CEO John Fieldy told NutraIngredients-USA that the deal with Qifeng Food Technology (Beijing) Co., Ltd. will create a “risk-mitigated method of capturing market share” in the world’s largest consumer products market. It caps the company’s multi-year process of investing in operations in the country
“It really is a requirement to have local boots on the ground for success in mainland China,” John said. “It is a market with amazing opportunities but it is a very challenging market to do business in on a number of fronts.”
“It is very much more than just a sales call and a sales negotiation process. There are regulatory approvals, proper IP registration, and production logistics to consider,” he said.
Deal culminates strategy that was years in the making
Fieldy said Celsius has been investing in China over a number of years. The company has set up a local entity based in Beijing. It has also developed a network of four copackers in the country who have been vetted through Celsius’s quality control process. Qifeng, with whom Celsius had already been cooperating, will now take over the management of that network.
“We have established the whole supply chain locally. We will be locally manufactured and locally sourced,” Fieldy said.
The deal will mandate that Qifeng make a fixed $6.9 million payment to Celsius covering the first five year term, transitioning to a royalty based on volume after that. The company said the royalty fee will amount to at least $2.2 million annually. In addition, Qifeng will reimburse Celsius over a five year loan term for what it has already invested in the market. By March of last year that investment had already topped $7 million.
Fieldy said with the new deal Celsius will be in a position in China to capitalize on huge market trends, trends which are not unique to that market but which may find their biggest realizations there.
“We are capitalizing on health and wellness trends. These are global trends; people of all backgrounds want to live a healthier lifestyle. That is an alignment that crosses all cultures,” he said.
Based on natural ingredients
The company’s flagship product, a beverage called Celsius, is sold as a dietary supplement and contains a blend of taurine, guarana extract, green tea extract, glucuronolactone and ginger extract. The Celsius Heat line extension was launched in early 2017. It also includes 300 mg of caffeine and 2 grams of L-citrulline, an amino acid that is part of the body’s nitric oxide pathway. The product line now also includes powder sachets.
Boosting nitric oxide stimulates vasodilation and blood flow and has been linked to athletic performance increases. Domestically the beverages are sold at Vitamin Shoppe, 24-Hour Fitness, as well as 7-Eleven.
Fieldy said the Celsius formulas have been tweaked for the Chinese market. This is a result of both regional taste preferences as well as to better conform to regulatory requirements.
Brand backed by Hong Kong billionaire
Celsius Holdings appears to be well capitalized, with an influx of $16 million in 2015 from a group led by Hong Kong businessman Li Ka-Shing, who according to Forbes magazine is the richest person in Asia. Def Jam co-founder Russell Simmons also participated in that investment. In November of 2016 the company entered into a partnership with Li’s A.S. Watson group, which is the largest international health and beauty retail group in Asia. The brand was initially being distributed in Asia in Hong Kong and Macau.
A group led by Li reportedly put another $15 million into the company in March of 2017 to help build out the launch in mainland China.
Fieldy said that with the Qifeng distribution deal the company can now look forward to using its burgeoning revenue to build out its distribution in other markets in the Americas and in Europe. Celsius is already a big seller in Sweden, where Fieldy said the company is producing 20 million cans for a population of about 10 million.