Zhejiang firm seeks growth
Updated: 2013-05-06 07:13
By Zheng Yangpeng (China Daily)
A worker at an ice-cream production line of Youcan Foods Group Ltd in Hangzhou, in East China's Zhejiang province. Its namesake ice-cream cones were part of the childhood memories of many Hangzhou residents. In 2005, the private company took a strategic business shift by branching into food-related logistics and commerce because it believes only a budding business would have a bright future in China. Provided to China Daily
Adding value creatively when others struggle to do business
Chinese entrepreneurs like to create mini-conglomerates. Dai Tianrong, a deputy to the National People's Congress and an industrialist from Zhejiang province, told China Daily how he has made his mini-conglomerate thrive at a time when many others are struggling to do business.
Dai has engineered his own "transformation of growth model", as the Chinese business media describe it, changing from a largely traditional manufacturing business into one increasingly driven by services.
In the process, Dai successfully leveraged all the resources available to him, both visible and invisible, toward a longer and more integrated value chain.
If the thousands of privately owned companies in Zhejiang followed Dai's example, the coastal province, which currently is still heavily dependent on export-oriented manufacturing, could be "transformed" to become more competitive in value-added services.
Dai founded his ice cream making company Youcan Foods Group Ltd in 1992 in Hangzhou, the provincial capital city. In a market yet to be fully open to major international brands, it quickly grew into a significant player locally for chilled and low-temperature foods.
Its namesake ice-cream cones form part of the childhood memories of many Hangzhou residents.
But Dai was not content to be just one of many. He closely observed all the goings-on in his market. "For private companies like ours, we've learned from the day when we were born that, to keep swimming in an ocean competition, you can only rely on two factors - you have to get close to the market and get close to your customers as much as possible."
In 2005, Dai decided that food-related logistics and commerce, then only a budding business in China, would have a bright future. He decided on a strategic shift for Youcan.
Before 2007, Youcan's logistics arm only served its own company. Believing in a bright future for logistics, Dai set up a joint venture with Uni-President Enterprises Corp, one of the largest food manufacturers in Asia, headquartered in Taiwan, to deliver a cold-chain logistics service to the external market. The joint venture was named Uni-Champion Logistics.
"Cold-chain logistics is the most sophisticated and expensive of all types of the logistics business. In the West, 80 percent of food is delivered by cold-chain logistics. In China the percentage is just 20 percent," Dai said.
Because of the relatively high threshold for entry, there are still few competitors in the industry.
For example, Dai said, an ordinary truck costs 80,000 yuan ($12,841) while a refrigerated truck normally costs 160,000 yuan. And Youcan's refrigerated trucks, with thicker sidewalls and two compartments set at different temperatures, cost as much as 220,000 yuan.
Higher costs also mean higher risks. So Dai wanted to do better than other companies' crude "warehousing-plus-transporting model" and lower the costs in an innovative way.
Youcan developed its unique "check-free delivery model". Generally speaking, when a truck is sending goods from the warehouse to convenience stores, it stops at store A, unloads the requisite goods and cannot leave for store B until the staff from store A finish checking the goods with the truck driver. The process typically takes from 20 to 30 minutes and inevitably delays a truck's delivery round.
Under Youcan's system, trust has been established between the deliverer and the recipients, allowing a truck to go to store B immediately after it drops off goods at store A, leaving the store staff to check the goods by themselves. Because Uni-Champion serves around 28,000 outlets in Hangzhou, the system saves a tremendous amount of time and delivery costs.
Cai Wenguang, general manager of Uni-Champion Logistics, said in the past five trucks were needed to serve 100 stores. Now only four trucks are needed, which is equivalent to a 20 percent cut in costs.
Data management necessarily follows the "check-free delivery model", Cai said. Traditionally, a delivery center works only by acting upon the orders from stores in a passive way. The lack of planning tends to make many logistics companies' operation costs unmanageable.
But now, there is a system through which Youcan's delivery center can collect real time sales data from stores and react accordingly, dispatching replenishments right away.
"Our technology has liberated us from being a simple, passive delivery provider to become a real logistics coordinator," Dai said, adding now Uni-Champion is serving up to 70 corporate clients in Hangzhou, including Tesco, Starbucks and the domestic restaurant chain Waipojia. The logistics business now contributes 15 percent to the group's revenues.
Interestingly enough, Youcan's initial success in its logistics venture has led it to realize how much value it can produce for retailers. So, why not enter the retail business itself?
In fact in 2005, Dai opened several Youeasy convenience stores in Hangzhou.
For retail, rent makes up a large portion of total cost. How to make the most of space thus becomes a critical question for managers. For Youcan, this can be done with the help of its smart logistics service.
"In the past for example, one square meter of space could store four cases of beverages (100 bottles). But not all of them would sell out in one day. Now, with our delivery system, our stores can put, say, just 20 bottles on the shelf and leave more space for other goods or purposes," Dai said.
Now Dai has 100 convenience stores in Hangzhou, although, as a whole, his commerce arm has yet to prove as profitable as his logistics venture.
To leverage its logistics expertise and also local knowledge, Youcan is also trying to move its brick-and-mortar commerce online, setting up 96188.com, a business-to-consumer website specializing in selling organic foods, local specialities, imported foods and chilled vegetables and fruit.
Although it cannot compete with Chinese e-commerce giants such as Tmall and 360buy on a national scale, it does cater well in a niche market: the city-wide market. And Youcan's logistics system can be harnessed to deliver online orders.
During his interview, Dai liked to use the phrase "resource consolidation". And, over the last decade, he certainly has done so much of that as to have consolidated his resources into a growing value chain.
Nowadays, food manufacturing remains the cornerstone of Youcan and contributes the largest share of its group profits. It is important because it still provides the financial resources for Dai's mini-conglomerate to explore its way forward.