From agriculture and animal husbandry to food processing and new retail formats, CP Group aims to build a full industry chain from farm to table. But facing unfamiliar territory, it still needs more preparation.

On the outskirts of Jimo, Qingdao, Shandong, a brand-new, 32,700-square-meter mega factory does not emit the usual deafening mechanical roar. Through the glass along a long corridor, one can see flour and pork being mixed and extruded by machines, moving along conveyor belts to quickly become sausages, buns, dumplings, and other products, which are then automatically packed and boxed. Many workshops have only two or three workers, usually picking out substandard finished products. In May, workers are still dressed warmly; an electronic screen at the top of one workshop shows the indoor temperature is only 12 degrees Celsius.

This is CP Group's new food factory, which went into operation in Qingdao in 2016. It houses eight production workshops for rice, noodles, sausages, Chinese dishes, fried foods, steamed dumplings, buns, and soups. With fully automated production, its annual capacity reaches 130,000 tons, accounting for nearly 70% of CP's current total food production capacity.

▲ Bun production workshop

CP Group is preparing to increase its investment in the food industry. Previously, CP Food's main business was producing and selling feed products and livestock farming. After extending downstream to deep-processed products, CP Food began to focus on e-commerce, establishing an independent e-commerce company in early 2017. At the same time, CP's convenience store brand, "CP Fresh Mart," which has been operating for two years, also seems to be riding the wave of "new retail."

Based on this, CP Food has proposed to build a "world's kitchen," operating a full industry chain from source production to retail terminals. This nearly century-old enterprise has formed mature market operating habits. Can it seize new opportunities?

1 CP Food's E-commerce Layout: A SKU Choice

From a handful of SKUs at the beginning of the year to the current 59, covering frozen foods, fresh produce, cooked foods, and convenience meals, CP Food's Tmall flagship store is accelerating its expansion pace.

The completion of the Qingdao factory has provided CP Food with a more stable supply chain, which is the foundation for its development.

Wang Jianhua, senior president of the e-commerce department for CP Group's agriculture and food business in China, told reporters that although the company had been testing e-commerce for a long time, it only recently established a separate e-commerce subsidiary. According to business registration records, CP E-commerce Co., Ltd. was registered in Cixi, Zhejiang, in March 2017. In Cixi, CP has also invested in a chicken farm and a modern agricultural industrial park.

As a traditional enterprise, CP Food is still exploring its positioning in e-commerce, and its current approach is somewhat rudimentary. On May 17, CP Food's Tmall flagship store set its own brand day for promotions and sold eggs via Taobao Live, inviting nutritionists and internet celebrities to promote the "Baby Fresh Eggs" launched that day.

In CP's flagship store, the best-selling product is the "500-day-old hen," with total sales of 45,000 orders, far exceeding other categories. But besides fresh ingredients, CP Food also offers cooked foods at room temperature such as braised duck and roast duck, as well as convenience foods like steamed dumplings, chicken onion rings, white fungus and lotus seed soup, Cantonese-style fried rice with cured meat, and egg pudding.

▲ The best-selling product in CP Food's Tmall flagship store

In Wang Jianhua's view, CP's fresh ingredients are not significantly different from competitors, but it has an advantage in convenience foods. Guo Yueyang, brand director of CP's marketing department involved in product development, said that CP Food will adopt a differentiation strategy in new product development. For example, CP did not develop dumplings but chose the less popular frozen steamed dumplings, which achieved better market results.

▲ CP Food's buns and steamed dumplings

As a late entrant in the food industry, CP has a wide range of food categories, but faces strong competitors in different product lines.

Ye Jian, senior president of the marketing department for CP Group's agriculture and food business in China, believes that, for example, noodle and pastry companies like Sanquan and Wanchai Ferry are more mature in terminal retail, while Tyson, which produces and sells fresh products, has better publicity. In recent years, there are also internet agricultural enterprises like NetEase Weiyang, which, though small in scale, have high attention.

CP has not stopped trying, attempting to find breakthroughs through external cooperation.

Wang Jianhua said that CP currently has no plans to build an independent e-commerce platform. In addition to the Tmall flagship store, the company has expanded to Tmall Supermarket, Rural Taobao, Ling Shou Tong, Benlai Life, and Daily Youxian, among other e-commerce sales channels. "We hope to have closer cooperation with e-commerce platforms," he said.

Cooperation is not necessarily limited to channel sales. In March 2017, Ali Health and CP Group reached a strategic cooperation, with CP's egg products entering Ali Health's "Scan to Trust" platform. Consumers can scan the QR code on the egg packaging with their mobile phones to obtain traceability information.

CP Food's problem may still lie in its unclear product positioning. It is mainly based on deep processing of its own farm products, without a fixed idea to shape itself into a brand for a specific category.

The reason is that its products need to cater to various online and offline channels, with a focus on B2B channels such as catering, group meals, and weddings, as well as CP's own franchise leisure dining brands like "Grandma Bao," "Hey! Bob," and "Teppan Sui Bian," so packaging and specifications are more suitable for bulk transactions.

Zhang Shuhui, president of the marketing department for CP Group's agriculture and food business in China, said that after the new factory's capacity steadily expands, the company will further develop products suitable for B2C channels, including e-commerce-exclusive products, hoping to produce smaller packages with more design. Ye Jian added, "We do not rule out the possibility of creating an internet brand for pork together with Alibaba or other platforms."

2 Rural E-commerce, Cross-border E-commerce, Convenience Stores... CP's Footprints in These Areas

In addition to B2C food e-commerce, CP Group, which started in agriculture and animal husbandry, actually developed rural e-commerce earlier.

In December 2015, CP began contacting Alibaba to explore the Chinese rural market. In March of the following year, it launched agricultural e-commerce pilot projects in Wuhan, Hubei, and Mianyang, Sichuan, mainly putting CP feed on the Village Taobao platform for local sales in Wuhan and Mianyang.

In December 2016, CP Group, Alibaba Group, and Ant Financial Group officially signed a strategic cooperation agreement in Wuhan. The three parties reached strategic cooperation in agriculture and food, e-commerce, financial services, agricultural services, logistics, commercial retail, and targeted poverty alleviation. Wang Jianhua said that because feed products are heavy and logistics costs are high, CP's agriculture and animal husbandry e-commerce is also trying to deepen cooperation with Cainiao Logistics.

Besides rural e-commerce, CP has also "played" with cross-border online shopping. In 2014, CP Group announced its entry into cross-border e-commerce, signing a memorandum of cooperation with Shanghai Information Investment, China Mobile, Ping An Insurance, and Japan's general trading company Itochu Corporation, stating that it would establish a CP-led cross-border shopping website in early 2015 to sell Japanese brand products. However, as of now, there has been no further progress on this project.

From upstream planting and breeding to production and processing, CP has also made new attempts in terminal retail, not just the Lotus supermarket chain and e-commerce.

Convenience stores are currently seen as a "hot trend," and CP is one of the earlier enterprises to experiment with new convenience store models. In April 2015, the 24-hour community convenience store "CP Fresh Mart" opened its first store in Shanghai, selling fresh produce, semi-finished products, and ready-to-eat products, while also launching a WeChat mall with free delivery for orders over 39 yuan within a 2-kilometer radius.

One major purpose of establishing CP Fresh Mart is to create more distribution channels for CP's own products, especially fresh food, but its development has not been smooth. In December 2015, according to Beijing Business Today, CP Fresh Mart might face the problem of aggressive expansion: the store opening plan for 2016 was increased from 50 to 100, and for 2017 it even planned to reach 160 stores, far exceeding the industry's development speed.

This ambitious plan ultimately did not materialize. As of May 2017, CP Fresh Mart had only 26 stores in Shanghai, Wuhan, Zhengzhou, Beijing, Chengdu, and Lanzhou. At the same time, CP Fresh Mart has been changing its format. In July 2016, its new store on Zhenbei Road in Shanghai expanded from 100 square meters to 300 square meters.

▲ CP Fresh Mart convenience store

Regarding whether CP Fresh Mart will have closer cooperation with CP Food, Zhang Shuhui said that CP Fresh Mart's goal is to be the "community's refrigerator," bringing food closer to residents.

CP's current envisioned model is that one CP Fresh Mart store will radiate to 10 to 15 mom-and-pop stores, placing a freezer stocked with CP products in each mom-and-pop store, with CP Fresh Mart responsible for last-mile delivery. However, the premise for this is that CP Fresh Mart stores need to be numerous enough.

After years of development, whether CP Group's massive organizational structure can smoothly implement every new idea may be a test.

Source: Food Commune (ID: foodcommune) -END-