China's cold chain industry has grown at a double-digit growth rate annually over the past seven years, yet the country is still short of supplies if compared with some advanced countries such as the US and Japan.
According to the consulting company of Hejun Group (和君), China's cold chain logistics market grew from RMB 183 bn in 2012 to RMB 303 bn in 2018, at a CAGR of nearly 29 per cent.
Zhao Pin (赵玭) of Hejun Group's supply chain and logistics department said that China's One Road One Belt strategy would also call for massive investment in countries such as Pakistan, where cold chain infrastructure is even weaker than in China.
The China Cold Chain Alliance (中冷联盟) recently conducted a survey of 1,832 companies across the country and found that they had a combined cold storage capacity of 46 mn tons recently, which was more than five folds of the combined capacity of 8.5 mn tons in 2008.
China ranks No. 3 in the cold storage capacity in the world, trailing behind India and the United States of America.
China's per capita cold storage stands at around 0.035 cubic meters while that of the US was 0.365 cubic meters. To reach the level of 0.3 cubic meters per person, China would need to expand its cold storage capacity by 417 mn cubic meters, or some 100 mn tons, said Liu Jing (刘京), speaking at the just-ended cold chain conference in Hangzhou on 11 July.
The cold chain industry is in general shunned by the average institutional investor, particularly financial investors, because the necessity of making heavy fixed-asset investment compromises its profit margin in the short run. So the industry has mainly relied on key members' greenfield investment for expansion so far, very often as a result of natural extension of their existing products and businesses.
An example is Hangzhou-headquartered Xingxing Household Electric Appliances Co. Originally a household refrigerator manufacturer established in the 1980s, it branched into the commercial refrigeration equipment in the 21st century, producing commercial refrigerators for storing ice creams, wine, meat, cakes, etc. Its commercial refrigeration equipment took off with such vigour that it contributed heavily to the company's annual sales growth of 30-40 per cent in the past decade. It renamed itself as Xingxing Cold Chain Co.（星星冷链）in 2016. Last year it made sales of nearly RMB 6 bn and turned in profits and taxes totaling RMB 580 mn. In the commercial refrigeration equipment market, it claimed, takes one-fifths of the domestic market, and nine per cent in the global market of the kind.
Yang Wenyong (杨文勇), CEO of Xingxing Cold Chain told the author that its traditional business of household electronic refrigerators will lose its dominance in the company's overall sales structure and see its sales take up only less than half of the company's total sales in 2019.
Yang said that his company "aims to build up an ecosystem evolving around its refrigeration equipment business, and will partner up or invest in any business that supplements with his business." During the conference, the company showcased its refrigerators for restaurant kitchens and a manless refrigerator that operates like a mini-store and accepts digital payment.
Another example is Oriental Yuhong (东方雨虹), which was established in 1998 and focuses on waterproof building materials. In 2009 it established a Shanghai subsidiary to produce a rigid polyurethanefoam premix formulation, a type of insulating material for cold storages. Now the RMB 14 bn-annual sales company has, beyond insulation materials, also non-woven cloth, special mortar and coatings, as construction materials.
Of course, e-commerce platform like JD.com and frozen food manufacturers such as Guangzhou Aokun (广州奥昆) tend to have their own refrigerated vehicles and warehouses, which also fall into the category of greenfield investment.
Beyond greenfield investment, brownfield investment is less common in the cold chain industry, which has mainly been a playground for investors with deep pockets, either big funds like Sequoia Capital and Cathay Capital, which invested in ZM Logistics (郑明物流), or major food manufacturers whose own growth would be much facilitated by owning partially or completely a cold chain business, such as CP Group.
Strategic investors also come from companies outside the food and logistics industry, attracted by its less intense competition and higher margins than their own industries.
For instance, Shenzhen-based Vanke Group (万科集团), foresaw a sustained tight scrutiny and control by the government over the real estate industry, acquired Prologis, a leading global provider of logistics real estate, in 2017.
In 2018 China's cold chain logistics industry completed 13 instances of fund raising, nine of them each involving more than RMB 100 mn raised. Meicai (美菜网) closed two rounds of fund raising, totaling USD 1.05 bn (RMB 7 bn). Thailand's CP Group led Round C investment of several hundred mn yuan into Jiuye (九曳供应链). ###
P.S. A Chinese version of the article is on https://www.jianshu.com/p/e148836c387d.