What Isn't Cooking At Taiwan's Uni-President

The food conglomerate keeps coming up short in its quest for a big mainland deal

These ought to be the best of times for Uni-President Enterprises Corp., Taiwan's largest food conglomerate, renowned in Asia for its Q instant noodle mix, AB yogurt, and Chai Li Won tea drinks. The $5.3 billion company, which also has the 7-Eleven franchise in Taiwan, is eager to expand in China, where it has already spent $1.7 billion over the last decade to buy stakes in various food and dairy operations, including the Shanghai outlets of Starbucks Corp. (SBUX ).

But Uni-President executives are frustrated. That's because they haven't been able to pull off the big deal that would make them a major player in the mainland. The latest transaction to falter is their bid to form a new fruit juice venture with dairy giant Shanghai Bright Dairy & Food Co. The deal was put on ice after a Bright shareholder objected to doing business with a rival. It's just the latest setback for Uni-President, which also got squeezed out of operating the lucrative 7-Eleven franchise in Beijing by archrival 7-Eleven Japan. Uni-President is now struggling to obtain licenses to run 7-Elevens elsewhere in China.

Uni-President already has a footprint on the mainland. It sells tons of instant noodles, ready-to-drink tea and coffee, and yogurt and flavored milk through Western-style supermarkets and Chinese-operated convenience stores. In Wuhan, it recently opened the first of what it hopes will be a chain of bakeries. It also plans to roll out 100 of its Cosmed drug and beauty stores in the southern cities of Guangzhou and Shenzhen.


One factor holding back Uni-President products on the mainland is intense rivalry. Its Tongyi Mein noodles are under heavy pressure from mainland instant noodle king Tingyi International Food Co., while Nestlé's (NSRGY ) classic Nescafe and Nestea drinks also have big market share. Profits from the company's China food and drink business are down 20%, to $6.6 million, on sales of $537 million, for the first six months of fiscal 2004.

The news from home isn't much better. 7-Eleven Taiwan, run by subsidiary President Chain Store Corp. (PCS), has run into a wall. It's losing its commanding market share in the convenience store sector to local rivals, and now has 40% of the market, compared with 46% five years ago. PCS profits from January to June fell 30%, to $42 million, on sales of $1.1 billion.

What Uni-President needs to spur new sales in China is a link up with a local operator. "Distributing food and beverage products in China is a daunting prospect because of its sheer size," says Uni-President Executive Vice-President Alex Lo. "We are aggressively looking for quality partners." Shanghai Bright was the dream deal. It has dairies across 11 provinces, and 12 large factories in key cities such as Guangzhou and the northeast province of Heilongjiang. That potential tie-up is not dead. Gong Yanqi, spokeswoman for Shanghai Bright, insists that "negotiations will proceed."

Meanwhile, Uni-President is courting another partner. According to local media reports, it has offered $100 million for a majority stake in beverage maker Jianlibao Group Co. Talks, however, have run into a big hurdle. Some executives at state owned Jianlibao don't want to become a subsidiary of an overseas company, particularly one from Taiwan.

Even as it pursues new business in China, Uni-President has been aggressively expanding its food business in Southeast Asia. "We will position ourselves as the No. 1 food company in Asia," declares Lo. That's an ambitious goal -- and one that will be hard to achieve if Uni-President can't conquer China.

By Matt Kovac in Taipei

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