This is an English adaptation of a FoodBud historical article originally published on September 29, 2021.
Jiahe Foods, a supplier behind a number of major tea-drink and coffee chains in China, made a new wholly owned investment on September 28, 2021: Jialian Food (Shanghai) Co., Ltd.
Jialian Food was established on September 28, 2021 with registered capital of RMB 50 million. Its legal representative is Liu Xinrong. Its business scope includes food sales, goods import and export, and technology import and export.
Jiahe Foods had also announced on September 26, 2021 that it planned to subscribe for RMB 10 million of fund interests in Qingdao Yinlin Equity Investment Partnership (Limited Partnership), becoming one of the partnership's limited partners. Qingdao Yinlin focuses on equity investment in high-growth unlisted companies inside and outside China, while also considering investments in NEEQ-listed companies and equity fund interests. Its main investment areas are consumer sectors and other new-economy fields.
Many consumers may not know Jiahe Foods by name, but the company supplies ingredients used by well-known food and beverage chains.
Jiahe Foods listed on the Shanghai Stock Exchange in April 2021. As of September 28, 2021, its market capitalization was RMB 7.5 billion.
The company is mainly engaged in powdered oils and fats, coffee, and other solid beverage products. Its portfolio includes powdered oil products, selected coffee beans, instant coffee powder, cold-brew coffee liquid, tea solid beverages, flavored solid beverages, and plant-protein solid beverages.
Its downstream customers include major food manufacturers such as Uni-President, Xiangpiaopiao, Wahaha, and Unilever, as well as foodservice chains including CoCo, 85°C, Auntie Shanghai, Guming, Yihetang, and Mixue Bingcheng. Among the chain-restaurant brands working with Jiahe Foods, more than five customers had over 1,000 stores.
In the first half of 2021, Jiahe Foods reported:
The company attributed the revenue growth to improved pandemic-control conditions, reduced pandemic impact, rising consumer preference for tea drinks and coffee, and the continuing recovery of freshly prepared milk tea and coffee consumption.
The decline in operating profit, total profit, and net profit was mainly attributed to a sharp increase in raw-material costs and delayed price pass-through, which lowered product gross margin.
The margin pressure had already appeared in 2020. Jiahe Foods recorded 2020 revenue of RMB 1.874 billion, up 2.15% year on year, while total profit, net profit attributable to the parent, and recurring net profit attributable to the parent all fell by around 20%. Recurring net profit declined 23.59% year on year to RMB 196 million.
Jiahe's prospectus describes non-dairy creamer as a powdered food ingredient made mainly from glucose syrup, edible vegetable oil, and milk powder through microencapsulation, spray drying, and related processes. It is used to improve food structure, aroma, flavor, richness, smoothness, and fullness. It is commonly used in milk tea and coffee products, as well as instant oatmeal, cakes, biscuits, and other packaged foods.
Jiahe's non-dairy creamer products include creamer for milk tea, coffee, and baking. The company also said internally developed functional products, including cold-soluble, foaming, and acid-resistant creamers, were moving toward mass production.
Powdered oils and fats are used in modern food manufacturing across products such as chicken essence, soup powders, ice cream powder, oatmeal, milk tea, coconut powder, walnut powder, soy milk powder, coffee flavoring, and milk-powder substitutes.
Non-dairy creamer can be categorized by fat content into high-fat, medium-fat, and low-fat versions. For beverage production, creamers with 20% to 50% fat content are commonly used.
According to forecast data cited from China Food News, China's non-dairy creamer demand was expected to reach 768,200 tonnes in 2023, with a compound annual growth rate of more than 6% from 2019 to 2023.
After years of market development and consolidation, China's solid milk tea and liquid milk tea segments had become relatively stable in competitive structure. Product mix optimization, flavor innovation, and quality improvement supported steady industry growth.
In cup-format solid milk tea, Xiangpiaopiao, U.Loveit, and Xiangyue were among the main participants. Citing a 2018 China Merchants Securities research report and Xiangpiaopiao's 2018 and 2019 annual reports, the article listed China's cup-format solid milk tea market size from 2014 to 2019 as RMB 3.582 billion, RMB 3.351 billion, RMB 3.956 billion, RMB 3.955 billion, RMB 4.444 billion, and RMB 4.653 billion, respectively. In liquid milk tea, market size reached RMB 3.684 billion in 2016 and RMB 4.081 billion in 2017.
According to Nayuki's prospectus, China's freshly made tea-drink market was about RMB 113.6 billion in 2020 and was expected to reach RMB 340 billion in 2025, implying a CAGR of 24.5%.
As of December 31, 2020, China had about 348,000 freshly made tea-drink stores, with an average selling price of RMB 13 per drink. Around 3,400 were premium freshly made tea-drink stores, with an average selling price of at least RMB 20.
Coffee, tea, and cocoa are often described as the world's three major beverages. Coffee is mainly made from coffee beans and contains caffeine and other alkaloids, chlorogenic acid, crude polysaccharides, organic acids, and coffee oils.
Statista data cited in the article showed that global instant coffee consumption rose from 1.0006 million tonnes in 2010 to 1.3643 million tonnes in 2018. Its share of total coffee consumption increased from 20% in 2010 to 23% in 2018.
USDA data cited in the article showed global green coffee consumption rising from 8.0697 million tonnes in 2010 to 9.8365 million tonnes in 2019.
Coffee consumption remained highly regional. In 2019, the European Union, the United States, Brazil, Japan, and the Philippines ranked as the top five coffee-consuming markets, with shares of 27.97%, 16.30%, 14.35%, 4.86%, and 3.66%, followed by Indonesia, Russia, Canada, China, and Ethiopia.
Asia had developed into a sizable coffee market, led by Japan. Other high-consumption Asian markets included the Philippines, Indonesia, and Vietnam. In China, green coffee consumption had grown at a compound annual growth rate of 6.10% over the previous six years.
According to a Frost & Sullivan report cited in the article, per-capita coffee consumption in mainland China was only 6.2 cups in 2018, compared with 867.4 cups in Germany, 388.3 in the United States, 279.0 in Japan, 249.5 in Hong Kong, and 209.4 in Taiwan.
Coffee roasting is a key production step because roasting transforms the chemical and physical properties of green coffee beans and creates components that release coffee aroma. Bean quality, roasting equipment, and roasting process all affect the final flavor. Roasters adjust temperature curves, timing, and crack points to produce light, medium, or dark roasts.
Jiahe Foods described non-dairy creamer as one of its core advantage products, with a relatively leading industry position and brand recognition. It had launched creamer products for milk tea, coffee, baking, oatmeal, and other food applications.
The company had also developed a full coffee product line, including selected coffee beans, ground coffee powder, coffee concentrate, instant coffee powder, and three-in-one coffee beverages. It also developed cold-brew coffee liquid for specific market demand.
Jiahe Foods relied primarily on direct sales, which accounted for more than 70% of sales revenue.
Named downstream customers included Mixue Bingcheng through Henan Daka, Guming Tea through Guming Technology, CoCo through Shanghai Zhaoyi, Auntie Shanghai through Shanghai Zhenqian, and L&Z Pte Ltd, a Singapore-headquartered food wholesaler whose main sales region for Jiahe products was Myanmar. Among domestic top-five customers, Yihetang ranked fifth.
The article noted that Jiahe's production-to-sales ratio for non-dairy creamer had remained strong, while the unit price of coffee products had declined, mainly because sales of cold-brew coffee liquid increased.
Jiahe Foods' main-business gross margin exceeded 27%. Non-dairy creamer contributed more than 90% of gross profit from the main business.
During the reporting period cited, gross profit from non-dairy creamer products was RMB 366.2838 million, RMB 420.9587 million, RMB 490.7063 million, and RMB 280.2655 million, accounting for 96.57%, 92.30%, 93.53%, and 90.28% of main-business gross profit, respectively.
From January to September 2020, Luckin Coffee purchased RMB 7.29 million of creamer from Jiahe Foods.
Jiahe's other solid beverage products included tea solid beverages, flavored solid beverages, plant-protein solid beverages, cocoa solid beverages, syrup products, and tea.
Jiahe Foods' main raw materials included glucose syrup, corn starch, edible vegetable oil, milk powder, and coffee beans. The article described these as bulk commodities with sufficient market supply and a high degree of marketization.
The company's raw-material procurement was mainly in edible oil and milk powder, with suppliers including COFCO and Yihai Kerry.
Jiahe Foods had been increasing R&D investment and cooperating with universities including Jiangnan University and Jiangsu University of Science and Technology through joint development laboratories and innovation centers.
From 2017 to 2019 and in the first three quarters of 2020, R&D spending was RMB 3.0436 million, RMB 8.7075 million, RMB 12.5683 million, and RMB 11.5747 million, respectively, equal to 0.22%, 0.55%, 0.68%, and 0.92% of revenue.
At the time, the company had obtained seven invention patents. As an industry representative, it participated in the project "Key Technology Development and Industrialization of Special Oils and Fats for the Food Industry," which won first prize in the 2019 Science and Technology Progress Awards of the China National Light Industry Council.
The article highlighted receivables risk. At the end of each reporting period cited, Jiahe Foods' accounts receivable balances were RMB 163.4096 million, RMB 169.0738 million, RMB 201.4851 million, and RMB 205.8206 million. These represented 11.95%, 10.60%, 10.97%, and 12.22% of revenue, respectively, with the last figure annualized.
More than 99% of accounts receivable during the reporting period were less than one year old.
As of September 30, 2020, Mixue Bingcheng-related receivables were RMB 46.03 million, while Yihetang-related receivables were RMB 23.31 million.
The article also noted that while customers created payment pressure, supplier procurement required prepayments. At the end of each reporting period, Jiahe's prepaid accounts were RMB 8.3236 million, RMB 13.5095 million, RMB 54.4874 million, and RMB 30.0930 million, accounting for 1.03%, 1.42%, 5.16%, and 2.76% of current assets.
Prepayments rose by RMB 5.1859 million, or 62.30%, at the end of 2018 versus 2017, mainly because increased orders required more prepaid raw-material purchases. At the end of 2019, prepayments rose by RMB 40.9779 million, or 303.33%, from 2018, mainly because subsidiary Shanghai Blue Frog began operating a milk-powder trading business in 2019 and imported milk powder generally required advance payment. Since the second quarter of 2020, the company reduced supplier orders for imported milk powder, and prepayments at the end of September 2020 fell by RMB 24.3944 million from the end of 2019.
Note: IPO, market capitalization, fund-subscription, and forward-looking market-size figures are historical, based on information available in the original September 29, 2021 article.