The meat products industry will move toward high value-added development

Over the past year, hog prices have risen by nearly 80%, and the performance of listed meat companies in the first half of this year has been a tale of "ice and fire." Through product structure upgrading, producing high-end low-temperature meat with relatively higher added value has become a magic weapon for companies to boost profits. Chen Wei, executive vice president and secretary-general of the China Meat Association, said recently that high-grade meat products have relatively high added value, but currently less than 17% of meat in China is used for processed meat products. Following changes in consumer demand, the meat industry is currently accelerating the transformation and upgrading of the product supply structure, striving to raise this proportion to more than 25% by the end of the "13th Five-Year Plan."

Adjusting the product structure and increasing the output of high value-added products has already brought returns to companies. Interim report data recently released by Shuanghui Development (hereinafter referred to as Shuanghui) shows that during the reporting period, Shuanghui achieved operating revenue of 25.527 billion yuan, a year-on-year increase of 25.41%; net profit was 2.151 billion yuan, a year-on-year increase of 8.51%.

In analyzing its own core competitiveness in the semi-annual report, Shuanghui stated that in the first half of this year it persisted in adjusting structure and expanding networks. The output of chilled fresh meat and low-temperature meat products led major competitors in the industry, and the proportion of chilled fresh meat and low-temperature meat products among similar products was also superior to major competitors in the industry. The advantages in output and structure of these high value-added products will significantly enhance the company's profitability.

Zhongyuan Research Report analysis believes that Shuanghui's revenue growth in the first half of the year benefited from the upgrading of product structure. The launch of new products improved the situation of the company's aging product structure and raised profitability. In the first half of the year, Shuanghui launched a series of high-end positioned new products such as garlic-flavored sausage and bacon, which accounted for 10.5% of the company's product sales, up nearly 2 percentage points year-on-year. Zhongyuan Research Report predicts that with market promotion, Shuanghui's new product operating rate is expected to reach 50% in the second half of the year.

At present, Shuanghui meat products' market share in supermarket channels has continued to climb, reaching 38.4% as of June 30. Soochow Securities analysis believes that the meat products industry presents a single oligopoly pattern, and Shuanghui meat products' supermarket market share has increased to 38.4%, dominating alone. With structural upgrading and new products gaining momentum, profits in the second half of the year are expected to be secure.

After parent company WH Group Limited (hereinafter referred to as WH Group) acquired U.S. meat company Smithfield, subsidiary Shuanghui became the biggest beneficiary, and its business strategy and product structure underwent major changes. In 2016, Shuanghui proposed the strategic guiding ideology of "innovation and transformation, creating the future" and the business policy of "stabilize high-temperature, increase low-temperature," vigorously promoting product structure adjustment and transformation and upgrading.

Shuanghui's strategy in product structure is "stabilize high-temperature, increase low-temperature, promote Western-style." At the end of last year, the Zhengzhou Shuanghui American-style factory was put into operation, and three major categories of Smithfield products - bacon, ham and sausage - were officially launched. These are high-quality low-temperature meat products produced by Shuanghui by introducing the world brand Smithfield and using advanced European and American technology and equipment, with high-quality imported pork raw materials, and are also Shuanghui's main new products for adjusting structure, promoting transformation and meeting consumption upgrading. To overcome the criticism of an aging product structure, Shuanghui's R&D centers have expanded from one in the past to eight at present, accelerating R&D speed and seeking new single items and growth points.

Chen Wei said that at present, the overall development speed of China's processed meat products is relatively slow, with less than 17% of meat used for processed meat products, while such data in developed countries is mostly 80%-90%. The existing gap shows that China's processed meat products have huge room for development and are the major direction for future industry development.

In Chen Wei's view, the current consumption environment has already changed, with more and more Western-style products entering ordinary households. In line with supply-side reform, the transformation and upgrading of meat processing products is timely. The product concepts proposed by the industry more than 20 years ago, such as "Chinese products with Western techniques" and "Western products with Chinese flavors," no longer meet market demand. Authentic "Western products with Western flavors" already has a certain market foundation and also satisfies diversified consumer demand. In addition, consumers are paying more and more attention to food safety and healthy eating, and low-temperature meat products will have better development prospects.

Chen Wei also said that processed meat products have relatively high profits and large room for development, and will be the major direction of the meat industry's development in the future. By the end of the "13th Five-Year Plan," efforts will be made to raise the proportion of China's processed meat products in total meat output from 17% to more than 25%.

Guo Lijun, executive vice president and chief financial officer of WH Group, previously said that the company's meat products operating margin in the first half of the year was 22%, and it is expected that the launch of new products in the future will boost the operating margin, with the target level for future operating margin to be no less than 20%.

To spread Chinese and Western food culture, help the integration of Chinese and Western food, and boost the upgrading of China's meat industry, Shuanghui, while deeply cultivating sales channels and vigorously promoting new products, actively teaches product recipes and cooking methods to consumers. On September 12, the "Good Things Come in Pairs Mid-Autumn Food Gathering - Smithfield Pure American Flavor Tasting Event" will be held in Beijing. The concentrated appearance of many Chinese-Western fusion dishes such as caramel bacon made with American-style products demonstrates Shuanghui's operational advantages after internationalization, its strong technological R&D strength, and its determination and thinking on product innovation and marketing innovation.