Good News on Listing | Frost & Sullivan Assists Jiujiawang Food International Limited to Successfully Go Public in Hong Kong (1927.HK)

Jiujiawang Food International Co., Ltd. (hereinafter referred to as 'Jiujiawang') successfully listed on March 16, 2021. The global number of shares issued was 198 million, with a tender offer price ranging from HK$0.65 to HK$0.75, raising approximately HK$130 million to HK$150 million. Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for Jiujiawang's listing, and we hereby extend our warmest congratulations on its successful listing.

During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), facilitating communication with the Hong Kong Stock Exchange and investors, helping investors quickly understand the market ecosystem and competitive landscape, and assisting the company in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.

The global sweet food market size (by retail value) stabilized at around $50.6 billion in 2014 and grew to about $58.7 billion in 2019, with a compound annual growth rate of about 3.0%. The growth in global sweet food retail is mainly due to accelerated product innovation (such as spicy and various flavors) and marketing activities.

China's confectionery market has expanded steadily and become one of the largest in the world. Despite a decline in per capita confectionery consumption, the retail market for confectionery in China has been supported by strong economic growth in the country, leading to an increase in unit prices of confectionery in China. From 2014 to 2019, the market size of the confectionery retail market increased from about RMB 80 billion in 2014 to about RMB 937 billion in 2019, with a compound annual growth rate of about 3.2%.

The expected growth of the domestic economy and the improvement in living standards will continue to support the development of the future confectionery retail market. Therefore, the market is expected to grow at a compound annual rate of about 3.1% between 2020 and 2024, reaching approximately RMB109.1 billion by 2024. With the advancement of urbanization and the growth of consumer disposable income, it is expected that the confectionery market in China will achieve stable growth.

E-commerce is booming, and the logistics network has been improved.In recent years, e-commerce in China has developed rapidly. In 2018, the sales volume of retail e-commerce in China reached approximately 1207 billion yuan, with a compound annual growth rate of about 33.9% from 2014 to 2019. E-commerce has greatly enhanced connectivity between retailers and customers, allowing consumers to purchase various candies on the same e-commerce platform, thereby achieving better product promotion and development by expanding the customer base. Therefore, the vigorous development of e-commerce will further integrate physical stores and e-commerce, and support the growth of other sales channels. On the other hand, the improvement of China's logistics network has significantly shortened delivery times, enabling timely food deliveries. As a result, the rapid development of e-commerce has enabled a wider customer base to enjoy sweets, thereby increasing sales.

Disposable income is constantly increasing, and the quality of life is continuously improving.Strong economic growth and an increase in per capita disposable income are two major driving factors for the Chinese confectionery retail market. The improvement in living standards has correspondingly stimulated consumption of food and beverages. In 2019, per capita urban household spending on food and beverages reached approximately RMB 7,732, with a compound annual growth rate of about 5.2% from 2014 to 2019. Therefore, the expected growth of the Chinese economy will continue to drive the confectionery market and its growth.

The government has promulgated policies to increase the birth rateTo increase the number of young people, since January 1, 2016, the Chinese government has abolished the one-child policy and allowed all families to have two children. Since the main consumer group for sweet products is the younger generation, it is expected that rising birth rates and the resulting increase in the young population will directly drive demand for sweets.

According to a Frost & Sullivan report, the confectionery manufacturing market is one of the sub-sectors within China's food manufacturing industry. Due to the increase in per capita disposable income among Chinese residents and the growing global demand for confectionery products in recent years, revenues generated by the confectionery manufacturing market increased from about RMB 54 billion in 2014 to about RMB 614 billion in 2019, with a compound annual growth rate of about 2.6% during this period. This growth trend is likely to continue over the next five years and will reach about RMB 694 billion by the end of 2024.

Increase in the number of target consumersOne of the main customer groups for confectionery products is most likely to be teenagers under the age of 14. In the past five years, China's population under the age of 14 increased from about 2.256 billion in 2014 to about 2.349 billion in 2019, with a compound annual growth rate of about 0.8%. With the relaxation of China's birth control policies, the number of target consumers is large and continuously increasing, leading to a corresponding growth in domestic demand for confectionery products. This ultimately drove the growth of China's confectionery manufacturing market.

E-commerce acceptance rate has increasedWith the rapid development of China's internet, e-commerce has combined online and offline businesses, providing dynamic and seamless processing flows for manufacturers and customers. It has become one of the growing commercial strategies adopted by enterprises. In addition, online platforms have transformed into another sales channel, enabling merchants to reach international customers. Most leading confectionery manufacturers have established e-commerce channels in the form of flagship stores to promote their brands and boost sales. Therefore, the prevalence of online retail in China has driven the development of China's confectionery market.

The government has introduced policies favorable to the manufacturing industryTo promote product innovation and industrial automation, the Chinese government encourages manufacturing enterprises to actively invest in the R&D processes outlined in the '13th Five-Year Plan for National Economic and Social Development of the People's Republic of China.' Especially in China's confectionery industry, new flavors and healthier product choices (such as reducing sugar content by using sweeteners instead of sugar and adding vitamins to products) are becoming increasingly common among consumers. In addition, the implementation of the 'Food Safety Law' has raised safety requirements for consumer food, thereby enhancing industry standards in the food manufacturing sector. This has boosted residents' confidence in locally manufactured food and promoted demand for Chinese-made food. Therefore, in recent years, the government support measures and policies emphasized in the '13th Five-Year Plan for National Economic and Social Development of the People's Republic of China' have driven the growth of the candy manufacturing market.

According to a Frost & Sullivan report, the Chinese confectionery manufacturing market is highly fragmented, with over 1,000 market participants, most of whom are small manufacturers. Many international confectionery brands have established production facilities in China to ensure better quality and meet local market demands. International market participants replicate their successful business models and industry practices in China through extensive distribution networks and brand awareness. Overall, the market is relatively fragmented with a large number of local manufacturers. It is estimated that the combined market share of the top five market participants in the Chinese confectionery manufacturing market in 2019 was about 33.1%.

Brand awarenessBrand awareness is a common competitive factor among manufacturers in the Chinese confectionery market, as it enables customers to easily identify the manufacturer's brand from the product's appearance and packaging. Chinese confectionery manufacturers generally own their own brands to enhance brand awareness. Brand awareness is related to product quality and the success of marketing and promotional activities, which are crucial for expanding customer bases and increasing customer loyalty. Therefore, market participants with higher brand awareness have a better chance to seize business opportunities and surpass competitors in the market.

Product quality and differentiationThere is a wide variety of confectionery products, typically with different flavors and textures, such as gum-based candies, hard candies, and compressed candies. Strong market participants need to closely follow the market trends and demands of different products and allocate sufficient resources to ensure the quality and safety of their products. In addition, several market participants regularly launch new confectionery products with new flavors and shapes on special occasions to attract new customers and stand out from competitors. Therefore, the quality and type of products provided by confectionery manufacturers are one of the key success factors for market participants to maintain competitiveness in the market.

distribution channelsTo increase market share and competitiveness, several confectionery manufacturers have expanded their operations from regional levels to national levels. Some successful manufacturers are also able to export their confectionery products overseas to build their brand reputation and develop new distribution channels (such as online sales). Manufacturers ultimately enjoy economies of scale due to the establishment of larger-scale operations, thereby enhancing their competitiveness among peers. Therefore, market participants who can organize extensive distribution channels are more likely to succeed in the market.