In January 2023, news broke about the acquisition of major Baltics-based dairy producer Food Union Europe by PAG, a Chinese private equity firms and an existing shareholder in the Latvian business.
While PAG will become majority shareholder in the European business when the deal is approved by regulators, the Group’s Chinese arm has been officially spun off.
Led by Food Union founder Andrey Beskhmelnitsky, Food Union China is majority-owned by primary investor Askar Alshinbayev. The company has operated in China for more than five years, having first started exporting ice cream, milk and other dairy products to China in 2016; this was followed by the opening of two dairy processing plants in 2018.
Asked why now was the right time to split from the wider Food Union group, CEO Beskhmelnitskiy quoted Robabank market projections about the Chinese dairy market, which the bank has tipped to become the third largest cow’s milk producer globally in 2023.
“We see great growth potential China, where we are experiencing 100% year on year growth, and we believe Food Union China’s main focus for the next three to five years will be to harness this growth opportunity and capitalize on the significant factories we have invested in,” Beskhmelnitskiy told us.
He suggested that the separation from the main business was a natural next step, since the management team in China had already operated autonomously, given the geographical differences.
On the company’s product development strategy, Beskhmelnitskiy said that offering a tailored product portfolio has been a winning strategy so far.
“Food Union has consistently pursued a global strategy of catering to local consumers by offering regionally tailored products that align with diverse taste preferences. This approach extends to our operations at Food Union China, where we recognize the unique market dynamics and consumer preferences. While China presents its own distinct market landscape, it is acknowledged for its unique and innovative taste preferences. There is a growing health consciousness among Chinese shoppers, who are actively seeking high-quality dairy options.
“Notably, there is a discernible trend towards protein-enriched products as a significant factor influencing purchase decisions."
“We have successfully introduced the Shapetime product range, which has garnered significant popularity,” he added. “We aim to build Shapetime as a protein-enriched power brand in the Chinese dairy market. We are dedicated to continually developing new products and extensions within the brand to keep our consumers engaged. As Chinese consumers increasingly prioritize their health, we aim to cater to their evolving preferences for products with added health benefits, such as probiotics and functional ingredients.
“Looking ahead, we have identified a new strategic focus for the next three to five years: building up our B2B businesses. With changing consumer behaviour, the rise of on-the-go consumption has led to significant growth in coffee and restaurant chains.”
To help facilitate this ambition, the company has appointed Dominique Blancho to lead the company’s research and development efforts. “Dominique's expertise will foster consumer-centric creativity and drive new innovations across our organization and tap into diverse cultures, tastes, and trends - whether it involves crafting new formulations, exploring sustainable packaging solutions, or enhancing our manufacturing processes.”
The company is also exploring new market segments and looking to diversify its product offerings. “Specialized or sports and active nutrition are interesting areas that align with our commitment to providing healthy and nutritious options to consumers and particularly with our focus on the Shapetime brand,” the CEO told us.
He reiterated that the company has capabilities to scale-up production, as needed. “Our industrial production plants are two of the biggest factories in China. We have invested with a view to take on opportunities and here is plenty of room for growth,” he said.
‘A major player in this arena’
With so many large players in the Chinese dairy market, what are the company’s ambitions from here onwards? “Strategically we will focus on Shapetime, new partnerships/collaborations and B2B servicing with a commitment to quality across all those pillars.
“The presence of big players in the Chinese dairy market, both local and global, creates a competitive landscape. Our agility we believe will give us competitive strength and the ability to service clients quickly and effectively - larger players are generally less agile. In five years we would hope to see ourselves as a major player in this arena.”
How Food Union China came to be
Food Union Group was one of the first Baltic companies to export dairy products to China, having first started to develop a dedicated export range – including milk, cheese, butter and ice cream – in late 2014.
In August 2014, Russia – a key market for Baltic dairy producers – had banned dairy, meat and vegetable imports from the EU in response to the bloc’s import ban on goods from Crimea, the Ukrainian territory that Russia invaded. The Russia ban affected export demand and resulted in a drop of farmgate milk prices in Latvia, where a higher share of milk was processed into cheese and butter, both in-demand on the global dairy commodities market.
In 2016, Food Union Group started selling its first products in China, including premium ice cream range Ekselence and a range of UHT milk. It was hoped that China could become one of the five largest export markets for the company, which would enable it to partly offset losses suffered as a result of Russia’s embargo.
In 2017, Food Union Group received an investment of $170m from PAG and $55m from Meridian Capital to support the manufacturer’s expansion in China; both firms had become shareholders by 2018. It was also announced that two dairy plants were being built in China; they opened in 2018.
In January 2022, Artūrs Čirjevskis was appointed CEO of Food Union Europe. The Group reported 30% increase in profits following investment in NPD including 140 novelty ice creams; automatization, and e-commerce solutions.
In January 2024, it was announced that equity firm PAG will become majority shareholder of Food Union Europe, while Food Union China will become an independent entity.