Intense competition prompts Le Conte brand owner to sell candy business to Topps Properties
“Due to the intense market competition of the chocolate industry in mainland China and the lack of economic of scale of the Group’s Confectionery Business, the management expects that the loss-making Confectionery Business may not be able to turn around in the near future,” China Foods said.
According to a company filing on the Hong Kong Stock Exchange, COFCO is the controlling shareholder of the China Foods while Tops Properties is a wholly-owned subsidiary of COFCO Property, and it is 45.67% owned by COFCO.
China Food’s confectionery business is owned by the company’s Target. The Target group is an investment holding company, whose primary asset is the equity interests in China Foods’ subsidiary Le Conte Food.
As the sole production arm for China Foods’ confectionery business, La Conte Food includes two core brands, Le Conte and Merveille, according to COFCO’s website.
Target: Tops Properties’ new subsidiary
“Upon completion of the transaction, the Target will cease to be a subsidiary of the company and become a subsidiary of Tops Properties.” China Foods said in a statement.
“Tops Properties will hold 100% of the Target, and will indirectly hold 100% of Chocolate China, BVI 102, Le Conte Food and 90% of Le Conte Marketing.”
The total transaction fee consists of RMB393, 772, 163 ($60m) for the equity interests and RMB217, 227, 837 ($33m) for the shareholder’s loan, according to the statement. However the total fee is subjected to potential adjustments.
After reviewing the business strategy ofTarget, China Foods believes this transaction can help “improve its business operations and maximize return to its shareholders”.
Foreign brands dominate China’s chocolate market
According to a report published by Daxue Consulting, in 2014, foreign chocolate companies accounted for 90% of the Chinese chocolate market, making it difficult for local companies to thrive.
Major European players, including Mars with its Dove brand, Ferrero, and Mondelēz, control 70% of the China’s chocolate market along with Le Conte, according to the report.
“It is observable that consumers prefer to buy European chocolate because of its high quality and taste,” the report says. “As long as the majority of consumers are middle class, which can afford more expensive chocolate, local Chinese chocolate makers do not account for considerable market share.”
COFCO were unavailable to comment on the China’s chocolate market, and what might happen to China Foods after selling its confectionery business.