But the authorities’ veto of Coca-Cola’s proposed US$2.4 billion takeover of Huiyuan has left the fruit juice brand in a sticky situation.
It will have to go without the benefit of the deal - Coke’s marketing and distribution muscle - but must still live with the drawback: the consumer backlash it faced after news broke that it was selling out to a foreign company.
In a statement issued after the lapse of the buyout bid, Huiyuan said it “respects the China Ministry of Commerce’s decision” and “the company is working diligently to provide high-quality, safe and healthy products to consumers.”
Nonetheless, the firm’s share price plunged by 53 per cent after the deal broke down, reversing the gains it had made since the merger was announced in September. Analysts have predicted that Huiyuan will recover in the long run as it is still the largest juice beverage maker in the country, cornering over 40 per cent of a market that grew 15 per cent in 2008 to $2 billion. However, there are concerns that Huiyuan has no plan B in the short term. Reports in China that the company is still trying to find buyers - PepsiCo and Uni-President among the possible suitors - suggest its ambition remains a sale.
One question Huiyuan faces is how to restore faith in its brand when its future ownership is still in doubt.
What’s more, there are concerns about growth in its market, with JP Morgan’s Selina Sia commenting: “Slower juice sales seemed to be a sector-wide issue in 2008. Huiyuan’s business performance in 2009 could deteriorate further if consumption sentiment becomes worse.”
Although dominant in the fruit juice and puree markets, Huiyuan has lost market share in the low end of mixed fruit juices. And with Coke still looking to expand its juice business, it will now face its putative partner as a competitor.
It will have to go without the benefit of the deal - Coke’s marketing and distribution muscle - but must still live with the drawback: the consumer backlash it faced after news broke that it was selling out to a foreign company.
In a statement issued after the lapse of the buyout bid, Huiyuan said it “respects the China Ministry of Commerce’s decision” and “the company is working diligently to provide high-quality, safe and healthy products to consumers.”
Nonetheless, the firm’s share price plunged by 53 per cent after the deal broke down, reversing the gains it had made since the merger was announced in September. Analysts have predicted that Huiyuan will recover in the long run as it is still the largest juice beverage maker in the country, cornering over 40 per cent of a market that grew 15 per cent in 2008 to $2 billion. However, there are concerns that Huiyuan has no plan B in the short term. Reports in China that the company is still trying to find buyers - PepsiCo and Uni-President among the possible suitors - suggest its ambition remains a sale.
One question Huiyuan faces is how to restore faith in its brand when its future ownership is still in doubt.
What’s more, there are concerns about growth in its market, with JP Morgan’s Selina Sia commenting: “Slower juice sales seemed to be a sector-wide issue in 2008. Huiyuan’s business performance in 2009 could deteriorate further if consumption sentiment becomes worse.”
Although dominant in the fruit juice and puree markets, Huiyuan has lost market share in the low end of mixed fruit juices. And with Coke still looking to expand its juice business, it will now face its putative partner as a competitor.
| FACT BOX |
| - Huiyuan’s shares fell by as much as 53 per cent to HK$3.88 (US$0.50) after news of its failed merger with Coca-Cola broke. - Although Huiyuan has a lead in the fruit juice and juice purée market with about 40 per cent share, it saw falling sales in the first half of its 2008 financial year. It reported Rmb 1.29 billion in sales revenue, down Rmb 70 million from 2007. Net profit was down 22 per cent. - The brand has lost share in the low end of mixed fruit juices, which make up 75 per cent of the fruit juice segment. |
Donald Chan, CEO, TBWA Group China
There are still positive aspects Huiyuan could take away from the fallout of this deal. Coke’s intended offer of US$2.3 billion indicated the power of the Huiyuan brand, a quality juice maker with wide appeal. The public response reflects the trust and pride Huiyuan has built among its consumers. Now the deal is off and damage is done, it’s time to refocus the efforts to rebuild the brand and innovate its business.
Huiyuan’s quality image in the high-concentrated juice category is an advantage it could leverage to reassure consumers of its core equity. A failed merger deal does not change the quality the brand delivers. Historically its media plan was heavily driven by TV; it should start to develop an online marketing drive on quality as that was where reaction to the deal originated.
Huiyuan’s source of authority in this category should also be levered to support new product development in the low-concentrated juice segment which is upwards of 70 per cent of the juice market.
These days, especially with consumers concerned over food quality, a trusted product in this value segment would be mostly welcomed. And with its strengths in its brand and distribution, Huiyuan is still a very appealing partner.
Steven Chang, CEO, Optimedia China
There are many challenges Huiyuan will have to tackle following the aborted deal. Although it has a dominant market share in the juice market, if it expands further it will become even more ‘local’ and will be facing very local competitors.
There’s a product line issue. With more intense competition from international and local players, what other high-margin products can Huiyuan work on? So far, it doesn’t have a product like Mengniu’s Deluxe (a superior grade milk) which has gained good share of the premium market and has decent branding. It’s a big local company and brand with global aspirations. This is what many successful local brands want to achieve but they face obstacles in doing so. Post-Coke,Huiyan needs to face up to the issue of rebuilding its credibility as a Chinese brand and become a serious China player again. This is an effort that it did not need to face pre-merger. Now the spotlight is on it and consumers are watching what Huiyuan will do. They will carefully monitor its marketing messages and the way it conducts itself.
Given that its past marketing isn’t interesting and doesn’t arouse attention the way Coke or Pepsi do, this becomes a real challenge.
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