Focus: China's poultry giant goes to lab in quest for meatier chickens

Fairwood Holdings

13/06/2018 24:00

By Dominique Patton
    BEIJING, June 13 (Reuters) - China's top poultry producer,
Guangdong Wen's Foodstuff Co Ltd, is turning to genetic science
to target the country's fast-growing supermarket and fast-food
sectors.
    Wen's is drawing on an in-house gene bank and breeding unit
to create new varieties of meatier chickens for processing at
slaughterhouses to better serve restaurant chains and
supermarkets, Wen Pengcheng, a director of the company and its
largest shareholder, said in an interview with Reuters.
    That represents a sharp departure from Wen's roots serving
local markets, where the animals are sold alive to customers.
    "You need a certain weight, the body should look good, the
taste must suit people's expectations," he said, describing the
chickens the company was aiming for.
    If successful, Wen's  300498.SZ  could start eating into the
sales of companies like Fujian Sunner Development Co  002299.SZ 
that sell broiler chickens bred for their meat efficiency.
    Wen's is making the move at a time when its main business,
pigs, is suffering from a dramatic slump in prices. Net profits
in 2017 fell 42.6 percent to 6.8 billion yuan on revenues of
55.7 billion yuan  ($8.70 billion).  urn:newsml:reuters.com:*:nL4N1P333C  urn:newsml:reuters.com:*:nL4N1QR44B 
    Earnings are set to fall further this year amid an
oversupply of hogs in the market. First quarter profits were
down 4.4 percent to 1.4 billion yuan, and Wen's shares have lost
15 percent of their value since the start of the year.
    But despite a price/earnings ratio that lags smaller, more
specialised peers like poultry processor Fujian Sunner or the
pig producer Muyuan Foods, Wen's was big enough to ride out
prolonged losses from its pig business, said Chen Lu, analyst at
Zhongtai Securities.
    "There has always been this cyclical volatility," she said,
adding that the poultry unit would help to "flatten" the risk.  
 
    Wen's is China's leading producer of native breeds, also
known as yellow-feathered chickens, which account for about 40
percent of the country's poultry market, or 4.7 million tonnes
last year.
    The slower-growing chickens are preferred over
white-feathered broilers bred by global companies for their
stronger taste in popular dishes like stewed hen soup, as well
as their firmer meat and widely assumed superior nutritional
merits.
    Wen's plan is to develop native chickens that are meatier as
well as being tasty.
    Some smaller producers of the native birds, like Hunan
Xiangjia Animal Husbandry, already have growing sales in
supermarkets and online grocers.
    Hunan Xiangjia said processed chicken now accounts for more
than half of its sales, or about 646 million yuan during 2017.
    Wen's currently sells about 80 percent of its poultry, or
around 600 million birds a year, live to markets, said Wen.
    A shift into retail by the world's fifth-largest poultry
company could have a big impact on the market, said Pan Chenjun,
senior analyst at Rabobank.
    "It will definitely impact white meat, with consumers
trading up and looking for better tasting product," she said,
referring to the white-feathered chickens.
    CHILLED CHICKEN
    Wen's has been forced to pay more attention to new sales
channels. The habit of buying poultry alive to guarantee
freshness has made the company vulnerable to market shutdowns
during bird flu outbreaks in recent years.
    Almost 300 people died during China's worst ever bird flu
outbreak last year, many of them workers in the live poultry
trade.  urn:newsml:reuters.com:*:nL4N1L42R2
    Closed markets and a 30 percent drop in poultry prices
pushed Wen's 2017 profits down by 46 percent.
    Though sales recovered when markets reopened in late spring,
markets are expected to face regular closures, with some closing
altogether as authorities try to curb the spread of disease.
    Demand from such markets will also decline as younger, busy
urbanites opt for more convenient food channels. 
    "If we can't find a solution, yellow chicken consumption
will gradually decrease," said Wen.
    HUGE INVESTMENT
    Building up sales in new markets will take time. China's
slower-growing chickens are more expensive to raise than the
broilers imported from global genetics firms to supply companies
like Yum Brands' YUM.N  KFC and McDonald's China.
    Crossing native males with faster-growing females could help
them compete in China, according to experts from France's
Hubbard Breeders, one of the world's top poultry genetics
companies, recently acquired by Aviagen.  EWESJA.UL 
    But breeding new varieties is an expensive undertaking.
    "You may need 10 to 15 years to get somewhere," said Paul
van Boekholt, Hubbard's marketing director. He added that
another challenge was predicting what the market would want
years later.
    Sticking to native breeds means it can also avoid the
quarantine issues that curbed the imports of breeding chickens
needed for white-feathered broilers last year.  urn:newsml:reuters.com:*:nL4N1G22C7
    Wen's is also looking to France, which has a large retail
market for yellow chicken meat, Wen said. Demand for
slower-growing chicken is increasing in many European markets
because of animal welfare concerns.
    While those concerns are not so prevalent in China, local
tastes are not easily changed. 
    "We have to slowly cultivate" the market for chilled yellow
chickens, said Wen.
    Wen's has four slaughterhouses in Guangdong and Zhejiang,
another under construction in Jiangsu, and is seeking locations
for new projects, he added.
    It also wants to boost sales to fast food chains like Hong
Kong's Fairwood Holdings Ltd  0052.HK  that already buy yellow
chicken meat, and snack food makers.
    "The space to grow in the poultry market is still quite
large," Wen said.
($1 = 6.4026 Chinese yuan renminbi)

 (Reporting by Dominique Patton; Editing by Philip McClellan)
 ((dominique.patton@thomsonreuters.com; +86 10 6627 1027;
Reuters Messaging:
dominique.patton.thomsonreuters.com@reuters.net))