Much of the discussion of our operational involvement in our portfolio revolves around growing top line revenues, controlling costs and streamlining decision making. These are goals that we must drive through deeper, more granular involvement in our companies. This month we highlight some of the areas for improvement within our businesses that have been particularly low hanging fruits.
Product R&D
We see improvements through research and development and distribution channel management ranking among the lowest hanging fruits in our strategy. The middle-market consumer businesses we buy are generally profitable, but there has often been little product modernization due to insufficient management talent or investment in research and development and product innovation. We helped Yonghong Foods roll out a new line of beef jerky products packaged specifically to meet the needs of a younger demographic – the snack food can be eaten with one hand, while a mobile phone is held in the other. Similarly, Joysun introduced a ready-to-drink product line to complement its existing mixed powder format beverages. In both cases, professional management had a deep understanding of customer needs and this was leveraged to recalibrate product portfolios, making them more relevant and ultimately making the businesses more brand conscious.
Distribution
The areas that we analyze run the full gamut of operations from capital expenditure decision making and cash flow management to merchandising and customer relationship management. We spend a lot of time studying upstream and downstream supply chains, driving down the cost of raw materials and sourcing while simultaneously expanding our distribution footprint. Many of our businesses distribute through similar channels and we leverage commonality to put products in front of new customers. As a result, I Pinco Pallino can now be found on department store shelves near Yeehoo, as well as in four stand-alone stores in China. Yonghong’s beef jerky leads its category at Walmart in terms of shelf space nationwide.
Retailing
On the retail side, better business planning and data analysis leads to more informed and thoughtful decisions on discounts and incentive structures, rather than simply reacting to seasonality or distributor whims. For example, Joysun and Yonghong now employ much more sophisticated annual discount plans, which vary according to stock keeping units (SKUs), retail channel and geographic market. E-commerce has also emerged as a fantastic distribution channel for strong consumer brands, but it is difficult to navigate due to fragmentation, channel conflicts, and the willingness of e-commerce platforms to subsidize transactions and logistics. We have a dedicated e-commerce task force that liaises with Yeehoo, Yonghong and Peekaboo to improve online distribution.
We look forward to reporting back on the success of these initiatives, and remain confident that the opportunity to deliver this value in our portfolio reaffirms our overarching thesis that obtaining control and leveraging operational involvement in China can maximize the benefit of our investing partners.
