most successful M&A deal in China

China’s Caijing Magazine on America’s All-Conquering Dumpling Maker

caijing

Caijing Magazine

 

The secret is out. Chinese now know, in far greater numbers than before, that the favorite brand of the favorite staple food of hundreds of millions of them is made by a huge American company, General Mills, best known for sugar-coated cereals served to American children. (See my earlier article here.) In the current issue of China’s weekly business magazine Caijing is my Chinese-language article blowing the cover off the well-hidden fact that China’s tastiest and most popular brand of frozen dumplings, known in Chinese as 湾仔码头, “Wanzai Matou”, is made by the same guys who make Cheerios, Cocoa Puffs and Lucky Charms in the US.

You can read a copy of my Caijing article by clicking here.

Getting these facts in print was not simple. I’ve been an online columnist for Caijing for years. When I sent the manuscript the magazine’s editor, he did the journalistic version of a double take, refusing to believe at first that this dumpling brand he knows well is actually owned and run by a non-Chinese company, and a huge American conglomerate to boot. He asked many questions and apparently did his own digging around to confirm the truth of what I was claiming.

He asked me to reveal to him and Caijing’s readers the secret techniques General Mills has used to conquer the Chinese market. That further complicated things. It wasn’t, I explained,  by selling stuff cheap, since Wanzai Matou sells in supermarkets for about double the price of pure domestic brands. Nor was it because they used the same kind of saturation television advertising P&G has pioneered in China to promote sales of its market-leading products Head & Shoulders and Tide. General Mills spends little on media advertising in China, relying instead on word of mouth and an efficient supply chain.

My explanation, such as it is, was that the Americans were either brave or crazy enough, beginning fifteen years ago, to believe Chinese would (a) start buying frozen food in supermarkets, and (b) when they did, they’d be willing to pay more for it than fresh-made stuff. Wanzai Matou costs more per dumpling than buying the hand-made ones available at the small dumpling restaurants that are so numerous in China just about everyone living in a city or reasonably-sized town is within a ten-minute walk of several.

In my case, I’ve got at least twenty places within that radius. I flat-out love Chinese dumplings. With only a small degree of exaggeration I tell people here that the chance to eat dumplings every day, three times a day, was a prime reason behind my move to China. For my money, and more important for that of many tens of millions of Chinese, the Wanzai Matou ones just taste better.

The article, though, does explain the complexities of building and managing a frozen “cold chain” in China. General Mills had more reason to master this than any company, domestic or foreign. That’s because along with Wanzai Matou they have a second frozen blockbuster in China: Häagen-Dazs ice cream, sold both in supermarkets and stand-alone Häagen-Dazs ice cream shops. Either way, it’s out of my price range, at something like $5 for a few thimblefuls, but lots of Chinese seem to love it. Both Wanzai Matou and Häagen-Dazs China are big enough and fast-growing enough to begin to have an impact on General Mills’ overall performance, $18 billion in revenues and $1.8bn in profits in 2014.

For whatever reason, General Mills doesn’t like to draw attention to its two stellar businesses in China. The annual report barely mentions China. This is in contrast to their Minnesota neighbor 3M which will tell anyone who’s listening including on Wall Street that it’s future is all about further expanding in China. But, the fundamentals of General Mills’ business in China look as strong, or stronger, than any other large American company operating here.

The title of my Caijing article is “外来的厨子会做饺子” which translates as “Foreign cooks can make dumplings”. It expresses the surprise I’ve encountered at every turn here whenever I mention to people here that China’s most popular dumpling company is from my homeland not theirs.

 

General’s Mills’ Stunning Success in China

Wanzai Matou 湾仔码头

America’s most successful M&A deal in China is also possibly its most clandestine. The reason: an old-line Midwestern Fortune 500 company around since 1856 owns a company that is the dominant brand-name supplier in China of a vital Chinese national asset. No, it’s not missile fuel or encrypted handsets for battlefield command-and-control. It’s dumplings.

America’s General Mills, the iconic maker of US breakfast cereals Lucky Charms and Cheerios as well as Häagen-Dazs ice cream, owns a similarly iconic brand in China – Wanzai Matou (湾仔码头), or Wanchai Ferry, as it’s known in English. It is China’s major premium-priced and premium-quality supplier of frozen dumplings. Since acquiring the business thirteen years ago, it’s become a large and especially fast-growing business for General Mills, with China revenues of at least $300mn. Better still, the margins are probably a lot higher than Cheerios and just about any other product General Mills sells worldwide. The Wanzai Matou dumplings sell in China for equivalent of about $3.50 a pound. You can buy fresh hand-made ones just about everywhere in China for quite a bit less. But, people flock to the General Mills product, because it’s considered both tastier and healthier.

Dumplings are a central aspect of Chinese life and culture, a more potent part of national identity and the national diet than the Thanksgiving turkey, Big Mac, beef hotdog or apple pie are to us Americans. Dumplings (whether boiled, steamed or pan-fried) have been a daily staple of the Chinese diet, as far as anyone can judge, for about 1,800 years. They’re eaten here at breakfast, lunch and dinner. Dumplings are also the mainstay for many Chinese at the most important meal of the year, the one that rings in the Chinese New Year. Dumplings symbolize a prosperous year to come.

For all the many global corporates still edgy about investing in or acquiring businesses in China, General Mills is prime evidence that inbound cross-border M&A can work in China. This one deal combines four aspects often thought to be unattainable in China deal-making: a large US company buys a smaller local Chinese brand, builds it into a national leader while piling up big profits. It is, hands down,  my favorite case study of how to do M&A right in China.

Not that General Mills is eager for the world to know. It doesn’t talk about its booming China business in its annual report. Packages of Wanzai Matou sold in China don’t include the General Mills name or famous blue logo.

While everyone knows about KFC, McDonald’s and Starbucks big success in China, they are actually doing something much easier: introducing and selling exotica, American products to Chinese with a whim to try something from afar. General Mills is making money in China the hard way. Not only do they make the most popular brand of frozen dumplings in China (estimated market share of about 50%) , they also had to convert a large number of Chinese to buy in a supermarket a frozen version of a product only available previously fresh, hand-made.

As General Mills foresaw, making dumplings at home, once a daily chore,  has become something fewer and fewer Chinese have the time routinely to do. Done properly, it can take even experienced hands two hours or longer.

General Mills got control of Wanzai Matou in 2001 when it acquired US rival Pillsbury from British company Diageo. Pillsbury had bought majority stake in Wanzai Matou in 1997, when it was a rather tiny Hong Kong company with very limited presence in the PRC. Today, the freezer section of most larger big city supermarkets in China is stocked to bursting with different flavors and fillings of Wanzai Matou dumplings, along with Wanzai Matou frozen wontons and stuffed buns.

General Mills buys some tv advertising, but mainly the success here in China was earned by word-of-mouth. I’ve been a customer for as long as I’ve been living in China. Take it from me. There is no tastier frozen food sold anywhere than the boiled Wanzai Matou pork-and-corn dumplings (see package above).

Pillsbury made a vital strategic move in the early years after buying control of the Hong Kong Wanzai Matou. It was also an atypical one for big corporate buyers. They decided to keep Wanzai Matou founder, Kin Wo Chong, involved. Her photo is still prominently-featured on every package, in much the same way as Betty Crocker used to be pictured on every box of brownie mix made by that General Mills brand.

Betty Crocker is pure fiction, a made-up name for a made-up housewife. Ms. Chong is very much a genuine entrepreneur, a Hong Kong immigrant from dumpling-loving Shandong province. She started her professional life in 1977 selling dumplings from a push cart in a not-too-tony part of Hong Kong.

Keeping Ms. Chong involved, as both a senior executive and minority shareholder, has evidently worked well for both sides. General Mills gets all the benefits of her extensive knowledge of how to make tasty dumplings. She gets a deep-pocketed partner with the skills and resources required to make her small company into a Chinese household name.

This sort of arrangement is rare in the M&A world outside China. Generally, the buyer gives the current owner a two-to-three year earn-out period and then is sent packing. That’s the way MBA textbooks recommend M&A deals get done. The thinking is founders, once they’ve put a large chunk of cash in their pockets, are distracted, demotivated and anyway not amenable to taking orders on how to run their business from a large, often bureaucratic global corporation.

But, in China, the most successful M&A deals we know of all tend to have this same structure, that the founding entrepreneur stays on, stays active, long after the earn-out period expires. By contrast, the list of failures is long where an acquirer gets control of an entrepreneur-founded Chinese company, shows the owner the door and then tries to run it on its own.

General Mills also did add something Ms. Chong never would have managed to do on her own. It started up a frozen stir-fry-it-yourself business for the US market, under the Wanchai Ferry brand. In its first year, it had revenues in the US of over $50 million. Impressive.

As anyone living here can attest, when it comes to food, Chinese are every bit as jingoistic as the French or Italians. It would shock many of them to think Americans can produce dumplings better and more profitably than any domestic competitor. But, even if General Mills is outed, and more Chinese come to know who’s behind Wanzai Matou, I’m confident they will go on buying dumplings made for them by the company from Golden Valley, Minnesota. “Eating”, as the Chinese saying aptly has it, “is more important than the Emperor”. “吃饭皇帝“.