Bake-off Fuelled Qinyuan Take-off

A decisive move into bake-off technology, focus on corporate sales and a clearer governance structure are the three key measures that helped create solid growth for Chinese bakery chain Qinyuan Bakery during EQT’s ownership.

In the first quarter of 2015, Qinyuan’s new, modern factory in Chongqing will become operational. The new facility is eagerly awaited, needed to meet the strong demand for Qinyuan’s products and in particular the bake-off category.

Since EQT teamed up with the bakery chain’s founders (with the EQT Greater China II fund becoming majority owner) in 2010, Qinyuan has expanded its geographical footprint, accelerated growth and moved into new segments. After almost five successful years, an agreement was reached in November 2014 with Swire Foods, a subsidiary of listed Swire Pacific, to take over as new majority owner alongside the founders.

“Qinyuan has been a very successful venture for EQT in all respects. EQT managed to grow and develop the company as intended, in a fruitful and close relationship with the founders. The company can now be handed over to Swire Pacific, who have great capabilities to continue to grow the company,” says Martin Mok, Partner at EQT Partners, Investment Advisor to the EQT Greater China II fund.

During EQT’s ownership, underlying Chinese market growth has been strong at 15–19%, fuelled by consumers increased purchasing power, urbanization and changing habits in breakfast and snacks. However, Qinyuan far outpaced market growth and the number of stores more than doubled in four years – from 221 in 2010 to 486 in 2014. During the same period, sales increased, on average, 30% annually and EBITDA increased by 34%, on average, annually.

One important factor for this fast-paced development was accelerating the modern bake-off technology. Bake-off is when the bread is prepared in a central plant and then partially pre-baked or frozen. The product is then finished in the bakery store in order to supply customers with bread straight from the oven.

“When EQT joined, Qinyuan had only eight stores with bake-off capabilities. Today, there are more than 200, and the new plant will greatly increase the potential. The EQT network and experience was important as we could bring in best practice and expertise from Europe. Qinyuan was not new to bake-off, but EQT brought a sense of urgency and focus,” Martin Mok continues.

EQT and the new Board of Directors also started to review governance practice in 2010, to enable faster growth and better strategic planning. This was very welcomed by the founding family owners.

“Qinyuan was doing fine, but there was a need to systematize and to a certain degree professionalize management practices and governance, formalizing routines and putting things on paper, for example. Also important was the introduction of concrete and hard targets, with attached incentives for different management levels, and to develop an ambitious multi-year plan and then stick to it,” explains Mr Yuka Yeng, Chairman of the Board during EQT’s ownership period and a member of EQT’s Industrial Network.

Qinyuan Bakery was founded in 1989 and today operates in the Chongqing, Guizhou and Sichuan regions. Qinyuan has both standard stores and bake-off stores. In addition, there is a well-established corporate sales channel which accounts for 18% of sales. In 2014, Qinyan has total sales of nearly USD 90 million and 3,000 employees. Qinyuan offers both regular and seasonal product offerings. The main products are bread, cakes, festive products like moon cakes and hot and cold drinks.

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