Eu Yan Sang Expands From Bird’s Nest to Vitamins: Southeast Asia

Eu Yan Sang International Ltd., the largest seller of traditional Chinese medicine in Asia outside of China, plans to add its signature herbs to Western health supplements such as vitamins to broaden its customer base.

The century-old Singapore-based company, which bought the assets of Australia’s Healthzone Ltd. a year ago, will produce the supplements under that unit’s brands and infuse them with Chinese herbs used to fight colds and fevers, Chief Executive Officer Richard Eu said. The products will be introduced in the next two months and sold in stores along with herbs and other Chinese health products such as bird’s nest, he said.

“We want to take an inclusive approach and see what works in each market,” Eu said in an interview in Singapore on Feb.

8. “Australia is in a way an experiment to see how we can expand to a more Western kind of environment. We’ll see what products we can put in through the network to add value.”

The company is among an increasing number of businesses in Asia that are taking local products to Western markets. Trung Nguyen Group Corp., Vietnam’s biggest coffee retailer, wants to open shops in Seattle, New York and Boston this year. Singapore’s Osim International Ltd., Asia’s biggest maker of massage chairs, sells its products through its Brookstone stores in the U.S.

Eu Yan Sang opened its first shop in Malaysia in 1879 and has expanded to 300 retail outlets in markets including Hong Kong, China, Macau and Australia selling products such as Lingzhi capsules to combat cancer and boost longevity. It also has 28 clinics or medical halls offering treatments for fertility, stroke, arthritis and other ailments, according to its website.

Commoditized Products

The company decided to branch out into the Western products because of its expansion into the traditional clinics, where Eu said his medicine practitioners are able to advised customers on its products.

“In the western markets, health supplements are increasingly becoming commoditized,” Eu said, pointing to the rising sale of vitamins and other supplements in supermarkets. “If we can do what we did with our medical halls here, and do it to a health food store in a Western environment, I think we actually can have a global businesses.”

The company bought the Australian assets that included 100 Healthy Life stores after that company fell into receivership, Eu said. The business now accounts for about 10 percent of its sales, he said, which also reflects the proportion of its Western products now, a segment that’s set to grow.

Retail Experience

“Progress appears to have been made in Australia,” said Melissa Yeap, a Singapore-based analyst at DMG & Partners Securities Pte. The “main factor in their favor includes their extensive retail experience.”

Yeap also said that health-supplements retailer GNC Holdings Inc. has also added Chinese herbs to its nutritional offerings and “sales seem to be brisk.”

Wipro Ltd., the Indian software-to-soaps company controlled by billionaire Azim Premji, says Chinese demand for cosmetics containing bird’s nest extracts will help its consumer unit counter slowing growth at home. Wipro’s acquisition of Singapore-based L.D. Waxson Group will aid the company to tap demand for luxury skincare products that include creams containing bird’s nest, used in traditional Chinese medicine for its anti-ageing and tissue repair properties, the company said.

Rising Rents

Eu Yan Sang’s biggest challenge isn’t competition, Eu said. It’s the rising costs of shop leases in markets such as Hong Kong, where it had to relocate its best-selling store in the Causeway Bay shopping district after its landlord raised rents to a level that exceeded its sales. The company now operates in the periphery of the shopping belt and sells its products through retailers such as Dairy Farm International Holdings Ltd.’s Mannings health and personal products stores.

Eu Yan Sang last week reported a fiscal second-quarter net income of S$4.7 million, rebounding from a S$2.7 million loss after a writedown for its Australian acquisition. Gross operating margin was little changed at 52 percent as a 12 percent climb in sales was offset by “rising rental pressures,” it said.

The stock fell 0.8 percent to 63 Singapore cents at the close today, paring the gain this year to 5 percent, compared with the 3.1 percent increase in the Singapore benchmark Straits Times Index. The gain was a rebound from an 11 percent slump in 2012, when the benchmark measure climbed 21 percent.

Vietnam Store

The company also plans to expand its reach among non-Chinese speaking customers in the region, and will open its first store in Vietnam this year, a market Eu said is similar to China because of the local familiarity with traditional medicine. It’s also considering adding stores to Southeast Asian markets including Indonesia and Thailand later, he said.

Eu Yan Sang’s flagship products includes the bottle bird’s nests made from the salivary secretion of swiftlets consumed to enhance youthfulness, and the Bak Foong pill made from ginseng, deer’s antler and herbs to ease menstrual cramps, according to Eu and details from the company’s website.

“There is a lot of promise in these markets,” said DMG’s Yeap. “Traditional Chinese medicine has gained popularity among the non-Chinese speaking people and the younger generation.”

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