Recently we wrote about our industry-insider approach to sourcing, which we believe provides a unique and growing pipeline of consumer opportunities by narrowing our focus on subsectors where we see strong brands, low penetration buyout rates and healthy margins. Within these subsectors we map out leading companies and approach businesses that score well on key success factors that we have determined from our operational insight.

In China’s beverage industry, health-functional drinks are an attractive subsector where we have made clear progress in acquiring and driving business performance. This industry is experiencing high growth as the per capita consumption rate in China is still relatively low compared with developed Asian markets like Taiwan, Japan and Hong Kong. Euromonitor recently reported that carbonated and tea drinks are losing their appeal with the Chinese consumer, creating room for health-related beverages to grow and capture market share. In addition, our on the ground diligence and interviews with distributors, sales promoters and retail outlets, reiterates that vegi-protein drinks, energy drinks, nutritional beverages and bottled premium water are in high demand from consumers.

Historically, MNCs, such as Coca Cola, Danone and Red Bull, were successful in quickly gaining market share in China. Recently, we see a trend that traditional Chinese brands are regaining position in regional markets. Bingfeng, a local beverage brand whose products were very popular in the 60s, has regained a strong position in Xi’an province through reinvigorated marketing strategies leveraging its brand value and Beibingyang, a traditional Beijing beverage brand founded in 1950, is steadily rebuilding its market share by launching new products. These brands use traditional recipes without additional additives, while MNCs typically use concentrates. Although the cost is higher for these traditional brands, the health concept has been well received by the increasingly aware consumer. In our opinion, there are clear investment and value-creation opportunities in medium sized regional beverage businesses with brand equity resonating well with the health conscious consumer.

We clearly see opportunity and systematically target regional players with an established brand that have the potential to become a national leader. As an example, our detailed industry analysis and sector mapping allowed us to identify, diligence, and acquire Joysun, a leading Walnut beverage Company with a long brand history in China. The company was a good fit for Lunar, given our previous experiences in FMCG, and we identified potential in the brand and the opportunity to develop new products and channels together with professional management teams. The team has worked to: identify opportunities within distribution channels across the Lunar portfolio; spearhead new product design and packaging solutions; manage the supply chain more effectively; roll out a new ready-to-drink (RTD) product; and launch an e-commerce strategy.

We are actively seeking potential acquisition targets with healthy, functional, energy or other concepts that can be injected into our beverage platform. With our operational support, synergies among this beverage portfolio will be realized by utilizing complimentary sales team and sales initiatives, logistic systems and distributors, and through disciplined negotiations with related multi-counterparties.