ZHENGZHOU, China (Reuters) - China pork producer WH Group (0288.HK) is dialing back growth hopes for its U.S. unit Smithfield in the mainland amid weak demand, with a new plant there operating at just a third of capacity and plans for another factory postponed, group executives said.
WH Group, the world’s biggest pork producing company, bought top U.S. pork producer Smithfield in 2013 for $4.7 billion (3.52 billion pounds), at the time the largest takeover of a U.S. company by a Chinese buyer.
The deal gave the Chinese firm access to expertise in processing the Western products increasingly popular in China’s major cities.
It led to an 800 million yuan ($121.22 million) investment by WH Group in a new plant in Zhengzhou in central China’s Henan province to produce Smithfield-branded products for Chinese consumers.
The highly automated plant, which started operations last year, uses only American pork and equipment from 20 countries to process it, seeking to cater to a shift in demand towards more premium, chilled processed meats.
But it is operating only at one-third of capacity.
“Chinese consumers think our products are a bit too salty,” Pan Guanghui, general manager at the Zhengzhou plant, told reporters last week, adding that Americans typically eat ham and bacon with bread, lettuce and other ingredients, while Chinese people consume it on its own.
A second Smithfield plant earmarked for Shenyang in north-east China will not go ahead until demand for the product picks up, said group director and head of investor relations Luis Chein.
“We thought we would be able to roll out to more cities, but after a few months we realised we would need more efforts to communicate and educate the consumer,” said Chein.
WH Group’s struggles to boost sales of its U.S. products in China highlight the complexities in the mainland market, where buying a pack of Smithfield ham is still beyond most people’s means, and runs counter to deep-rooted preference for fresh cuts.
Still, China is the world’s top pork consumer and its growing urban and young population increasingly familiar with Western foods are forcing global companies seeking a foothold there to consider new products.
To bolster sales, WH Group is considering tweaking its recipe and even moving into bread-based products like pizza.
Reporting by Dominique Patton; Editing by Josephine Mason and Muralikumar Anantharaman