Jiahe Foods Takes Stakes in Coffee Box Retail and Oatoat as It Pushes Further Into Coffee and Oat Milk

This is an English adaptation of a FoodBud historical article originally published on March 7, 2022.

Jiahe Foods recently said in external communications that it invested at the end of 2021 in two adjacent categories: the retail business of coffee brand Coffee Box and the plant-protein oat drink brand oatoat.

Jiahe held 7.7% of Coffee Box's retail business. That financing round was likely led by SIG Asia Investment, which held 18.5%. Jiahe also held 5% of oatoat; other investors in that round included Yisan Capital.

Earlier information showed that Coffee Box's retail business completed a several-million-dollar angel round at the end of 2020, led by Sinovation Ventures with participation from host Li Jing. Oatoat's latest disclosed financing before this was a tens-of-millions-of-yuan round in March 2021.

Before investing in Coffee Box and oatoat, Jiahe had also participated in a Jinding Capital fund, Qingdao Yinlin Equity Investment, contributing RMB 10 million for a 7.2% stake. That fund invested in Kuafu Fried Skewers and children's food brand Little Yellow Elephant.

Why Jiahe Was Looking Beyond Non-Dairy Creamer

Jiahe has lived through several stages of China's milk-tea market:

• 2004-2005: Taiwanese milk tea became popular in Shanghai, triggering an early wave. A large number of pearl milk tea shops followed, became increasingly homogeneous, and gradually faded.
• The second stage was led by cup-format milk tea such as Xiangpiaopiao.
• The third stage was ready-to-drink milk tea, including products such as Assam Milk Tea.
• The fourth stage saw Taiwanese chains such as CoCo re-enter mainland China, bringing experience from Taiwan and Southeast Asia and reviving freshly made milk tea.
• The current fifth stage has been led by fruit-tea brands such as Heytea. These brands have had less cooperation with Jiahe because fruit tea removes many aroma- and flavor-enhancing ingredients, closer to the shorter-ingredient-list logic often discussed by Genki Forest.

After Jiahe listed in 2021, performance pressure was significant. Non-dairy creamer, its core legacy business, appeared likely to face a long-term downward trend.

In the third quarter of 2021, Jiahe generated revenue of RMB 646 million, up 17.08% year on year, while net profit attributable to shareholders of the listed company fell 40%. For the first three quarters of 2021, revenue was RMB 1.755 billion, up 38.86%, while attributable net profit was RMB 111 million, down 22.31%.

Against that backdrop, Jiahe began saying in 2021 that it would bet on coffee and plant-based categories.

Internal Brands Were Still Small

In coffee, Jiahe's own brand was mainly King Cat Coffee, selling coffee beans, coffee powder, coffee concentrate and related products.

In plant-based, Jiahe had two brands: Nai Master and Feichang Mai. Nai Master was positioned as a coffee-focused milk substitute for coffee preparation. Feichang Mai was a liquid beverage project preparing to recruit distributors for a national market layout.

However, third-quarter 2021 segment data showed coffee sales revenue of only RMB 22.41 million and plant-protein beverage sales revenue of RMB 24 million. Compared with nearly RMB 500 million in non-dairy creamer revenue, both businesses were still very small.

For a supply-chain-led company such as Jiahe, making external financial investments was one way to test emerging business formats while internally incubated brands still had limited revenue bases.

Coffee Box and Oatoat as Supply-Chain Extensions

Coffee Box's retail business was already a Jiahe customer. In the fourth quarter of 2021, the relationship moved from OEM cooperation to Jiahe becoming a shareholder. As a shareholder, Jiahe's core role was to support Coffee Box through its supply chain, including product quality.

According to Jiahe's external communications, Coffee Box's retail business had monthly sales of only low six figures RMB two years earlier, while its current monthly sales scale was close to RMB 10 million.

In oat milk, Jiahe's investment in oatoat had not yet brought large sales volume. The cooperation was mainly around raw-material supply, with oatoat using another factory to process the product into oat milk.

In the long term, oatoat's willingness to accept Jiahe's investment may have reflected an interest in using Jiahe's existing customer channels in tea drinks, coffee and other foodservice categories.

Note: IPO, investment, shareholding and forward-looking market-layout figures are historical as of the original March 7, 2022 article.