This is an English adaptation of a FoodBud historical article originally published on May 1, 2022.
In late April 2022, Dufengxuan, a bone-broth seasoning supplier, announced its first financing round after listing on China’s New Third Board. The company planned a private placement at RMB 5.07 per share, issuing no more than 19.724 million shares and raising up to RMB 100 million. The round valued Dufengxuan at more than RMB 700 million.
The round was led by the China State Farms Industry Development Fund, with participation from Hainan Bohuai, a wholly owned subsidiary of Teway Food, and Teway Food vice president He Changjun. Their investment amounts were RMB 50 million, RMB 42.5 million, and RMB 7.5 million, respectively. After completion, Hainan Bohuai, He Changjun, and the China State Farms Industry Development Fund were set to hold 6.07%, 1.07%, and 7.14% of Dufengxuan.
Founded in 1996, Dufengxuan is not widely known as a consumer-facing brand, but it has long served foodservice and packaged-food demand indirectly. Its natural high-calcium bone-broth seasonings have supplied companies including Master Kong bone-broth instant noodles, Xiabuxiabu, Haidilao, Banu Hotpot, Dezhuang Hotpot, Hefu Noodle, and Wugu Fish Noodles.
Dufengxuan founder Yu Lianfu spent 13 years moving from identifying an industrial opportunity in 1997 to building a profitable bone-seasoning business. In 1997, Yu was managing a livestock and poultry processing plant in Fushun, Liaoning. The plant had stable customers and generated several hundred thousand yuan in annual income.
Yu noticed that large quantities of discarded bones were being sold at low prices, even though consumers used such bones to make nutritious stock. With rural-style restaurants gaining popularity at the time, he decided to develop a natural seasoning with traditional bone-broth flavor using modern processing technology, without chemical additives.
The R&D process was costly and uncertain. Yu hired domestic experts in compound flavorings and introduced related technologies, aiming to adapt them for bone-based seasonings. By 2000, Yu and his team had developed products including bone oil, bone soup, concentrated soup, white soup, stock, clear soup, red soup, and natural bone-marrow extract seasonings.
In 2007, China’s National Development and Reform Commission studied resource-depleted cities in Northeast China and proposed support for companies engaged in deep resource processing. With support from then-Premier Wen Jiabao and a special award fund, Dufengxuan’s bone-flavor product received RMB 13 million in grant funding. In 2010, Dufengxuan’s sales exceeded RMB 100 million for the first time.
By 2021, Dufengxuan had become a leading company in the bone-broth seasoning segment. According to its disclosed information, 2021 revenue reached RMB 220 million, up 36% year on year. The source states net profit as RMB 30.236 million, up 32% year on year.
Dufengxuan disclosed two main uses for the proceeds: working capital and construction of a bone-broth project at its Ma’anshan base.
Of the RMB 50 million allocated to working capital, RMB 10 million was planned for e-commerce livestreaming marketing, RMB 12 million for personnel and daily expenses, and RMB 28 million for raw-material purchases. Dufengxuan’s 2021 procurement amount was RMB 98.88 million, and the company expected this to rise to RMB 125 million in 2022.
Another RMB 50 million was allocated to the new Ma’anshan project to expand capacity. The project covers R&D, production, and sales of bone-broth seasonings, compound seasonings, frozen prepared foods, canned foods, and prepackaged foods.
Juewei had previously invested in a similar company, Guangzhou Qianwei. Through one of its funds and another related company, Juewei held 15% of Qianwei. The source noted that Qianwei could have an opportunity to pursue a listing after several more years of development.
As COVID-related pressure intensified, listed restaurant companies’ 2021 annual reports showed a common pattern: chains that expanded aggressively could still grow revenue, but net profit declined sharply, especially for asset-heavy restaurant brands such as Haidilao.
Back-end supply-chain companies also faced raw-material inflation and margin pressure, but the impact was less severe. Companies tied to large customers, such as Qianwei Central Kitchen, still recorded growth in both revenue and net profit in the first quarter.
Upstream supply-chain investment follows a different operating logic and can increase management complexity, but it can also serve as a risk-hedging strategy for restaurant and foodservice groups.
For Teway Food, the Dufengxuan investment had two stated purposes: financial investment and strategic synergy.
In 2021, Teway Food had already invested in another compound-seasoning supply-chain company, Zhang Bingbing Butter, formally Sichuan Hangjia Biotechnology Co., Ltd. That investment was also made through Hainan Bohuai. According to Teway Food’s annual report, it contributed RMB 180 million to Zhang Bingbing Butter and held 18.6% after the capital increase, implying a valuation close to RMB 1 billion. After Zhang Bingbing Butter later introduced other investors, Teway Food’s stake was diluted to 17.97%.
The compound-seasoning supply chain had begun to see more consolidation, while some B2B suppliers were also trying to expand into consumer-facing channels.
Many back-end supply-chain companies have strong brands and capabilities, but because they serve B2B and channel customers, they receive less attention than consumer brands or restaurant chains. As front-end restaurant operations come under pressure, more leading brands are likely to move upstream to capture profit, while similar supply-chain companies may use investment and M&A to strengthen bargaining power and deepen their competitive moats.
Note: financing, valuation, ownership, procurement forecasts, and IPO-related comments are historical figures and views from the 2022 source article.