China's VV Group seeks higher profits as soymilk sales fall

By Dominique Patton

- Last updated on GMT

Related tags Soy milk

VV Group, China's leading soymilk producer, has bought a stake in
an alcohol maker as it looks for more profitable business to
counter falling soymilk sales.

VV recently reported that its third quarter sales revenue from soymilk powder had decreased by 10.5 per cent compared with the same period last year, while its sales revenue of dairy drinks increased by 17.78 per cent.

Analysts say soymilk is facing growing competition from the dairy industry, which offers liquid milk at much lower prices, and other new beverages.

Although VV produces a wide range of processed foods including instant noodles and edible oil, the liquor business promises greater margins.

According to a report by CCTV, Shuanggou had sales of CNY630 million in 2005, and is expected to increase this to CNY850 million this year.

VV Group will become the firm's major shareholder with its CNY80 million acquisition of a 38.27 per cent stake in the state-owned firm.

The move comes after a period of reduced investment in R&D and marketing for its soymilk products, says Chen Yu, chief analyst at Beijing Orient Agribusiness Consultants.

"There is a considerable decrease in its commercials and exposure of its brand, and at the same time, you hardly see any new types of products.

This can be explained with its shifting of focus to other fields, such as dairy, instant noodle, edible oil and wine in the near future," he told

According to CCTV, the firm's soymilk volumes and sales have been stagnant at about 80,000 metric tons and CNY1 billion for the last two to three years.

The company could not be reached for comment.

The soymilk market grew rapidly during the 1990s, driven by a government campaign to raise public awareness of the health benefits of soy products.

Around this time, VV launched a major advertising programme and received a lot of media coverage, which helped it become the market's dominant player, with up to 70 per cent of market share.

"However, the prospect doesn't look so exciting now," said Chen.

"First, there are more and more types of drink emerging in the market, especially instant drinks that are more convenient than solid drinks like soymilk powder."

"Secondly, the flavour of soymilk is not as diversified as other kinds of drinks.

Take yoghurt for example.

There are dozens of flavours available in the market now, which can certainly attract more consumers."

He added that consumption has also been hit by soymilk poisoning in a primary school in Liaoning province, which led to more than 2500 students being sent to hospital.

"It is certain that this incident has had a negative effect on the demand for soymilk."

Yet Chen still believes that there is "great potential" for the market based on soymilk's nutritional value.

"People are more and more concerned about health, which will definitely create a huge demand for soymilk, as long as the quality can be guaranteed and taste be improved," he said.

If the VV Group wants to maintain its leading share in the market, it will need to invest more in R&D to develop new types of soy products.

"This can be applied to the whole soy product industry," added Chen.

"They should try to produce soymilk blended with tea, milk and juice, to make more trendy and appealing products."

China produced around 300,000 tons of soymilk last year, according to Tu Shunming, a soymilk industry expert in China's National Research Institute of Food and Fermentation Industries.

Additional reporting by Pan Yan .

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