Nestle Consumer Care Strategy
Main deck
2016-09-08 Draft for discussion
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Agenda
China VMS market
China launch strategy
• Organic approach
• Inorganic approach
Business case assessment
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Four inputs (I) – Market and channel landscape
Chinapetitor benchmarks
Consumer insights
In-depth
market assessment
Market and channel
landscape
Meritene Global learnings
Overall
market
Regulation
Pharmacy still the dominant channel for VMS purchase
• Pharmacy still 44% of VMS market, requiring high
margin from manufacturers, fit for BTL promotions
• Modern trade ~12%, more fit for gift and "pull" purchase
Emerce grows rapidly but not ideal for seniors
Channel
landscape
VMS1 market in China has great potential given
increasing demand of consumer health product
Market is fragmented andpetitive with long tail
• An erage mid sizepany with US$ 60-80 Mn revenue
and <1% market share
pared with general food, health food takes longer time
to register but easier to be differentiated
• Health food takes 2-3 years to register while general
food 1-2 months
• Health food can claim ≤2 functions while general food
can not claim any
1. VMS includes health food (HF), food for special medical purposes (FSMP), OTC based on VMS ingredients (. Centrum V&M, DEEJ), and foods based on VMS ingredients (. Jinseng,
Ganoderma);
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Expanding middle class and affluent aging society
Growing chronic illnesses
and cancer incidence
Emerging small to mid-sized city
Evolving demographics provide strong fundamentals for
increasing demand in consumer health needs
By 2020, 33% of adults will he
hypertension; annual cancer
incidence will grow to ~, ~30%
of global #
By 2020, 273 additional cities with per
capita disposable ie of Shanghai
By 2020, the middle class above
population will triple to 401 Mn
By 2020, population Age 50+ will
grow from 24% of total pop in 2012 to
33% of total pop
Overall market
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'08-'11
CAGR
'11-'14
CAGR
China VMS1 is sizable market, steadily growing at >10% and
reaching $10B by 2014
China VMS market overview
US$ Bn
China VMS market size2 (2008-2014)
1. VMS includes health food (HF), food for special medical purposes (FSMP), OTC based on VMS ingredients (. Centrum V&M, DEEJ), and foods based on VMS ingredients (. Jinseng,
Ganoderma); 2. Market value calculated at Manufacturer's Selling Price (MSP).
Source: Euromonitor; Nicholas Hall; Lit research; BCG interview; BCG analysis
11% 8%
7% 6%
8% 8%
9% 22%
9% 17%
9% 14%
Overall market
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G
ol
de
n
S
un
H
er
ba
lif
e
S
ito
ng
N
u
S
ki
n
R
ui
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ew
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ra
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lth
P
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B
y-
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ea
lth
P
er
fe
ct
T
ie
ns
In
fin
itu
s
A
m
w
ay
%
100
O
th
er
W
ei
ao
i
Ji
uz
hi
ta
ng
B
ah
ea
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H
on
gf
ul
oi
Jo
in
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re
Ji
an
gz
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B
io
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e
P
an
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yu
nh
ai
H
ar
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P
ha
rm
.
N
at
ur
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s
B
ou
nt
y
Q
in
gc
hu
nb
ao
Y
an
gs
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ng
ta
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B
M
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T
ot
al
S
an
ch
in
e
B
ao
jia
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49% 10% 3%
Market share of top 30 VMS players in 2014 (%)
Source: Euromonitor, Nicolas Hall,pany annual reports, literature research
Domestic enterprise MNC
Historical market share
'13:
'12:
'11:
'10:
49%
48%
47%
44%
11%
11%
11%
11%
4%
4%
5%
4%
36%
37%
38%
41%
A mid size player on
erage~ $60-80Mn
revenue with < 1%
share
However, market is highlypetitive
Top 10 players he ~50% market share with a long tail ofpetitors
~1600 players in
"Other"
Overall market
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Pharmacy still play dominate role but emerce are growing
faster
Notes: Ex-manufacturing selling price (MSP ) values
Source: EuroMonitor, expert interview, BCG analysis
Market share %
2014 VMS share by channel
Growth
trend
Still a major
channel but
with issues
and risks,
growth
slowing
down
An emerging
channel at
early
expansion
stage
An emerging
channel,
rapidly
growing
Still a major
channel in
short term,
growing at
single digit
Not a major
channel,
growing with
# of patients
increase
Not a major
channel,
growth
slowing
down
<5% CAGR
>50% CAGR
Channel landscape
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Pharmacy, Modern Trade and emerce deliver varying benefits
in promoting new health food product
Hospital
Size
Source: Expert interview; lit search; BCG analysis
Coverage
(geography and
demography)Growth
Brand
building Implication to Meritene
Emerce
Policy
risks
Only cover
patients
Not
attractive
Attractive
Pharmacy
Modern
Trade
Direct sales
Health and
beauty shop
Low
• Not feasible given hurdle of
hospital access
Mainly health-
conscious
population
Low
• Serve as both "pull" & "push"
purchase channel but relatively
lower traffic
Cover a
broad group Low
• Serve as "pull" purchase
channel but not ideal for
consumer education and brand
building
More focused
targets High
• Not feasible given strict
regulation requirement and high
policy risk
Very limited
coverage Low
• Not economic given high cost to
cover a small portion of targets
Cover
younger
group
Low
• Serve as both "pull" & "push"
purchase channel at lower cost
but not for seniors
Channel landscape
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For health food, pharmacy require highest investment while
emerce require lowest
Pharmacy Modern Trade Emerce (. Tmall)
Weight of sales（%） Weight of sales（%） Weight of sales（%）
Note: Topare economics under different channels, assume same COGS under three scenarios
Source: expert interview, BCG analysis
Incl. ~15%
rebate
Incl. ~2-3%
rebate
Limited
rebate
Channel landscape
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Health food takes longer time to register but has advantages
inmunication and channel presence
Function
claim
Content
Time
Health food
• 2- 3 yrs for products that meet 1CFDA
requirements, vary by functional claims
• 1-2 mths to get approval of and
SAIC
• Cannot exceed 2 functional claims
per product
• Cannot exaggerate product efficacy
• Promoted function need to be limited
to the scope approved by 1CFDA
– Function, formula and ingredient can
be differentiator
Implication to
strategy
Channel
• Can freely promote on mass media
• No particular channel restrictions
– Direst sales a big proportion
– Good presence in both modern
trade and retail pharmacy
General food
1. CFDA: China Food and Drug Association; 2. AQSIQ: General Administration of Quality Supervision, Inspection and Quarantine of China
Source: Expert interview, lit reserach, BCG analysis
• 1-2 mths for products that meet 2AQSIQ
requirements for both import vs. local
• 1-2 mths to get approval of and
SAIC
• Cannot he any functional claims
• Cannot promote any function
– Hard to differentiate purely from
product
• Can freely promote on mass media
• No particular channel restrictions
– Mainly sold through modern trade
– Limited presence in pharmacy
due to constrained display area
Purely consumer goods play with
emphasis on branding and marketing
Mainly consumer goods play but with
certain scientific emphasis
R
eg
is
tr
at
io
n
m
un
ic
at
io
n
Registration
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Health food
Four categories of VMS under current regulation
C
on
su
m
er
ty
pe
M
ed
ic
al
ty
pe
General
food
OTC
FSMP
Description Examples
• Can claim no more than 2 functions per
product out of 27 defined by CFDA
• Need to label "this product cannot replace
medicine"
• Registration requires lab/animal tests
• Medicine without physician prescription
• Strict control on promotion and marketing
• Registration requires clinical trial
• Cannot claim or indicate disease prevention,
medical function or health care function
• No need registration
Source: Lit research, expert interview, BCG analysis
• Required to be used under instruction of
physician or clinical nutritionist
• Regulation still in discussion; potentially
restricted to strict medical usage
Backup
Registration
Centrum
Vitamin
Caltrate
Carbonate
Ensureplete
By-Health
Acerola
Amway
protein
By-Health
protein
ProNutrients
V-C
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Agenda
China VMS market
China launch strategy
• Organic approach
• Inorganic approach
Business case assessment
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Two levers to build NHS consumer care business in China
Our Interim workshop agreed that both organic and inorganic strategy need to be pursued
By 2020, target to
achieve $100 Mn CHF
revenue
Organic
Inorganic
Source: Internal interview, workshop, BCG analysis
A
B
Now Future
Be one of the
leading consumer
care players in China
• Launch Meritene as premium
health food in pharmacy, online
and modern trade
Building a strong NHS presence in China from the
ground up, revolving around future core strategy
• Acquire a local health foodpany that has strong
presence in pharmacy and VMS portfolio with certain
size and level of brand awareness
Future core
strategy
Short-term
bridging
strategy
• Cross-border emerce in 2015
• Launch Meritene as general food in
2016 Q4 while fitting with Meritene
health food value proposition and
core strategy
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Agenda
China VMS market
China launch strategy
• Organic approach
• Inorganic approach
Business case assessment
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Overview of organic lever with building blocks
Source: Internal interview, workshop, BCG analysis
Short-term bridging strategy Future core strategy
Launch Meritene as
health food in
pharmacy and online
Launch Meritene as
general food
in pharmacy and online
Start cross-border
emerce
2016 Q42015 Q4 2018 Q3
Target
Channel
Promotion
Strained middle-aged
Strained middle-aged &
health-conscious seniors
Strained middle-aged &
health-conscious seniors
Online Pharmacy & online Pharmacy, online and modern trade at later stage
Targeted digital
marketing BTL & digital marketing
BTL, digital marketing
and ATL
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Regarding future core strategy, Meritene should be launched
as health food mainly in pharmacy after 3 years
1. MT – Modern trade
Source: Internal interview, workshop, BCG analysis
Short-term bridging strategy Future core strategy
Launch Meritene as
health food in pharmacy
and online
2018 Q3
Launch
Meritene as
general food
in pharmacy
and online
2016 Q4
Start
cross-border
emerce
2015 Q4
• Meritene as flagship product to
follow agreed future core strategy
• Future core strategy is to launch Meritene as
premium health food in pharmacy, online and MT1
• Core value proposition: scientific yet pleasant health food with multiple
nutrition at scientific / "golden" formula
Organic – health food
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Product
attributes
Future core strategy for Meritene launch as health food in
China
• Health food category, registration taking ~2 years and formula adjustment ~1 year
• Functions: immunity, anti-fatigue for Energis; bone density for MobilisRegistration
Capability
Channel
• Focus on major chain pharmacy for offline
• Supplemented with online presence
• Modern trade for "pull" purchase later on
Promotion
• Hey BTL, incl. education inmunities, senior universities and check-up clinics etc., and
pharmacies in-store promotion
• ATL (. local TVC, building media and vehicle advertisements; no national or provincial
TVC) only after achieving sufficient sales scale
• Digital targeted promotion, mainly for middle-aged
Positioning
• Targeting: health-conscious seniors and strained middle-aged
• Functional claims: "energy + immunity" for Energis, and "bone health" for Mobilis; high-
quality proteinbined with multiple nutrition, at scientific / golden ratio formula
• Brand image: scientific yet pleasant; emphasize "golden formula"; separate brand name
from Nutren, while leverage NHS / Nestlepany brand
• Pricing: premium at ~15RMB/day
• Online leverage existing capability
• Build distributor network or form potential partnership (. with Yangshengtang or
Sinopharm for co-promotion)
• Lower sweetness due to health concerns
• No soup version for China
Organic – health food
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Product
attributes
General food bridging strategy for Meritene launch
• General food category, planned to launch in 2016 Q4 after formula adjustment ~1 yearRegistration
Capability
Channel • Focus on major chain pharmacy for offline• Continue to expand online presence
Promotion
• Necessary level of BTL, incl. education inmunities, senior universities and check-up
clinics etc., and pharmacies in-store promotion
• Continue online marketing and digital targeted promotion, mainly for middle-aged
Positioning
• Targeting: health-conscious seniors and strained middle-aged
• Functional claims: no function can be claimed but emphasize "soft benefits" including high-
quality proteinbined with multiple nutrition, at scientific / golden ratio formula
• Brand image: scientific yet pleasant; emphasize "golden formula"; separate brand name
from Nutren, while leverage NHS / Nestlepany brand
• Lower sweetness due to health concerns
• No soup version for China
Organic – general food
• Online leverage existing capability
• Build distributor network or form potential partnership (. with Yangshengtang or
Sinopharm for co-promotion)
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Health food
- - - 17% 17% 18% 16% 15%
Health foodGeneral
food
Cross-
border
2016 Q4 2018 Q3
General
food
Cross-
border
2016 Q4 2018 Q3
Health foodGeneral
food
Cross-
border
2016 Q4 2018 Q3
Y-o-y
growth - - - 23% 27% 31% 18% 15%
Revenue projected to range from ~200 to ~900m CHF by 2020,
depending on target acquired and synergies actualized
Mid-sized target: revenue
.
CHF m
Source: BCG 2015 VMS quant study, BCG 2013 Chinese consumer H&W survey, expert interviews, lit research, BCG MAC database, Euromonitor; BCG analysis
Large target 1: revenue Large target 2: revenue
.
- - - 18% 20% 22% 16% 15%
.0 .2
Integrating inorganic
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Health foodGeneral
food
Cross-
border
2016 Q4 2018 Q3
Health foodGeneral
food
Cross-
border
2016 Q4 2018 Q3
Health foodGeneral
food
Cross-
border
2016 Q4 2018 Q3
Hey investment required upfront but delivers higher profit
Potential for operating profit to exceed 20m CHF by 2020 if acquire mid-sized target
Mid-sized target: costs
CHF m
Op. profit (0) (1) 6 0 (6) 21 49 62
Margin -265%-403% 6% 0% -4% 10% 19% 21%
Invest-
ment 302
Source: BCG 2015 VMS quant study, BCG 2013 Chinese consumer H&W survey, expert interviews, lit research, BCG MAC database, Euromonitor; BCG analysis
Large target 1: costs Large target 2: costs
(0) (1) 12 16 20 58 99 127
-265%-403% 4% 5% 5% 12% 18% 20%
1,081
(0) (1) 30 50 72 131 196 253
-265%-403% 5% 8% 9% 14% 18% 21%
2,401
Integrating inorganic
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NPV calculations point to inorganic acquisition of mid-sized
target as most attractive option in long-term
Pure organic entry Distributor partnership1 2
NPV: 71m
• No investment costs, but slow
buildup of channel penetration
and improvement in margins
• Accelerates penetration, but high
margin to partner quickly
outweighs gains in retail sales
and erodes revenue
Key NPV assumptions:
• Rev. growth: after peak 15%, stable 10%
• Operating profit margin: 25% of rev: sales & marketing ~30% of rev, G&A ~10% of rev
• Discount rate: 15%
Source: BCG 2015 VMS quant study, BCG 2013 Chinese consumer H&W survey, expert interviews, lit research, BCG MAC database, Euromonitor; BCG analysis
Integrating inorganic –
mid-sized target
Integrating inorganic –
large target 1
Integrating inorganic –
large target 2
3 4 5
• Hey investment upfront, but long-
term gains through target's
established channel presence
and capabilities
• Higher acquisition cost than mid-
sized target and higher COGS %
than large target 2
• Significantly higher acquisition
cost outweighs in long term
additional value brought by large
target vs. mid-sized target
NPV: 60m
NPV: 160m NPV: 117m NPV: 119m
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Summary of business case scenarios
High risk in achieving financial targets in organic scenario; acquiring mid-sized target most attractive
All currency
in CHF
Pure organic
entry
Distributor
partnership
Mid-sized
target
Large
target 1
Large
target 2
2020 revenue 50m 48m 216m 481m 918m
Breakeven year 2021 2021 2020 2017 2017
2022
gross margin 65% 65% 71% 72% 74%
2022
op. margin 15% 16% 21% 20% 21%
PV of accum.
investments1 68m 77m 454m 1,281m 2,670m
Operationalplexity
& risk
NPV 71m 60m 160m 117m 119m
Organic Integrating inorganic
1 2 3 4 5
Significant challenge in reaching 2020
revenue target of 100m CHF and 2022
operating margin target of 20%
Ability to meet or exceed revenue and margin targets; NPV
calculation indicates acquisition of mid-sized target as most
financially attractive option in long run
1. Accumulated up to 2022, includes marketing and sales spend and acquisition costs if applicable
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Agenda
China VMS market
China launch strategy
• Organic approach
• Inorganic approach
Business case assessment
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Inorganic entry through M&A remains attractive option
Potential
qualities of an
ideal M&A target
Desired
synergies with
Meritene in China
Well-known brand name: topensate for newness of Meritene
brand to Chinese consumers
Established pharmacy channel presence: to provide scale and
leverage for Meritene channel negotiations
VMS portfolio: toplement and strengthen
Meritene's limited offering while align with core value proposition
Facilitate channel entry and negotiations: existing relationships
with channels to ease Meritene entry and potentially cut costs
Improve financial performance: established sales and profit to
deliver required financial performance while Meritene ramps up
Fill capability gaps: sharing of sales/marketing teams to alleviate
resource shortages and reduce onboarding time
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Screening process for potential acquisition targets
Screen
healthypanies with
strong presence in
pharmacy
Screen local non-direct
salespaniesSource of targets
Knokout criteria
Direct sales
Foreignpany, large
, subsidiary of
SOE, JV, or trading agent
Must-he criteria
>50% sales from pharmacy
Healthy growth in past 3 yrs
Nopliance issue
MNC Local
Source: Euromonitor, IMS, lit research, BCG analysis
Finalist condition
VMS sales >$20 Mn
Finalist to screen
Euromonitor top
30 VMS players
IMS top 20
players in retail
channel of 40
cities
Preliminary
Top 18 VMS
players '14 Rev
Amway 1057
Infinitus 989
Tiens 582
Perfect 485
By-Health 359
DEEJ 349
Pfizer 272
New Era Health 243
Ruinian 223
Nu Skin 175
Sitong 155
Herbalife 146
Harbin Pharm. 146
Golden Sun 116
Baojian 97
Longli 93
Panlong Yunhai 78
Yangshengtang 78
Local non-direct
salespanies
'14
Rev
By-Health 359
Ruinian 223
Sitong 155
Panlong Yunhai 78
Yangshengtang 78
Biostime 58
Besunyen 55
Fresh Life /
HPSON
54
Joincare 49
Changxing 41
Hongfuloi 39
Yunnan Nanyao 29
Potential targets
'14
Rev
By-Health 359
Ruinian 223
Yangshengtang 78
Fresh Life /
HPSON
54
Top 19-35 VMS
players
'14
Rev
Qingchunbao 78
Nature's Bounty 78
Biostime 58
Jiangzhong
Pharm.
58
Besunyen 55
Fresh Life /
HPSON
54
BMS 49
Joincare 49
Changxing 41
Hongfuloi 39
Baheal 39
Xianle (Treerly) 38
Jiuzhitang 29
Yunnan Nanyao 29
Wanning 24
Wuhan Weiao 22
Haiwang 21
ATKearney initial
list from
landscape study
(Revenues in Mn USD)
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Summary of potential acquisition targets
Total VMS
revenue
Mfg. capability
in China
Ownership
structure
Source: Euromonitor; Nicholas Hall; Lit research; Store check; Annual report; BCG interview; BCG analysis
Channel coverage
Geography
concentration
Brand
positioning pany name
By Health
~$359 Mn
Fresh Life
& Hpson
~$54 Mn 80% in pharmacy, 10% in MT and 10% online
60% in pharmacy, 30% in
MT and 10% online
Mid-high
Mass
Mainly
concentrated in
tier 1-2 cities
National coverage
Public
Local Private
Mfg.
Fresh Life:
Mfg.
Hpson:
Distribution
~$78 Mn Mfg. Local Private
Yangshengtang
80% in pharmacy, 10% in
MT and 10% online
Mass National coverage
Preliminary
Ruinian
~$223 Mn 37% in pharmacy, 20% in MT, 43% by distributors Mass PublicMfg.
Concentrated in
east and south
China
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By-Health: well-established local brand in China
pany profile
• Local leading vitamin and dietary supplement
manufacturer established in 2002
• IPO in Shenzhen Stock Exchange in Dec 2010,
$359Mn revenue in 2014, ranks 5th in China
market
• Headquarter and plants located in Guangdong
• Shareholder structure: % own by Mr. Liang
Product portfolio
• ~60 products in 6 categories, with protein as
best selling category making up ~1/3 of revenue
Channel & geographic coverage
• Growth led by strong pharmacy distribution
– ~60% of total sales from pharmacy
– Higher pricing in accordance with pharmacy
sales feature
• Developing online channel to boost sales
• Concentrate in tier 1 & tier 2 cities: ~50% sales
revenue from tier1 cities, ~20% from tier2 cities
Brand positioning
• By-Health positioned as mid to high-end brand to
promote family health concept
• Mainly target middle aged female and leverage
them to promote family health concept
– ~80% of female customers, out of which ~60%
customers aged from 30-45
– Middle aged female not only self users but
family health food purchasers
Source: Lit research, expert interview, Euromonitor, BCG analysis
Protein
Powder
6 SKU
Mineral
7 SKU
Herbal
supplement
14 SKU
Multi
Vitamin
16 SKU
Animal
abstract
15 SKU
Functional
nutrition
2 SKU
Inorganic – By-Health overview Backup
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Ruinian: focused amino acid brand targeting middle-
aged
pany introduction
• Chinese local leading amino acid manufacturer
established in 1997
• IPO in SEHK in Feb 2010
• Headquarter and plants located in Wuxi
• $223 Mn revenue in 2014, top 10 in China market
• Shareholder structure:
– Private owner 38%, 6 private & institutional
owner 32%, public 30%
Product portfolio
• ~20 products in 4 categories
• Amino acid as core product contributes ~76%
of sales
Channel & geographic coverage
• Use 3-tier distributor model to cover both
pharmacy and modern trade
– Tier 1: provincial distributors, >$2Mn sales
– Tier 2: city distributors, $-2Mn sales
– Tier 3: small local distributors, <$ sales
• Distributors cover ~77,000 retail stores (incl.
pharmacy & MT) in 31 provinces
Brand positioning
• Positioned as a mass brand mainly targeting
middle-aged (40-60 years old)
• Originally mainly targeted gifting market
Inorganic – Ruinian overview
Amino
acid
9 SKU
Calcium
2 SKU
Vitamin
C&E
8 SKU
Protein
powder
1 SKU
Source: Ruinian annual report, lit research, expert interview, Euromonitor, BCG analysis
Backup
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Yangshengtang (YST): a leading vitamin brand with
strong presence in pharmacy
pany profile
• Local leading vitamin manufacturer established in
1993
• Headquarter in Hangzhou and plant in Hainan
• $78 Mn revenue in 2014, top 20 in China market
with ~13% annual growth rate
• Share structure: 100% private owned
Product portfolio
• ~16 products in 2 categories, with vitamin E as
best selling product making up ~1/2 of revenue
Channel & geographic coverage
• Rapid growth led by pharmacy distribution
– ~80% of total sales from chain pharmacy
– Cover ~30,000 pharmacies in China
• Mainly rely on ~1500 self-owned reps for
coverage
• National coverage
– Cover ~30 provinces, ~20% sales revenue
from east China
Brand positioning
• YST is a mass vitamin brand mainly targeting
female (25-60 years old)
– ~75% of revenuees from female customers aged
30-40
– ~15% of revenuees from female aged 40+
– ~3% of revenuees from female aged 20-30 and
Source: Lit research, expert interview, Euromonitor, BCG analysis
Inorganic – YST overview
Single
vitamin
3 SKU
Other
supplements
2 SKU
For
children
10 SKU
Multi vitamin
& mineral
1 SKU
Backup
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Fresh Life and HPSON use portfolio approach and
hybrid sales model to enter pharmacy channel
pany introduction
• Established in 2004, Fresh Life and HPSON are
owned by the same individual shareholder
• Fresh Life, the manufacturer located in
Nanning, is entitled to all health food license and
HPSON, the distributionpany located in
Shenzhen, owns "HPSON" trademark
• $54 Mn revenue in 2014, top 30 in China market
• Share structure: 100% private owned
Product portfolio
• Long-tailed product portfolio, 6 categories with
~37 products
• ~10 SKU contribute ~70% sales including
protein, calcium and vitamin C/D/E etc.
Channel & geographic coverage
• Pharmacy is primary distribution channel
– 80% revenue from pharmacy
• Large scale of sales team leverage distributors
to set up strong presence in pharmacies
– ~500 salespersons to cover major chain
pharmacies, . Laobaixing
– Leverage ~1000 distributors to cover a wide
pharmacies
Brand positioning
• A mass brand focuses on mid-end market
• Value proposition: "scientific nutrition" ,
dedicated to make food nutrition supplements for
Chinese people
Source: Lit research, expert interview, Euromonitor, BCG analysis
Inorganic – Freshlife & Hpson overview
Calcium
2 SKU
Protein powder
1 SKU
Vitamin
20 SKU
Herb
2 SKU
Animal
5 SKU
Beauty
5 SKU
Backup
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Preliminary list of potential health food licenses to acquire (I)
Manufacturer
name Product name Main ingredients
Shandong Yuwang 忘不了 Wangbuliao soy protein, vitamin C, vitamin E, ginseng, Zinc oxide, Starch
Beijing Yishengankang 中食月太 Sino peptide whey protein, skimmed milk powder, whey protein peptide,
american ginseng, taurine, ribose, flors, sucralose
Weihai Boli 奥养安 Aoyangan Youxi
powder
soy protein, defatted milk powder, whey protein peptide, american
ginseng, taurine, ribose, flors, sucralose
Zhejiang Quanjin 全金 Quanjin R soy protein, defatted milk powder, whey protein peptide, american
ginseng, taurine, ribose, flors, sucralose
Guangdong
Zhongshiyinke 中食营科 Zhongshiyinke R
wheat oligopeptides, whey protein protein, taurine, whole milk
powder, oat powder, pumpkin powder, soy protein, creamer,
erythritol, malt
Nanjing Zhongmai 康力泰 Kanglitai powder soy polypeptide, soy protein, ginseng, aspartame
Hainan Zhengkang 源生堂 Yuanshengtang soy protein, whey protein, soy powder phospholipids,
hydrogenated soy oil, glucose syrup, sodium caseinate, ssl, SiO₂
Guangzhou Yufubao 渔夫堡 Yufubao soy protein, whey protein, soy oligopeptides, soy lecithin, creamer
Guangzhou Jiayibao 人字 Renzi soy protein, whey protein, taurine
Meizhou Chuangkang 欧莱卡 Olaika R soy protein, whey protein, milk powder, cellulose, SiO₂, xylitol,
flor,
Guangdong Changxing 长兴 Protein powder soy protein, whey protein, creamer
Guangdong Changxing 长兴 Multi-vitamin
protein powder
soy protein, milk powder, glucose, vitamin C, ferrous lactate, salt,
casein calcium peptide, vitamin B1, vitamin B2
Shanghai Jinhaoer 善尔 Shaner lactoferrin
protein powder
whey protein, lactoferrin protein
Shanghai Jinhaoer 善尔 Shaner whey protein
powder
whey protein
Nanjing Zhongmai 新态 Xintai soy protein, whey protein, calcium lactate
Guangzhou Wankang 康斯顿 Kanst soy protein, whey protein, soy lecithin, silicon dioxide, aspartame
Source: CFDA data base, Expert interviews, Lit research, BCG analysis
Anti-fatigue
&
Improve
immunity
Anti-fatigue
Improve
immunity
Somepanies
with >1
products
PreliminaryBackupA Organic – bridging strategy
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Source: CFDA data base, Expert interviews, Lit research, BCG analysis
Manufacturer
name Product name Main ingredients
Guangdong Treerly 千林 Treerly R soy protein, whey protein, whole milk powder, SiO₂, TCP
Guangzhou Huagui 华桂 Whey protein
powder
whey protein powder
Anhui Fulai 念福堂 Nianfutang soy protein, whey protein, xylitol, stevioside, SiO₂
Shenzheng Sanye 三也真品 Scherbal soy protein, whey protein, soy peptide, soy lecithin, xylitol, SiO₂
Tianjin Kaiyong 凯镛 Kaiyong R soy protein, whey protein, lecithin, TCP
Guangdong Weishiya 威士雅 Weishiya soy protein, whey protein
Weihai Baihe 百合康 Baihekang soy protein, whey protein
Zhengzhou Jinshiguang 金时光 Jinshiguang soy protein, soy peptides, whey protein, malt, soy lecithin
Guangzhou Bangli 联合邦利 Union Bangli soy protein, whey protein, SiO₂, Vanillin
Tiannian 天年 Tiannian soy protein, whey protein, soy lecithin
Guangdong Puzhong 普众人 Puzhongren soy protein, calcium lactate, whey protein
Fujian Lifeike 力菲 Lifei soy protein, whey protein, calcium orthophosphate, phosphatide
Guangzhou Weiaojia 维澳佳 Weiaojia soy protein, whey protein
Fujian Xinfulai 鑫福来 Xinfulai soy protein, whey protein
Beijing Xinweikang 亚泰康 Yataikang soy oligopeptides, whey protein, creamer, aspartame, flor
Beijing Time 时间晶体 Time crystal collagen powder, calcium citrate, soy isoflones, vitamin E, vitamin
D3
Baoyin 葆苾 Baobi soy protein, fructose, sucrose, herbs, aspartame, dextrin, vitamin
D3
Nanjing Zhongmai 新态 High calcium protein
powder
soy protein, bone collagen, calcium citrate, casein, vitamin D,
creamer
Improve
immunity
Bone density
Preliminary list of potential health food licenses to acquire (II)
PreliminaryBackupA Organic – bridging strategy
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Rmended form of channel partnership
Partner as the distribution agent
Branding and
marketing
Distribution agent of
NHS products
Responsibility
Channel mgt.
Detailed responsibility allocation between NHS and partner
Channel
management
Distribution
Branding and
marketing
NHS to control and make
final decision on
marketing planning and
investment; responsible
for ATL promotion
NHS to supervise and
monitor partner's
execution
Distribution
Partner to leverage its
distributor network and
sales capability to
conduct BTL promotion
Partner to negotiate with
channels;
Partner to manage
channels by leveraging
its sales team
Partner to be actively
involved in marketing
planning and execution
(leverage its experience
and knowledge)
A
Illustrative
Backup
Illustrative
Transfer price to
distributor partner
(底价外包)
Organic – bridging strategy
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Recent VMS M&A in China – Single vitamins, dietary supplements, TCM
raw materials, Channels often the pursued assets
M&A
Business & strategic intentDeal detailspany Target / partnerYear
Source: Thomson One; Lit research; BCG analysis
2015
Hangzhou Xinfu Pharm
Co.,Ltd
(杭州鑫富药业)
Yifan Xinfu Pharm Co Ltd
(亿帆鑫富)
• % acquired
• $
Further tapping into mkt potential of
vitamin B products
2014
Shanghai Fosun Pharm
(Grp) Co.,Ltd
(复星医药)
Nature’s Sunshine Products
Inc (US)
(美国自然阳光)
• 15% acquired
• $
Nature's Sunshine products (vitamin B
group, vitamin C, D; Minerals and
Herbs supplements), leveraging
Fosun's channels
2012
Nantong Jinghua Pharm
Co.,Ltd
(南通精华制药)
Dafeng Xiongdi Pharmacy
Co Ltd
(大丰兄弟制药)
• 100% acquired
• $
Further tapping into mkt potential of
vitamin B products
2011
Yihai Kerry Investments
Co.,Ltd
(益海嘉里)
Jiangsu Spring Fruit
(丰益春之谷)
• 60% acquired
• $
Further tapping into mkt potential of
vitamin E products
2011
Tebon Securities Co.,Ltd
(德邦证券)
Shenzhen Cau Technology
Co Ltd
(深圳中国农大科技)
• 5% acquired
• $ Water-soluble vitamins for
Injection, Minerals supplements
2011
TIENS Invest Grp
(天狮集团)
Tiens Biotech Group Inc
(天狮国际)
• 100% acquired
• $ Privatization
2011
Catalent Pharma (US)
(康泰伦特)
Zhejiang Jiang Yuan Tang
(江元堂)
• Majority share
• Undisclosed
China entry, manufacturing and
distribution of nutritional softgel
products
B Inorganic Backup
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Summary of reasons for removed candidates
Note: Revenues in Mn USD
Source: Euromonitor, IMS, lit research, expert interview, BCG analysis
B Inorganic PreliminaryBackup
pany name pany name ) '14 Rev Reasons to be removed
Amway 安利 1057 Direct sales; foreignpany
Infinitus 无限极 989 Direct sales
Tiens 天狮 582 Direct sales
Perfect 完美 485 Direct sales
By-Health 健 359 n/a
DEEJ 东阿阿胶 349
SOE subsidiary; Main channel
is modern trade
Pfizer 辉瑞 272 Foreignpany
New Era Health 新时代 243 Direct sales
Ruinian 瑞年 223 n/a
Nu Skin 如新 175 Direct sales; foreignpany
Sitong 四通(脑白金) 155 Main channel is modern trade
Herbalife 康宝莱 146 Direct sales; foreignpany
Harbin Pharm. 哈药 146 Large
Golden Sun 厦门金日 116 Direct sales
Baojian 宝健 97 Direct sales
Longli 广州龙力 93
Exclusive trading agent for
B&H
Panlong Yunhai 盘龙云海 78 Main channel is beauty store
Yangshengtang 养生堂 78 n/a
pany name pany name ) '14 Rev Reasons to be removed
Qingchunbao 青春宝 78 JV of CT and SPH (上药集团)
Nature's Bounty 自然之宝 78
pliance issue; foreignpany; main
channel is modern trade and
online
Biostime 某著名企业 58 Main channel is modern trade
Jiangzhong
Pharm. 江中制药
58 Subsidiary of JZJT(江中集团)
Besunyen 碧生源 55
Main channel is modern trade
and online
Fresh Life /
HPSON 惠普生
54 n/a
BMS 施贵宝 49 Foreignpany
Joincare 健康元 49 Main channel is modern trade
Changxing 长兴 41
OEM manufacturer; lack of go-to-
market capabilities
Hongfuloi 康富来 39
Main channel is modern trade
and online
Baheal 百洋医药 39
Exclusive trading agent for
Nutrasumma (US)
Xianle (Treerly) 仙乐(千林) 38 Pfizer OEM partner
Jiuzhitang 九芝堂 29
SOE subsidiary; brand protected
as China culture heritage
Yunnan Nanyao 云南南药 29
Involved in financial suit;
limitedpany information
Wanning 万宁 24
JV of foreignpany and SOE (TJ
pharm)
Wuhan Weiao 武汉维奥 22
Subsidiary of SOE (CGN);
limitedpany information
Haiwang 杭州海王 21
Subsidiary of Haiwang Group
(深圳海）
MNC Local
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By-Health started from pharmacy, now ~60% revenue
from pharmacy mainly covered by distributors
By-Health started from pharmacy, 60%
sales from pharmacy...
...and sales model highly leverages third
-party distributors
()
()
()
()
Sales
(Mn USD)
Source: Lit research, expert interview, Euromonitor, BCG analysis
By-Health revenue by channel
Provide pharmacy
~60% profit, even
higher >70% at
beginning
• By-Health selected pharmacy as prioritized
channel to penetrate at very beginning
• Later on expand to flagship stores and MT
By-Health core distributor management team
mainly focus on market supervision
• 30-40 sales persons to manage distributors
• Responsible for pricing management, inventory
arbitrage prevention, distributor and channel
management
Distributors responsible for sales territory
expansion
• ~200 distributors in 20 provinces, mainly
concentrated in tier 1&2 cities
• Distributors cover ~30,000 - 40,000 pharmacies
and operate ~400 flagship stores and store-in-
store in MT
Presence in ~30,000-40,000
pharmacy
~500 flagship stores and
store-in-store, ~110 owned,
~400 by distributors
B Inorganic – By-Health channel
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By-Health initially leverage BTL to promote brand
awareness and use ATL later to drive sales volume
Invest heily in variety of outlets with
BTL for customer support and education
Also heily invest in ATL once the brand
acquired certain brand awareness
Launched mass media TVC in 2008 when By-
Health revenue already reached ~$180 Mn
By-Health invested ~$43Mn on ATL between
2011 and 2013 to increase brand awareness
(Mn USD)
Total brand
building1
ATL investment breakdown (2011-2013)
Source: Lit research, expert interview, Euromonitor, BCG analysis
• For brand building and consumer
education
• bination of By-Health owned and
partnership with distributors
• Spending ~$4Mn a year
Flagship store
O2O Nutritionists • Integrated with offline BTL, By-
Health's flagship store on Tmall
offers guided shopping tour and a
chat function for advice from
nutritionists
Pharmacy • During launch stage, amount of
3x revenue invested in pharmacy
channel
• Collaborate with pharmacy to
conduct consumer education,
1000-2000 times a year
• Now spending ~$5Mn a year
B Inorganic – By-Health promotion
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%
Price to
channel
By-Health is rapidly growingpany
Costly to enter pharmacy as result of high
discount to this channel
By-Health proforma P/L
BTL: ~$9 Mn, % of sales
ATL: ~$13 Mn, % of sales
(Max TVC spending, $50 Mn
a year)
Source: Lit research, expert interview, Euromonitor, BCG analysis
Total revenue
(USD Mn)
Year
By-Health grew rapidly in the past
B Inorganic – By-Health financial
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Hey BTL to support sale through pharmacy and MT
Both pharmacy and MT channel are
important to Ruinian
Ruinian uses distributor sales model with
hey BTL support
Sales
(Mn USD)
()
()
()
Ruinian revenue by channel
Tier 2&3 distributors
cover both pharmacy
and modern trade
• Pharmacy: Tier 1 distributors and self sales team
cover ~3000 pharmacies while tier 2&3 distributors
help to cover ~8500
• MT: mainly for gifting market and replies on
distributors to cover a large number of end stores
B Inorganic – Ruinian channel & promotion
Source: Ruinian annual report, lit research, expert interview, Euromonitor, BCG analysis
Distributor
sales model
Hey BTL
promotion
In total, ~60 salespersons manage
over thousand distributors
3-tier distributors system:
• Tier 1: provincial distributors, >$2Mn
sales, 1 dedicated sales to support
• Tier 2: city distributors, $-2Mn
sales, adhoc sales support
• Tier 3: small local distributors,
<$ sales, no sales support
• Sponsor distributors to re-brand
pharmacies as "Ruinian", in total,
~2000 retail stores owned by
distributors but named as "Ruinian"
• Hey in-store promotion, especially
promotion for gifting market at festivals
• Invited Chen Baoguo as ambassador
years ago but now reduced ATL to
minimum level
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Ruinian is steadily growingpany
...with healthy financial performance
Ruinian proforma P/L
1. 2012 revenue slight decline was mainly due to gifting market set-back and channel strategy transformation towards pharmacy
Source: Ruinian annual report, lit research, expert interview, Euromonitor, BCG analysis
Total revenue
(USD Mn)
Year
1
Ruinian grew steadily in the past...
B Inorganic – Ruinian financial
%
Price to
channel
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# adsSales (Mn)
Strong pharmacy presence and mass media marketing are
integral to its mass market strategy
Strong channel capabilities, especially in
pharmacies...
...enables YST to generate sales before large
scale marketing investment
%
2014 VMS sales breakdown
by channels
• 17-21k outlets
nationwide
• ~90% coverage for top
100 chain pharmacy
• 30k outlets nationwide
• Rely on distributors only for transaction
and logistics. Regional branches directly
manage retail channels
• ~1500 reps in 2014, responsible for in-
store display, promotion etc.
Build access,
limited ads
Increase awareness,
increase ads
Brand
maintenance
Revenue & number of ads approval
Launch
Source: BCG interviews, BCG analysis
In 2014, YST
invested $5Mn to
sponsor national
gourmet TV
program
B Inorganic – YST channel & promotion
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Yangshengtang's channel approach – very extensive self-
owned sales network to cover large number of outlets
North China
region
Qingdao
branch
Reps DistributorsBranch KA
Retail outlets
Hypermarkets & supermarkets
Beauty / Health specialty retailers
~20k outlets nationwide
(20% of YST VMS sales)
Pharmacy
~30k outlets nationwide
(80% of YST VMS sales)
... ... ... ...
... ... ... ...
HQ national key accounts
• National chains contract
negotiation and relationship
management
13 regions
108 braches
• Each branch cover 1
big city or 2-3 smaller
cities
• Cover ~300 cites in
total
~1500 reps nationwide
• 30-40 outlets per rep
7-10 distributors
managed by each
branch
... ...
• Logistics and payment• Local pharmacy and
supermarket chains
• Contract negotiation and
relationship management
Source: BCG interviews, lit search,pany website
Yangshengtang sales
network
B Inorganic – YST channel
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YST's success in pharmacy can be mainly attributed to
three key success factors
Product
portfolio
approach
• YST used product portfolio approach in pharmacy
– To increase attractiveness to pharmacy and bargaining power
– To meet varying needs from different targets, including vitamins for
women and children
Strategic
cooperation
agreement
• Signed strategic cooperation agreement with large chain pharmacy
– Confirm tier of rmendation in pharmacy (. 1st rmended)
– Agree sales target in pharmacy and corresponding promotion expense
– Lock calendar for whole-year promotion activities
Sufficient
promotion
investment
• At beginning, YST only provided ~20% discounts to pharmacy; after
increasing profit to pharmacy up to >50%, sales grew rapidly driven
by strong pharmacist rmendation
• Shift more BTL promotion budget from modern trade to pharmacy
for in-store display and promotion, sales incentives etc.
• Leverage high brand awareness through hey ATL to "pull"
consumer to pharmacies for purchase
Key success factors
B Inorganic – YST channel
Source: Expert interview, BCG analysis
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%
Price to
channel
YST is financially healthy growingpany
High sales expense due to large self-owned
sales team
YST proforma P/L
Source: Lit research, expert interview, BCG analysis
Year
Total revenue
(USD Mn)
YST grew steadily in past three years
B Inorganic – YST financial
More rely on self
-owned sales
team
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YST heath foodpany - products for adults
Source:pany website, BCG analysis
Sub-
category Product
Daily cost
(RMB/Day
)Claim
Product
format Examples
Product
status
&MYST MultivitaminsMulti Vitamins Tablet Health food
Single
Vitamin
Nature Vitamin CSingle Vitamin Chewable Health food
Immunity
Anti-aging
Single Vitamin YST Nature Vitamin E Health food
Chloasma
Anti-aging
Multi
Vitamin
Single Vitamin YST Nature β- Carotene Health foodV&M
Other
supple-
ments
YST Collagen PowderCollagen Health foodSkin care Powder
Supplement YST Royal Jelly Anti-aging Capsule Health food
B Inorganic – YST product overview Backup
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HPSON uses hybrid sales model to establish
strong presence in pharmacy
Sales
(Mn USD)
()
()
()
Source: Lit research, expert interview, Euromonitor, BCG analysis
Hpson revenue by channel
B
Provide pharmacy
~80% profit
Hybrid
sales
model
~500 sales persons cover major chain
pharmacies
• Directly negotiate contract with major
chain pharmacies, . Laobaixing,
Haiwang etc.
• Responsible for in-store
displaymunication and promotion, etc.
~1000 distributors cover pharmacies
except major ones
• 2-tier distributors: provincial level and
city level;70% of efforts focused on
managing provincial level distributors
ATL & BTL
promotion
Leverage both ATL and BTL to
promote brand awareness and drive
sales volume
• Provided high margin and rebate to
drive pharmacist rmendation
• Invited Tang Guoqiang as
ambassador and launched local TVC
Revenue mainly from pharmacy
Hybrid sales model with both ATL & BTL
support
Inorganic – Freshlife & Hpson channel
Covers ~30,000 pharmacies, covering tier 1,
2 & 3 cities
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Fresh Life and HPSON grew faster than market
erage
Low COGS provides large room for
channel profit
Hpson proforma P/L
Source: Lit research, expert interview, Euromonitor, BCG analysis
Total revenue
(USD Mn)
Fresh Life and HPSON grew rapidly in the
past
B Inorganic – Freshlife & Hpson financial
%
Price to
channel
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Nature's Bounty (NBTY): strong presence in flagship
stores with slowing growth
pany introduction
• NBTY originated in US and officially established
presence in China by setting up Nuotianyuan
Trading Ltd. Co. in 2007
• NBTY corporate turnover $ in 2013 while
$61Mn from China market, ~16% of total
• From 2012 to 2014, revenue grew at CAGR ~10%
in China
• Share structure: acquired by PE Carlyle Group
Product portfolio
• Product portfolio shrank from ~110 SKUs to
~20 SKUs in five years given more strict regulation
• 10 core products contribute ~70% of sales
• None of products registered as health food
Channel & geographic coverage
• Flagship stores and emerce are main channels
– Flagship stores: ~28% of revenue
– Emerce: ~25% of revenue
– Pharmacy: ~15% revenue mainly from 6 major
chain pharmacies, covering ~1000 stores
– The rest revenue from ~100 small to mid-sized
distributors
Brand positioning
• Premium brand positioning mainly attracts young
female with high ie
• Key messages "Benefiting America Since 1791"
B Inorganic – NBTY overview
Source: Ruinian annual report, lit research, expert interview, Euromonitor, BCG analysis
CalciumVitamins
Other
supplements
Protein
powder
Backup
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Three reasons to exclude Nature's Bounty from list of
potential targets
Negative exposure
by 某著名企业 and
internet reports
Not registered as
health food
Pharmacy
not main channel
Lasting impact from negative exposure by 某著名企业 and internet reports
• Jun. 2012: 某著名企业 2's program "消费主张" challenged NBTY's nonpliance
behior in China including exaggerating efficacy, misleading consumer to
purchase wrong products, and nonpliance with ingredient standards
• 2014 "" exposed local manufacturer used cod liver oil to produce kids fish
oil. Although NBTY was not on the exposed list, several news outlets reported
that NBTY pulled kids fish oil off the shelf, resulting in negative impact to the
brand
• Several internet reports claimed that NBTY products contained nonpliance
ingredients . Ubiquinone
NBTY has not yet obtained a health food license
• Nature's Bounty cannot be found in CFDA database
• There is no "blue hat" logo on products' packages
Main channels are modern trade and emerce, not pharmacy
• 28% from modern trade, 13% from emerce and 40% from distributors' channel
where products were mainly sold through modern trade
• Difficult to get strong presence in pharmacy given general food category
B Inorganic – NBTY overview Backup
