Hsu Fu Chi is sold.

Not willing to be left behind by the times yet. China Venture Original Author Tao Huidong

I’m not willing to be abandoned by the times yet.

China Venture Original

Author Tao Huidong

An acquisition has brought candy king Xu Fuji back into the public eye.

On March 3, Nestle announced that it had reached an agreement with the Hsu family, the founders of Hsu Fu Chi, to acquire the remaining 40 shares of Hsu Fu Chi. In 2011, Nestle bought 60% of the shares of Hsu Fu Chi for 1.7 billion dollars. As a result, Nestle will take full control of Hsu Fu Chi.

Hsu Fu Chi is a name that is both familiar and unfamiliar. Whether they like it or not, most Chinese people have eaten Xufuji candies. Even if they haven’t, they’ve at least heard of it. It’s as much a part of some distant memory of the flavor of the year as Joy Jelly, NutriQuick, or Want Want Snow Cake.

In the past Spring Festival of the Year of the Snake, the phrase “Xufuji has become the tears of the times” was on the hot search. The reason for this is that netizens found that the design of Xufuji’s classic shortcrust candies was exactly the same as the costumes of the main cast of Legend of Concubine Zhen Huan. In the hilarious follow-up posts, almost all the screens are filled with memories of XXX, who loved to eat Hsu Fu Ji when they were young.

Nestle’s sudden announcement of a wholly-owned acquisition of Hsu Fu Chi is actually quite surprising. As the world’s largest food and beverage company, Nestle’s performance has been weak over the years, the stock price is under pressure, and last year, the new CEO took office to carry out reforms to slim down and sell non-core businesses. Therefore, the outside world speculates that Hsu Fu Chi is most likely to follow in the footsteps of Yinlu Eight Treasure Porridge, was sold by Nestle.

Now, it seems that Nestle has other plans for Hsu Fu Chi. Hsu Fu Chi is not yet willing to be abandoned by the times.

Who doesn’t know Xufuji?

The founders of Hsu Fu Ji are four brothers from Taiwan, Xu Praseodyuan, Xu Cheng, Xu Hang and Xu Terrier. In the early 1990s, they followed the trend of Taiwanese companies investing in the mainland and built a candy factory in Dongguan, doing OEM processing at first, and then formally establishing the Hsu Fu Chi brand two years later. It took only a few years for Hsu Fu Chi to become the king of confectionery in China, and in 1997, Hsu Fu Chi’s sales exceeded 100 million yuan. Since 1998, Xufuji brand candies have always occupied the first place in the national market in the sales of similar products, becoming the king of candies in China.

Xufuji’s success and predicament are both related to its strong bond with the Chinese New Year.

At the time when Hsu Fu Chi was founded, China had just come out of the shortage economy, and candies were still the premium goods for visiting friends and relatives and entertaining guests during the Chinese New Year. Sales of candy during the Chinese New Year could account for more than 60 percent of the year’s sales. In the early days, Hsu Fu Chi’s brand and sales model were almost entirely built around the Chinese New Year.

For example, the consumer behavior of buying New Year’s goods is characterized by not choosing carefully, but having a little bit of everything. As a result, Hsu Fu Chi was the first to create a branded counter and bulk sales model. Hsu Fu Chi opened counters in major stores, where customers could choose any candy they wanted, and then weighed them uniformly. This model has now become the standard for snack sales.

The key point is that, although the whole country had the habit of buying candies at New Year’s Eve, there was no national brand of candies at that time. The second of the Xu brothers, Xu Cheng, was keenly aware of this and invented the concept of New Year’s candies, and launched 40 different flavors at once, which was a demoralizing blow to the New Year’s market at that time.

Of course, the bombardment of TV advertisements by Xu Fuji during the annual New Year period also played a big role.

The result was that Xufuji not only managed to capture the New Year’s candy mind-set, but also continued to reinforce this perception over the past three decades or so. At the same time, China’s economy was growing rapidly during this period, and consumption of sweets was increasing, so Hsu Fu Chi was like lying on a mountain of gold, earning a lot of money.

Hsu Fu Jee was listed in Singapore in 2006, a year in which its sales revenue was $2 billion, of which $1 billion came from the confectionery business. Since then, Hsu Fu Chi has continued to grow at a rapid pace, and by 2010 its sales revenue had grown to 4.3 billion yuan, with a net profit of 600 million yuan. Hsu Fu Chi’s brand moat is solid, and the gross profit margin of its confectionery business can be maintained at around 45.

In 2011, the popular Hsu Fu Chi was spotted by Nestle. Nestle bought 60% of the shares of Hsu Fu Chi for S$3.5 billion, which meant that the total market capitalization of Hsu Fu Chi reached S$3.5 billion or about US$2.85 billion, and the company was delisted after the acquisition was completed. At that time, the market generally believed that with Nestle’s global resources and Hsu Fu Chi’s brand power as a household name in China, this major merger and acquisition would have a disruptive impact on the domestic confectionery market pattern, and Hsu Fu Chi would be taken to the next level.

However, after being controlled by Nestle, Xufuji gradually began to embark on the road of overstaying its welcome.

Times have changed, and it almost became an outcast

Over the past few years, some articles have popped up on the Internet from time to time to sing the praises of Hsu Fu Chi, the candy giant abandoned by the times, the king of candy is difficult to return to the top of the Why is Hsu Fu Chi abandoned by the 00s A headline like this is not uncommon.

In fact, Xufuji’s crown as the king of candies has not fallen off. According to Nielsen Retail Research, in 2024, Hsu Fu Chi will remain the No. 1 in the bulk candy category in hypermarkets and supermarkets, with a share of more than 30%. Xufuji is still synonymous with New Year’s candy.

That being the case, why do people feel that Hsu Fu Ji has been abandoned by the times? The reason is probably that candy itself is slowly withdrawing from people’s lives.

On the one hand, the flavor of the New Year is getting lighter and lighter, and the habit of buying New Year’s goods is disappearing. On the other hand, even when buying New Year’s goods, the demand for candies is not what it used to be.

Nowadays, candy is in a very awkward position in the New Year’s goods. On the degree of expensive, it is too far than tobacco, alcohol and tea, can not be used as a gift to visit friends and relatives On the practicality of candy is now the old people do not dare to eat the children do not allow to eat, it would be better to buy some melons and fruits.

This trend is clearly reflected in the data. According to Nielsen data, China’s traditional annual candy category sales declined by 11 6 per cent annually between 2019 and 2023.

Not only the Spring Festival, but also in other scenarios, the consumption of candy is also declining significantly.

Wedding candies at wedding banquets are another important consumption scenario for candies. However, from 2014 to 2024, the number of marriages in China has dropped by almost half, from more than 13 million pairs to falling below 7 million pairs. Meanwhile, wedding candies are now packaged more and more exquisitely in smaller and smaller quantities, and are more often than not just meant to be.

Overall, China’s candy market has hit the ceiling after years of rapid growth. According to Foodaily, from 2016 to 2020, the total size of China’s confectionery market will grow at an average annual rate of only 2 , and in 2015 there was also negative growth for the first time. Also according to the data of Guan Research World, China’s confectionery production reached 3.52 million tons in 2016, fell to 3.31 million tons in 2017, and continued to fall to 2.88 million tons in 2018. Meanwhile, China’s per capita consumption of confectionery has been slowly declining over the past decade.China’s annual per capita consumption of confectionery was 1,410 grams in 2014, and declined to 1,280 grams by 2019.

When the whole track is going down, how can Xufuji, as the industry leader, stand alone?

In recent years, there has been speculation that Nestle is going to abandon Hsu Fu Chi. Considering Nestle’s style of doing things, the speculation looks plausible.

Nestle bought Hsu Fu Chi in 2011 as part of a strategy to try to expand its presence in China at the time. Under that strategy, Nestle launched an intensive acquisition program in China. That very same year, Nestle also bought another famous Chinese food company, Yinlu, and the year before that, Nestle bought drinking water brand Yunnan Dashan.

But none of these acquisitions appeared to be successful in hindsight, and in 2020 Nestle sold Yinlu’s core businesses, peanut milk and eight-treasure congee, back to the family of Chen Qingshui, the founder of Yinlu. In the same year, Nestle sold its drinking water business in China, including Yunnan Dashan, to Tsingtao Brewery.

During the eight years of Nestle’s rule, Yinlu’s performance declined sharply. At the beginning of the acquisition, Yinlu’s overall revenue used to reach 11.1 billion yuan, falling to 9.647 billion yuan in 2015. No specific sales figures for Yinlu have been released since then, except that it recorded a double-digit decline in 2016, returned to growth in 2017 2018, but then declined again in 2019.

For multinational companies like Nestle, mergers and acquisitions and sales are commonplace, and when it is found that the brand bought is not performing as well as expected, it is normal to turn around and sell it. However, after selling Silver Heron, Nestle was slow to deal with Hsu Fu Chi. In the end, Nestle also backhandedly continued to increase investment to complete a wholly-owned acquisition, and for what reasons?

Hsu Fu Chi has a new position

National Classic Snacks Brand

The answer may be that Xufuji is now the best Chinese snack brand in Nestle’s hands.

Since joining the Nestle family, Hsu Fu Chi has gradually transformed itself into a national classic snack brand, penetrating into the daily consumption scene, Nestle said in the acquisition announcement. Moreover, Nestle hopes to develop its snacks and confectionery business in China by capitalizing on Hsu Fu Chi’s established strengths, especially its strong distribution network.

Snacks and candy are two very close but completely different trends. Unlike candy, which has been reduced to a sunset industry, the snack food industry is still the sun at eight or nine o’clock in China, as incomes grow and young people pay more attention to treating themselves better.

Let’s talk about something counterintuitive. While candy consumption is declining, Chinese consumption of sugar is actually still rising. According to data released by the China Sugar Association, China’s cumulative sales of sugar in 2024 amounted to 2,499,400 metric tons, a year-on-year increase of 47 percent. It’s just that the way people consume sugar today has become incredibly diverse, from chocolate, ice cream, jelly, cookies and pastries to milk tea, which is better than sweet candy?

Take chocolate as an example, according to the China Research Institute, China’s chocolate market will reach $15 billion in 2024, a year-on-year growth of 8 percent, making it one of the fastest-growing markets in the world. In the chocolate new customer consumer group, 95 young people accounted for nearly 30%.

Looking at the non-sweet category, sales of almost all snacks, such as fried nuts, plums, dried fruits and marinated products, are growing. At the time of the decline of candy, China’s casual snack industry can be said to be vibrant, giving rise to a number of emerging casual snack brands such as YiFen LiangPinPuZi three squirrels.

Data from the Foresight Industry Research Institute said that China’s casual food industry reached a compound annual growth rate of 12 3 in 2011 2018, and the market size has exceeded 1 trillion yuan in 2018. And, Foresight expects that the compound annual growth rate of the market size of China’s casual food industry in 2023 2028 will remain around 10, and the scale can reach about 2 6 trillion yuan by 2028.

In the face of the trillion-dollar Chinese snack food market, Nestle is certainly not willing to give up. The best card in Nestle’s hand to open up the snack food market in China is Hsu Fu Chi. Hsu Fu Chi on the one hand has a brand that is a household name, on the other hand, also has a channel advantage that is difficult to replicate.

After more than thirty years of deep plowing, Hsu Fu Chi’s counter has been all over China’s third and fourth-tier cities and towns.

In 2024, Peng Chuanzang, general manager of sales for Hsu Fu Chi International Group, revealed at an FMCG industry conference that Hsu Fu Chi will realize channel coverage of 2 million outlets in 2024, and the target for 2025 is 2.6 million. Such a sales network, not to mention Nestle does not have, other local snack brands are also difficult to build in a short period of time.

Under the new positioning of the national classic snack brand, Xufuji may really have a chance to revitalize its second spring.

In fact, even before it was acquired by Nestle, Hsu Fu Chi was already pushing to diversify and move away from the New Year’s candy label. In 2010, about half of Hsu Fu Chi’s revenue came from confectionery, while the other half came from cookies and pastries and sachima business. After the acquisition, Hsu Fu Jee’s revenue figures were not disclosed again. However, the fact that Hsu Fu Jee has been expanding its categories over the years is clear for all to see, with functional candies and confectioneries such as Nut New Year Gift Box, Raw Coconut Jelly, and 0-sugar Gueling Cream on Hsu Fu Jee’s shelves.

Of course, the problem for Hsu Fu Chi is that the brand is so deeply tied to the Chinese New Year that it’s not easy to build up consumers’ awareness of the brand in non-Chinese New Year scenarios and arouse their willingness to consume.

Title photo and accompanying images are from Hsu Fu Chi China’s official Weibo account.

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