Three Food Sellers That See Opportunity in China

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China offers growth prospects for United States based companies that have limited expansion possibilities at home. Good results aren't guaranteed though, especially when a food company has to come up with a new menu to match local tastes. Business First contributor Andrew Robinson reported that Yum Brands (NYSE: YUM) forecasted four percent lower same store sales in China for 4Q 2012, but Yum CEO David Novak remained confident about the company's long term growth prospects in China. Starbucks, (NASDAQ: SBUX) Heinz, (NYSE: HNZ) and McCormick, (NYSE: MKC) reported more promising results in China recently.


Starbucks has figured out how to sell coffee in China. Forbes contributor Helen Wang explained that Starbucks placed its stores in high traffic locations in Chinese cities instead of aggressively placing coffee ads that could offend Chinese tea drinkers. Starbucks also added some more tea based drinks to its menu as well, and its Teavana acquisition could give Chinese customers even more tea options, although this acquisition isn't finalized yet.

Starbucks reported growth in the Asia/Pacific region last quarter. In Starbucks' 4Q 2012 earnings release, the coffee seller noted that quarterly sales for its China and Asia Pacific segment rose by 23%, and comparable store sales rose by 10%. Starbucks stated that it had 278 company owned stores and 218 licensed stores in China in its 2011 annual report. In its 4Q 2012 earnings release, Starbucks mentioned that it had added 154 company owned stores in the China and Asia Pacific region, and its China and Asia Pacific segment was focused on expanding within China.


Heinz' China expansion push involves combining the company's sauce expertise with Chinese tastes. Qiu Quanlin, at China Daily, reported that Heinz built a soy sauce factory in Shanghai, and the company is now working on a baby food factory in Foshan, Guangdong. Although Heinz' ketchup is its most prominent brand, the company also sells Ore-Ida potatoes and Weight Watchers frozen meals, so baby food isn't a stretch. An interactive map on the Heinz website shows that the company sells both Ore-Ida and Weight Watchers products in the Asia/Pacific region.

Like Starbucks, Heinz released combined results for its Asia/Pacific segment last quarter instead of reporting China figures separately in its earnings release. Nevertheless, Heinz announced that its Asia/Pacific segment produced a 24.5% higher operating income in 4Q 2012, although its 2.3% revenue growth for the quarter wasn't as impressive.


McCormick indicated more expansion plans for China back in August when it announced the acquisition of a Chinese bouillon maker, Wuhan Asia-Pacific Condiments Co, Ltd., although the deal won't be completed until 2013. McCormick has also set up a localized web page for Chinese shoppers that lists spices, offers cooking advice and recipes, and explains that McCormick is a well known global brand that has been around for over a century; strong selling points in China.

McCormick also reported encouraging recent results from its Asia/Pacific segment. In its 3Q 2012 earnings release, Heinz stated that without including the additional revenue that its acquisition of rice, spice, and packaged foods producer Kohinoor provided, its Asia/Pacific segment reported 14% higher revenue for the quarter, measured in local currencies.


Starbucks' growth figures look the most impressive here. The company has a healthy balance sheet and a growth premium that it needs to maintain, so further investments in China appear very likely. Starbucks has shown that it can achieve organic growth in China, so it may not need to take on additional acquisition risks to expand its presence in the Chinese market. Starbucks looks like a good opportunity for investors who want exposure to China while maintaining cash flows from sales in the United States.

enovinson has no positions in the stocks mentioned above. The Motley Fool owns shares of Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend H.J. Heinz Company, McCormick & Company, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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