By Dominique Patton
LUOHE/ZHENGZHOU, China (Reuters) - WH Group (HK:0288), the world's top pork producer, is adding new varieties of packaged foods to counter slowing Chinese pork demand and woo the expanding middle class of the world's most populous nation that is embracing a wider diet of meats.
Drawing on the expertise of its Smithfield business in the United States, WH's domestic unit Shuanghui Development (SZ:000895) is launching products that meet regional flavours and satisfy the demand for snacking and convenience, while also boosting its range of premium fresh chilled meats.
The company is also seeking lucrative supply contracts with hotel and fast food chains like McDonald's and is even tweaking staple products like bacon, executives said.
"First, we want to bring in more Western products, and second, we want to develop more industrialised Chinese products," Chairman and Chief Executive Wan Long told reporters last week at the company headquarters in Luohe, central China.
Among the 100 new products WH introduced this year are the spicy meat snack "Chuan Touli," inspired by the chilli-infused cuisine of the southern Chinese province of Sichuan, and a sausage containing the southern speciality sticky rice.
Shuanghui is China's top pork processor, slaughtering around 15 million pigs a year and commanding a 29 percent share of the processed meat sold in supermarkets, according to Euromonitor, far ahead of the rest.
But, China's slowing economy and more health-conscious consumers have limited Shuanghui's sales growth. The country's fresh and processed retail meat market generates an estimated 944.7 billion yuan (107.34 billion pounds)in sales each year.
Sales of Shuanghui's packaged meats in the first three quarters of 2017 were down 2.2 percent to $2.49 billion versus the same period last year.
WH is also adapting to the complexity of selling meat in China, where tastes differ by region and income level.
The overhaul comes four years after WH bought Smithfield, the biggest U.S. pork producer, for $4.7 billion, the largest Chinese purchase of a U.S. company at that time.
Heat-treated meat products that do not need to be refrigerated, like the individually wrapped snack sausages consumed as fast food across China make up the largest chunk of the country's processed meat sector.
Retail sales of these have been in decline since 2014 as consumers seek healthier options, said Cecilia Yang, an analyst at Euromonitor International.
RESTRUCTURING
WH restructured its China product development team in the second half of 2016, and now has eight regional development centres that run regular consumer surveys. Before, managers at the headquarters devised new products to cater to the mainland's 32 provinces and regions.
WH's new products face competition from newer market entrants such as New Hope Liuhe (SZ:000876) and Cofco Meat (HK:1610). Like Shuanghui, Cofco also now offers a cheese-filled sausage inspired by Japanese trends.
The chilled meat sector offers greater growth potential, despite its higher cost that limits demand to China's larger cities and their wealthier consumers.
Shuanghui has also turned to Smithfield's sales network to win contracts with international restaurant and hotel chains who are more experienced at handling chilled meat than wholesalers, said Pan Guanghui, general manager at Zhengzhou Shuanghui Food Limited Co.
Boosting sales volumes will also lift the utilisation capacity across Shuanghui's 18 plants. They currently run at around 70 percent.
"We want to reach the scale of Smithfield's 30 million," said Wan, referring to number of hogs processed annually.
He did not give a time frame for the target to double annual output, but added that no new investment will be needed as the plants currently only operate on a single shift.
Achieving that goal will require consolidation among the country's thousands of local slaughterhouses, which are protected by regional governments.
President Xi Jinping's high-profile focus on food safety, underlined in his 19th Party Congress speech, may fuel further crackdowns on small, outdated slaughterhouses.
"This is very favourable for us," Ma Xiangjie, a Shuanghui vice president who oversees the firm's slaughtering, told Reuters.