Shuanghui Group, China's biggest meat processor, is facing growing competition from state-owned COFCO which meat sales doubled within the past five years, Shanghai's China Business News reports.
COFCO saw revenue from meat rise to almost RMB5 billion (US$806 million) in 2014 from RMB2.4 billion (US$387 million) in 2009.
Although this is but a fraction of Shuanghui's RMB50 billion (US$8 billion), COFCO's different business model makes it a "formidable rival".
COFCO mainly targets corporate clients such as restaurant chains, hotels, caterers and canteens, and a market observer said the company is set to benefit from its higher credibility in food safety, following the recent spate of food scandals that have rocked fast food chains in China.
The company can easily leverage on its existing network of restaurant clients, since it also supplies a wide range of other food products, including rice, flour, oil, sugar and wine. Its list of clients include McDonald's, Burger King and Yum Brands' chains including KFC, as well as local restaurant chains, including Zkungfu and Yonghe King.
And compared to Shuanghui's model of sourcing animals from contract farms, COFCO runs its own poultry and swine farms, produces feed and handles the majority of the meat production work. COFCO is one of the top ten poultry producers and one of the top three pig producers in China. Although heavy investment is required in COFCO's approach, the company's fuller control of its production process is more appealing to restaurant operators.
COFCO's farms have an annual output of 1.05 million pigs and 24 million chickens, which are supplied to the company itself and clients, including Shuanghui. The company recently opened several more pig farms and plans to grow sales of its meat business to nearly RMB10 billion (US$1.6 billion) with net profit of RMB500 million (US$80.6 million) by 2017.
However, the paper noted that COFCO still faces many challenges in its expansion in the meat market, including poor brand recognition, and production facilities that cover fewer areas than Shuanghui. A source familiar with COFCO's operations also said that it is less efficient than Shuanghui.