I was lucky enough to conduct an interview with CFO of American Lorain (ALN) Alan Jin. American Lorain is a food manufacturing company with three primary segment lines: chestnuts-based snack foods, convenience foods like ready to heat and eat meals, and a select offering of frozen foods.
Zack: Can you give me some history about ALN?
Alan: American Lorain has been in existence for 15 years, has 5 factories, and is the largest chestnut products producer in China. The chestnut business composed 60% of our revenue in 2009. We have established over 40 sales offices across the country and our distribution network in China covers 26 provinces and administrative regions. In the meantime we work with over 300 distributors to help us access new market places, and are planning on expanding this number to 1000 by the end of 2010. Hopefully this will extend our products points from the current 5,000 to 8,000. We are well on our way, as we recently signed a contract to sell products in 550 7-11 stores in Guangdong province.
Zack: Can you explain your various business segments?
Alan: We have three primary segments, chestnut products, convenience food products, and frozen food products. The chestnut segment is our largest, and we expect growth in the range of 15-20% in the segment in long term. Our convenience food products segment is our second largest and the fastest growing, and we are looking for growth of at least 50% in the next 3 years for this line. Finally, our cold food line has become our smallest line, we will be phasing out the products until they will eventually disappear since we see higher margins in the other two lines and thus they are worth more focus.
Zack: Who are your biggest competitors?
Alan: Both the chestnut and the convenience food markets are very fragmented in China. There are many players in the chestnut industry but none competes with us head to head. The second largest chestnut player in China only has half the capacity we have and they do not have close to the same size distribution network that we have. In terms of the convenience food segment, the sector is very young in China. Most companies are still conducting R&D trying to determine consumer preferences. There are only 2 players in the lunch box product market at country level. They are both large food corporations with hundreds of products, with lunchboxes not being one of their primary focuses.
Zack: If you had a golden bullet that you could put in the head of one of your competitors, who would it be?
Alan: The main competitor in the chestnut business that has about half the capacity that American Lorain has would be considered our closest competitor.
Zack: Where do you see the company in 5-10 years?
Alan: A large packaged food company. The market for chestnut products is only around $1 billion, while the convenience food segment in China is about $400 billion. This is why ALN is transitioning away from the cold food product line into the packaged food market. While the Chestnut business is stable and continues to do well, the real growth lies in the packaged food business. American Lorain should be able to utilize its wide distribution network to promote its packaged food business.
Zack: Why have we not seen positive FCF?
Alan: This past year we have been building out the factory lines for the expansion into the convenience food segment.
What Chinese entrepreneur do you respect most?
Mr. SHI Yuzhu, who founded Giant Interactive (NYSE: GA). The other one is FocusMedia’s Jason Jiang.
What Chinese company do you respect most?
China Automotive Systems (Caas) has been around in the US capital markets in many years. It has the highest earnings multiple because people like the company
Disclosure: No position