2024's First Major Consumer Investment Deal

By Zhiyan Chen

An Alliance Amid Challenges and Opportunities

The first major consumer investment of 2024 is locked in, with three keywords: cheese track, multinational group, strategic investment.

Today, Cathay Capital announced a strategic partnership with Savencia Fromage & Dairy (hereinafter referred to as Savencia) and an exclusive strategic investment in its flagship brand, Milkana.

This investment is somewhat "counterintuitive."

On one hand, after the "new consumer frenzy" of 2020–2021, the primary market has been cold on consumer investments for some time. On the other hand, against the backdrop of slowing growth in China's overall cheese market, no new product has emerged since cheese sticks to reshape the competitive landscape.

Betting on consumer and cheese at this moment, and choosing to partner with a multinational group — can this find a new growth curve for consumer investment, and even for the cheese industry?

In fact, Savencia is no newcomer to the Chinese market. Savencia Group is an independent, family-owned company headquartered in Paris, France, founded in 1956, with a diverse product portfolio (cheese, dairy, chocolate, deli, seafood) present in over 120 countries worldwide. Though it has kept a relatively low media profile over the years, Savencia's products are household names across Europe and America. In 1996, Savencia officially entered China and established its first factory in Tianjin, becoming the first wholly foreign-owned cheese production enterprise in the country. Cathay Capital's confidence in Savencia and its strategic investment in Milkana, to some extent, highlights the brand's unique position in China's cheese market.

In 2004, Savencia's brand Milkana first launched cheese stick products in the Chinese market, opening the door to local cheese industry development through a breakthrough single product. Milkana's "cheese on a stick" catered to teenagers' snacking habits while addressing parents' concerns about calcium and nutritional supplementation. The product quickly gained traction in the consumer market. Data shows that from 2018 to 2022, China's cheese market grew at a compound annual rate of 30%, with cheese sticks as the largest single product category.

Milkana can be said to be the first brand to truly "open" the door to China's cheese market. In LeadLeo's 2023 China Cheese Stick Brand Evaluation Report, Milkana scored 4.95 out of 5 in industry chain evaluation, leading competitors in both product design and eating experience.

In the view of Mingpo Cai, founder and chairman of Cathay Capital, with a population of 1.4 billion, China always has enormous potential for consumption. "Focusing on bringing innovative, quality products to consumers" is the only key to consumer investment. "Savencia has a firm belief in the Chinese market, and our partnership is built on this trust and our shared understanding of the Chinese market."

Though Savencia and its Milkana brand can be considered creators of and major players in China's cheese market, both the industry and the brand have entered a period of intensifying challenges.

Meanwhile, as the entire cheese industry's growth has slowed in recent years, the market needs new stimulus beyond cheese stick products. Nielsen data shows that from 2020 to 2022, China's retail cheese sales were 3.238 billion yuan, 4.192 billion yuan, and 4.337 billion yuan respectively, with growth rates of 29.5%, 3.5%, and 3.5%. On the other hand, as cheese and cheese products have been increasingly accepted and loved by consumers, the opportunities in the cheese market have attracted numerous players — French brand La Vache Qui Rit, Yili, Bright Dairy, Junlebao, Cheese Doctor, and many other brands have all entered the cheese market, and competition has become fierce.

At this point, the cooperation between Cathay Capital and Savencia can perhaps be understood as a response from both sides to rapidly changing external conditions. According to data from Calf Research, in 2021, China's per capita cheese consumption was only 0.13 kg, while Japan's per capita cheese consumption was 2.71 kg — the potential growth space in between remains highly promising.

Under such opportunities, for a multinational group, to establish a brand firmly in a local market, it must become the one that best understands and adapts to that market's rhythm.

Mingpo Cai told An Yong Waves that the strategic cooperation plan will focus on the following key areas: First, further deepening local market penetration to define product strategies better suited to future consumers; second, reforming internal organizational structures to increase execution speed for more intense market competition; third, deeply tapping into Chinese consumer potential and exploring next-generation cheese products.

"We will leverage our unique China-Europe industrial advantages and deep understanding of the local market to help Milkana better adapt to evolving demands in the Chinese market, actively driving product innovation and brand development, and contributing to the overall advancement and quality improvement of China's cheese industry," he said.

At its core, in a word: accelerating localization.

Olivier Delaméa, CEO of Savencia Fromage & Dairy, told An Yong Waves: "We deeply recognize Cathay's position and influence in the China-Europe industrial chain, and its ability to help us adapt to China's fast-paced, ever-changing market in terms of corporate governance, strategic development, and innovation acceleration. I look forward to advancing innovation in China's cheese industry through this cooperation, while bringing Chinese consumers more natural, premium, and healthy cheese choices."

A Unique Position Across Borders

Looking across the entire primary market, Cathay Capital's position is exceptionally distinctive. The most obvious point is that while the vast majority of foreign-currency funds are USD-denominated, Cathay Capital occupies the euro track, serving as a bridge between China and Europe.

In 2007, Cathay Capital established offices in Shanghai and Paris simultaneously and launched its first private equity product line; today, Cathay has nine offices globally, with assets under management exceeding 6 billion euros. Its VC fund — Cathay Innovation Fund III — at 1 billion euros, became the largest VC fund in European history. The LPs behind multiple Cathay funds are also major European industrial giants: L'Oréal, Unilever, Kering, Auchan, Michelin, Pernod Ricard, Decathlon, bioMérieux, and others. Nearly half of the companies in France's CAC 40 industrial index are sustained investors in Cathay Capital.

This is inseparable from founder Mingpo Cai's industrial background and long-standing deep relationships with numerous European enterprises. He has often recounted to media how he founded Cathay Capital: years ago, he observed that success rates were very low when foreign companies negotiated cooperation with Chinese companies, with cross-cultural trust deficits at the core. He subsequently helped French company SEB successfully acquire Supor — SEB's most successful global acquisition case. Recognizing that "helping companies internationalize" had enormous potential, Cathay Capital was born.

From day one, Mingpo Cai established two critical tones for Cathay Capital: first, being a friend to industry — whether doing PE or VC, maintaining a strong industrial character; second, breaking down national borders, with distinctive globalization features. This has given Cathay Capital a complete empowerment system after investing in companies that cross borders.

Although the specific strategic cooperation between Cathay Capital and Savencia has not yet been disclosed, past investment cases offer a glimpse into the synergy between multinational enterprises and Cathay Capital.

In June 2019, after leading the investment in Canadian premium outdoor fashion and sportswear brand Moose Knuckles, Cathay Capital helped Moose Knuckles regain control of its China business and established a wholly foreign-owned enterprise for the company in Hong Kong. It also worked with the company to rapidly build its China team, open a Tmall flagship store, establish its first offline store at Beijing SKP, and formulate and execute an "omnichannel" promotion strategy. Following these moves, Moose Knuckles' net sales in the first post-investment year grew nearly sixfold compared to the previous year.

Another example: Cathay Capital helped connect its portfolio company, cross-border logistics service provider Zongteng Group, with Colissimo, a subsidiary of French postal service La Poste, breaking through last-mile delivery bottlenecks in France and continental Europe. It later helped Zongteng successfully bid for logistics land at Paris Charles de Gaulle Airport, making it the first Chinese logistics company to own on-site land at the airport. Public information also shows portfolio companies including Laiye, Huiying Medical, Deerma, and Bio-Link, among others, have all benefited from Cathay's resource integration capabilities.

In recent years, as GPs have generally found themselves mired in narratives around DPI and returns, Cathay Capital, with its unique positioning, seems to be offering its own answer to "What makes a good GP?" — standing from the end customer's perspective, helping companies build ecosystems and improve products and services from an industrial and globalization angle, while empowering organizational upgrades.

In 2023, when many investment institutions were busy initiating buybacks and managing exits, Mingpo Cai did not want his team to be limited to these matters. "The most fundamental starting point of investment is to help companies create value and solve problems. Where there's value creation and problem-solving, profits naturally follow."

In his exchanges with Savencia, the French company's enthusiasm for the Chinese market left a deep impression on Mingpo Cai. "Savencia continues to increase its commitment to the Chinese market, consistently participating in the CIIE, bringing renowned brands like Milkana, and offering innovative products and advanced solutions to bring distinctive culinary inspiration and gourmet experiences to the Chinese market. This passion for the Chinese market is the cornerstone of the cooperation between Savencia and Cathay Capital," Mingpo Cai said.

"Cathay Capital's mission is to help entrepreneurs take root and grow," he told An Yong Waves. "Internationalization and taking root are not contradictory. We hope to help Savencia find ways better adapted to the Chinese market, and enable Chinese consumers to have better products."

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Additionally, we will be hosting an "unserious" gala tonight — details in the image below.

Image source: Pexels

Layout: Yunxiao Guo