middle-class China
Version 3.0 by KC Yoon
Jan 2010
4. In 2009: Macro-Factors Driving China’s Consumer Economy
Over 110 high-
consumer potential
cities with 34% of
3 GDP
IKEA continue to open 2
stores/year
By2015, Demand for Home- Sunning plans 500sqm
related products and stores in the rural areas
>300M lower-
middle class; Growth of Chinese services
targetting for 3000
100M luxury Middle-Class President 7-11 to open3-7
consumers Demand for lifestyle & stores in Shanghai plans
convenient services for 300 stores in 3yrs
> 200 Cities China Chain Nepstar
drugstar opem/acquire 700
with >1M Urbanization and Demand for better
stores 2008, plans 3000
residents healthcare
Growth of Cities
Sunning plans a B2C site
Growth of B2C
NOW >300M
users;>RMB Korea SKTelecom to
120B online Growth and Impact Most widespread
invest RMB500M in
qingxuan its B2C site
consumer of the Internet media- access middle- Retailers
sales
class consumers continue to Letao to open largest
expand online toy store in China
network
5. In 2009: Key Consumer Trends with Investment Potential
Criteria for Investment
3 + 1
Affordable Luxury for
the Young Affluent Large Market
Growth of Chinese
“Mass Market” +
Middle-Class “Good Enough”
Products
High Growth
Urbanization and “City-Living”
Consumer Services
Growth of Cities
Online Consumer Able to
Brands Sustain Good
Growth and Impact M argins
of the Internet
“Knowledge” Services
Defensible
Govt Stimulus “Health”+ “Well-being” Niche
Services
+“GREEN”
- Increasingly
important
Global trend
6. 2010 & Beyond:Same Core Drivers but with New Focal Points
14.7
Beijing 26.8 Beijing and
17.1 Shanghai already
3 Shanghai 25.1 megacities
in 2007
2007-2025 : 6 New Megacity
8.7
Population (millions) from
Tianjin 12.6
8.3 Beijing
Shenzhen Tianjin
12.4
Clusters
Growth of Chinese 8.6
Wuhan Shanghai
Middle-Class 11.9
7.9 Chengdu Wuhan
Broader Chongqing Chongqing
10.7
Consumer Base 6.4
Chengdu Shenzhen
10.3
8.2 Guangzhou
Guangzhou 10.1
Urbanization and
Source: McKinsey Glob al Institute CAC model, McKinsey Glob al Institute analysis
Growth of Cities
2nd/3rd Tier
Cities New Growth
Online Shopping Growth
2007-2013 (RMB ‘00M)
Areas
Growth and Impact
of the Internet
M obile &
Ecommerce
Create M arket
Source: iResearch report 2009
7. Global Trend (1)- Focus on Capturing “Expanding”
Middle-class Consumers
Shifting of Global
Consumption to Markets Foreign Brands & Investors
Creating the Largest Making Targeted Entries
“Middle-class”
Rapid Consumption Growth Acquisition of Strategic Stakes
Significant Stake in
Large Meat
Fast growth Processor “Yurun”
in meat by Goldman Sachs
consumption
Blackstone Invests
in Agro-Wholesale
Market & Logistic
Exchange
Domestic Brands are Gaining
Recognition
Aggressive & New Market
Suit Brand
“endorsed Global Apparel
by Warren Groups GAP &
Buffet” UNIQLO aggressive
entry plans
Page 7
8. Global Trend (2) – As well as Capturing “Emerging” Luxury Consumers
Shifting of Growth to
Increasing Trend of M&A of
“Emerging” Markets i.e.
Luxury Brands
China
Foreign Brand Expand/Acquire Cash-rich Chinese Companies
Chinese operations Seeking Foreign Brands
Acquisition of
Fashion Brands
“Volvo” by
Burberry &
Chinese
Mango Expands
automaker
Aggressively
Geely
Interest in
European
Increased Market-entry by Foreign Fashion Brands
High-end Consumer Brands by Chinese
parties
Proliferation of
International Global Luxury Players seeking to
Fashion & Acquire Domestic Brands/Retailer?
Lifestyle
Brands..
Page 8
9. Domestic Trend – Rapid Rise in “Luxury” Consumers
Growth of Chinese Values Associated with
“High Net Worth Individuals” Luxury Drives Consumption
By 2009 China will have over 320,000 Chinese Luxury Needs Pervades
HNWI with Total Assets of USD1 through their Lifestyle (F&B, Clothes,
trillion; Across 1st to 3rd Tier Cities Personal care, Living..)
Middle-class Chinese
Consumers aspire towards
similar value
Source: China Merchant Bank & Bain Report 2009
“In 2008, Chinese Domestic Luxury Market was valued at USD8.6 billion” Bain
“China to overtake Japan as the world’s 2nd largest luxury market by 2010”
China Herald 2009
Page 9
10. China Consumer/Retail Investment Themes for 2010 & Beyond
Domestic Consumer Brands & Retailers
1 Going Nation-wide/Capturing Market Share
to be Market Leaders
Products & Services Leveraging on
2 Mobile+Internet to Overcome Traditional
Business Model for Rapid Growth
New Needs Created by Changing Lifestyle of
3 Middle-class & Emerging Luxury Needs of
Chinese Consumers
11. Investment Theme
1 Consolidation + M&A to Develop Domestic Market Leaders
Factors Supporting & Driving
Sectors Impacted M arket Activities Observed
M&A + Consolidation
Tsingtao acquisiition ofJi’an
brewery to consolidate
FOREIGN INTEREST IN DOMESTIC MARKETS: Shandong market
Electronic Retail, Mobile Retail, Supermarket,
Foreign MNCs seeking market-entry through
Convenience Retail, F&B services, FMCG
M&A or building strategic stake PE Investments into several
Sportswear & apparel retail, Education
Right Chinese dairy companies
Strategy
FRAGMENTED MARKET SEGMENTS:
products, Food Processing,
Segments like Food Processing, Supermarket
= Retail, F&B where ,market is large but
Winning fragmented
Fund PE investment in mobile retailerFunTalk to
VALUE CHAIN INTEGRATION:
M&A of upstream/downstream players to acquire 6 regional distributors to become
increase margins & competitiveness eg. Food No.1 distributor/retailer of Mobile phones in
Processing China…
EXPAND RETAIL REACH:
Fashion brands, Electronic Good Retailer, Ctrip’s strategic 9.5%
Beauty Services seeking Nationwide reach stake in Home Inns
MULT I-BRAND/PRODUCT/SERVICE PORTFOLIO:
Market Leaders building brand portfolio to drive
new revenue growth Acquisition of 14% stake
in Chinese shoe retailer to
fund domestic expansion
12. 1 Potential Investment Targets
Leading Niche Domestic Regional Retailers/ Strong Brands with
Brands with Strengths in Services with Strong Nationwide Potential
Growing 2 /3rd Tier Distribution
nd
currently limited by
2 nd /3 rd Tier Markets Network distribution reach
Leading regional brands in Supermarkets in inner cities, Larger well-established brands or
cosmetics, personal care, Food & restaurant & food service chains, global brands that has potential to
drinks, fashion wear, etc etc be national market leader
• Dabao domestic personal care •Fujian-based supermarket retail • Burberry – franchised operations in
brand acquired by P&G for chain dominates 2nd/3rd tier cities and China acquired by parent brand
USD300M operates at higher-then industry recognizing strong market potential
margins
• “Yurun” processed ham • Ladies shoe brand retailer with
generating strong sales • KungFu Catering invested by strong product but growth cpr to
leading VCs industry peers limited by lack of
expansion funds
13. Investment Theme 2 :
2 Technology Led Growth of New Business Niches
Factors Supporting & Driving Growth Sectors Impacted M arket Activities Observed
CREATE NEW CONSUMER RETAIL CHANNEL :
Fashion Retail Online experiencing rapid growth
& TV shopping
Right
Electronic Retail, Mobile, fashion
(especially clothing) retail, travel
Strategy
IMPROVING TRANSACTION INFRASTRUCTURE:
internet B2C/;C2C services
Good Customer online experience due to
= efficient payment & low cost door-to-door
Winning delivery system
Fund Explosive growth seen in online retail (eg.clothing
in2009 valued at RMB2.4 billion or 9.7% of total
SHIFT IN VALUE PROPOSITION : clothing retail) VANCL founded in 2007 & invested
Online travel has captured major & significant
by VCs SAIF, IDG is leader with 24% market share
market share
EXPANDING BRAND REACH TO 2nd & 3rd TIER
CITIES:
Global luxury brands have successfully created
awareness online
IMPACT OF SOCIAL INTERNET :
Peer Interaction & social networks have been
used to build brand and product knowldge Lancome pioneered online beauty community
“Lancome Beauty Rose” capturing 4M
subscribers
14. 2 Potential Investment Targets
Innovative Retail ers Leveraging New New Business Models Resulting
Media (internet/mobile/digital TV) – Pure Technology & Change in Value Proposition
online or “offline”+ “online” + Create New Market Niche
• Mobile content download retail service as a result of
growth of mobile users and obstacle to access content
•
Propriety Customer Mobile
Mobile Content Interface + Attractive
Sales of China’s TV Shopping Providers Retail Kiosks +
Operators/
Innovative Business Models in
Mobile Retailers
will reach RMB 20billion in 2008 Professional Service
Mobile + Internet Space
New Retail Channels with Nationwide Reach +
Ability to Rapidly Build Brand at Low Cost
• Hunan TV & Taobao launching TV Home
shopping channel to target lucrative & growing
market • Innovative “group
buying” sites driving
• Online Jewellery Retailer with offline retail consumers to bulk
POS for customer service buy for high
discounts
15. Investment Theme 3 :
3 Changing “Middle-Class” & “Luxury” Consumer Lifestyle
Factors Supporting & Driving Growth Sectors Impacted M arket Activities Observed
Entertainment, Travel Services, Luxury Hotesl &
FOCUS ON HEALTHY LIFESTYLE:
Healthcare Devices + Services,”Health” Food,
Pharma Retail,Education Services, Media &
Demand for healthcare products/services,
Sports Services, Health Food
Right
Pearson acquisition of China’s WSI-
Strategy ON SELF-IMPROVEMENT & PERSONAL
FOCUS leading English learning school
IMAGE:
= Consumer-focused services from beauty-care,
Winning education, Sports Coaching, etc
Adult
Fund
Resorts
DEMAND FOR STATUS :
Membership Exclusive Social Clubs & Services,
Fashion Apparel & Accessories, Premium Food Sequoia’s investment into China’s
leading animation company as demand
for cartoon/animation content grows
ENJOY GREATER LEISURE & ENTERTAINMENT :
Luxury Travel Services, Niche Luxury Hotels &
Holiday Resorts
Swiss Luxury Travel Group acquisition
SPENDING ON CHILDREN NEEDS:
of strategic 10% stake in Chinese travel
Affordability to spend on “single” child esp
service company ET-China Intl.
educationi.e. Special K1-12 Schools, Learning
Products & Services Legend Capital
investment into hair
accessory retail with
unique service model
16. 3 Potential Investment Targets
Niche- Luxury Lifestyle &
Domestic Branded Entertainment Sports, Health & M edical Related Products
Products & Services Services & Retail & Services + Retail Service Chains
for Status Chains
Domestic Fashion Designer Family Resorts & Parks; Sports & Spa Services; Health Food Supplements
Brands & Beauty Care Themed F&B Chains & Health Products; Medical Services;
services Beauty care & Spa Chains
• Home-grown fashion design • Family-focused Chinese
• Family-use home healthcare check-up devices
houses history-based themed
retail/entertainment venues;
• Health Supplements
• Exclusive Members Social
Club • Regional cuisine themed Food
• Massage & Fitness Products
service
• Fitness, Yoga & Sports Coaching Services
• Specialist Medical Services, Hospitals, etc
17. Spotlight on Emerging Agro-Food Sub-Sectors (1)
WHY? Chinese Agro-industry the Next Biggest Concern of the Govt
(1)Raise rural income(2) Drives overall consumption
Expenditure on Food still accounts >25% of Huge M arket with Favorable Consumer
Spend even in High Income Households Behavior Changes
A.T. Kearney (2007) estimates that the
growing middle class spends an increasing
amount on food, with annual sales of
branded food products expected to grow
from US $150 billion to US $650 billion by
2017.
Chinese Consumers Willingness for New Taste:
DataMonitor’s Survey shows 44% vs 30% for
Global Consumers
Higher Income Consumers Pay for Premium
Food:
DataMonitor’s Survey shows 67% of surveyed
had purchased Premium Food in last 6 months
Data from DataMonitor’s survey in July 2009
18. Spotlight on Emerging Agro-Food Sub-Sectors (2)
Life Cycle of Food & Beverage Products in China
DBS Vick ers Report 2010
Sun-Rise Fast- Growth Decelerating Matured
Beer
Instant
Noodles
Bottled
Water
Juice
Processed
Meat
Milk
Wine
Icecream
Bakery
Chocolate
Per Capita
Consumption 15X 17X 5X 4X 8X 5X 3X 2X 1X 1X
JPN/CHN
Multiple
Penetration in 20% 20% 25% 30% 30% 25% 35% 40% 75% 80%
China
19. Spotlight on Emerging Agro-Food Sub-Sectors (3)
Branded Premium TCM-related Agro-Food Industry-
Food (Organic, Safe, Health/Nutraceutical Focused Support
GREEN) Products Services
China produces 80% of
the World’s Ginseng and
Dominates most other
k ey TCM herbs
USD9BN NUTRACEUTICAL MARKET
OPPORTUNITY
Premium Food Products • China largest worldwide producer of
nutraceutical ingredients; and expected to Key Services
surpass the US as largest consumer by
• Fresh fruits like strawberry, 2013 • National Cold Chain Logistics
blackberry and their by-products • Over 3,000 manufacturers of nutraceutical Service
i.e. juices products in China, with an annual • Food Distribution Services with
• Baked food & snacks production value of over $6.3 billion nationwide reach
• Premium Beef • Sales in China are expected US$8.8 billion • Wholesale & Market Making
in 2009, with CAGR of 15.2%
Services