Five pillars of growth: Herbalife outlines further expansion plans for China
As of 2018Q3, China is already the biggest contributor to the firm’s net sales, enjoying an annual growth of 27% to reach US$266.5m, which is almost equivalent to the rest of the APAC, which has reaped a sales figure of US$274.3m.
NutraIngredients-Asia spoke to Dr Zheng Qun Yi, chairman of Herbalife Nutrition China to find out more about the firm’s plans for the Chinese market.
Describing China as “a very important market”, Zheng said that the firm would invest RMB$700m (US$100.6m), known as the China Growth and Impact Investment programme, to support growth in the country.
The investment will be channelled into five areas, namely 1) upgrading technical capabilities, 2) taking part in merger and acquisition, 3) expanding nutrition clubs, 4) educating distributors and employees, and 5) fostering partnerships with the government, tertiary institutions and NGOs.
“We want to conduct further research relating to health and obesity problems,” he said.
“Our firm’s promise to the Chinese market is to develop further and to upgrade our innovative capability,” he added.
Elaborating on M&A plans, he explained that going through the “blue-hat” registration process in China was a “long process” that could potentially take up to “five to seven years”, and hence, taking over companies was also a viable option.
“Besides working on our innovations, we could also acquire or merge with good quality companies that share the same values as us.”
To prepare for growing demand, Herbalife currently has three manufacturing plants in China, namely Suzhou, Nanjing, and Changsha.
The first two are responsible for producing end products for the domestic market, while the latter processes and supplies raw ingredients to its global counterparts.
“The plant in Nanjing is bigger than Suzhou, it can fulfil the domestic demands for the next five years, and we will put in place the facilities and technologies needed.”
In face of industry competition, he said that the firm enjoyed the distinct advantage of having control over the entire production process of its flagship products.
“Our advantage lies in the ability to manufacture the (flagship) end-products starting from scratch and from the raw ingredients.”
Nonetheless, he stressed that success ultimately rests on “improving oneself.”
Young people – the core customers
With a stronger purchasing power, most of the firm’s customers in China were the younger generation, Zheng said.
80% and above of Herbalife China’s distributors were born after 1980, he revealed.
“The young people have a stronger buying power and most major health brands will want to build a bigger consumer base with younger generation as the core.”
“Our products focus on weight management, nutrition and exercise. This is an image and concept that is compatible with the young people’s mind-set and demand.”
He added that meal replacement products, protein milkshake were the firm’s most popular products in China.
First tier cities first
The firm would expand its presence in China’s lower tier cities via nutrition clubs, Zheng said.
“The market in the 2nd and 3rd - tiered cities are not as big. We will start with the developed cities first, and until the business is established in these areas, we will move focus to these areas (2nd and 3rd tier cities), we are currently at the planning stage.”
There are currently more than 1,000 nutrition clubs in China.
However, the Chinese market is not without uncertainties and challenges.
In its latest financial report, the firm cautioned “uncertainties relating to interpretation and enforcement of legislation in China governing direct selling and anti-pyramiding” and “our inability to obtain the necessary licenses to expand our direct selling business in China” in its forward-looking statements.