15 July 2019
Hong Kong-based Lee Kum Kee has remained a family-owned business as it doesn't need any external funding. Photo: HKEJ
Hong Kong-based Lee Kum Kee has remained a family-owned business as it doesn't need any external funding. Photo: HKEJ

Meet the three Chinese sauce kings

The Hurun Research Institute has released its China Rich list for 2018. Seven of the nation’s 10 richest billionaires have seen their wealth dwindle due to a combination of factors, including a cooling property market, the escalating US-China trade war and tighter scrutiny of the tech industry.

Several billionaires from the industrial sectors have managed to buck the downtrend. That includes He Xiangjian, founder of Midea Group; Sun Piaoyang, founder of Jiangsu Hengrui Medicine Co.; and Xu Shihui, founder of Dali Foods.

Pang Kang, chairman of Foshan Haitian Flavouring & Food Co. (603288.CN), has seen his personal wealth soar 60 percent to 52 billion yuan (US$7.5 billion) this year, raising his ranking on the China Rich List to 35th place from 68th.

Sauce maker Haitian listed on the Shanghai Stock Exchange in 2014. The company’s sales revenue rose 17 percent to 14.6 billion yuan last year, while its net profit was up 24 percent at 3.5 billion yuan.

Haitian now has a market capitalization of 202.1 billion yuan. Its gross profit margin and net profit margin were at enviable levels of 46 percent and 22 percent respectively.

Sauce making is a highly lucrative business if done right. Ingredients such as soybeans and chili are cheap while the end products typically go for HK$10 or more a bottle, allowing for steep margins.

Such products are daily necessities for Chinese households, and so demand is recurring.

Customers would often stick to a certain brand they prefer for years, and would not easily switch just because an alternative brand is slightly cheaper.

That being the case, it is hard for newcomers to break into the market. As long as entrenched players maintain their quality and brand image, the business is like pumping oil, or even better.

Among the top three Chinese saucer makers, Haitian is the only one listed. The other two, Hong Kong-based Lee Kum Kee and Guizhou-based Lao Gan Ma, have remained private as they don’t need any external funding.

Lee Kum Kee, widely known for its oyster sauce, is now run by the fifth generation. The family has kept a low profile and its finances are little known to outsiders.

The Lee family has acquired a number of trophy assets in the property market. In 2010, the family paid HK$4.3 billion to acquire the Infinitus Plaza in Sheung Wan. It also bought the Shanghai Corporate Avenue 3 from developer Shui On Land for HK$6.9 billion in 2015. Last year, it bought 20 Fenchurch Street, also known as the “Walkie Talkie” building, in London for a record HK$12.8 billion.

Judging by these deals, it’s not hard to imagine how cash-rich Lee Kum Kee is.

Lee Wai-Chung, the fourth-generation chairman of the business empire, revealed in 2014 that the company sells more than 100 million bottles of the best-selling soy sauce for steamed fish per year. And that is just one of the many products the company offers.

Lao Gan Ma, on the other hand, was established in 1984. It is best known for its chili sauce.

The company sells over 600 million bottles of chili sauce a year. Last year, it paid 760 million yuan in taxes to the government. In fact, it’s the largest private-sector taxpayer in Guizhou province, which could give us an idea of how profitable the business is.

The Shanghai and Shenzhen stock exchanges both tried to convince the founder to list the company, but they were both turned down.

This article appeared in the Hong Kong Economic Journal on Oct 15

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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