Cofco buys back China Foods wine business in wake of sluggish returns

By RJ Whitehead

- Last updated on GMT

Cofco buys back China Foods wine business in wake of sluggish returns
China Foods will sell all its wine and non-beverage business to its parent Cofco for HKD5.1bn (US$649m) after years of poor performance and gloomy forecasts for future business.

The deal will see China’s second-largest winemaker offload its Great Wall brand, which has five production plants in the country.

It will also involve the sale of five of its production plants, along with five wineries in and outside of the country, and the distribution of imported wines.

China Foods’ wine business recorded a negative compound annual growth rate of 11% from 2011 to 2016, with Great Wall posting declining sales.

China’s wine industry has faced increasing competition and is expected to remain in a slow growth rate in the next three to five years, similar to the 2011 to 2016 period​,” the company said, explaining the board decision.

It also revealed that Great Wall suffered 8% drop in sales in the last half-quarter.

The board believes that there would be relatively great uncertainties in the domestic wine market in the next few years​,” Cofco added.

These include the rise of the baijiu spirits market, which has been maintaining double-digit annual growth, creating “pressure on the growth and profit margin of domestic wine products​” in the country.

On completion of the deal, China Foods will become the only focused beverage platform within Cofco. Currently, the offshoot also has exclusive rights to produce, market and distribute Coca-Cola products in 19 provinces, municipalities and regions in China.

China Foods aims to strengthen its cooperation with The Coco-Cola Company to optimise its portfolio and maintain growth of packaged water, soft drinks and juice products. It will also focus on launching new higher-margin products.

Cofco chairman Zhao Shuanglian said the transaction will be seen as an “important move to implement a specialisation strategy and execute vertical integration by establishing specialised companies targeting core products​”.

State-owned Cofco is China’s largest food processing company. It owns 11 businesses and earns more than 50% of its operating income from overseas sales.

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