Author: CHEN Jiying
Source: China Business Journal

Editor’s note: As the largest supplier to KFC and McDonald’s and one of the largest chicken meat suppliers in mainland China, Taiwan DaChan Food was a purely B2B enterprise. Now, the Company plans to enter B2C retail market.

So, how to pass the brand advantage derived from serving international fast food giants that always raise stringent requirements to terminal consumers? DaChan Food chooses to open its internal control system and takes the protein industrial chain that has developed for years as the support of brand stretching.

At the end of October 2009, Mr. Mark Han Jia-Hwan, the Chairman of the Board of DaChan Food (Asia) Limited (DaChan Food), took over as the Chairman of Alxa SEE Ecological Association (SEE) from his predecessor Mr. WANG Shi. The members of SEE have money, but have no time.  
Is Mark Han fairly free?
In fact, it should be the busiest time for Mark Han now. As one the largest chicken meat suppliers in mainland China, DaChan Food has not contended itself with the work that has been done quietly behind KFC and McDonald’s and decides to enter retail market.
How to attract consumers? Mark Han is convinced that he has had the answer. To issue an ID Card to every chicken so that consumers can learn about the growth of a chicken by inquiring about the information on the ID Card and then participate in the internal control of the enterprise indirectly.
Visible & searchable internal control system
The fame in the industry does not guarantee the fame in the terminal consumers.
During DaChan Food’s entry into the retail market, it chooses to register the rather amicable brand of “Sisters’ Kitchen” and sticks to the principle of “high quality, high price”, so all its products are priced 10% to 15% higher than products of the same kind in the market.   
However, will the mainland consumers that are extremely sensitive to retail prices accept such a high price? DaChan Food’s solution is to print a 10-digit reassurance code on every bag or every box of chicken meat products and processed chicken meat products sold under the brand of “Sisters’ Kitchen”.
The reporter input the reassurance code on the website of “Sisters’ Kitchen”, and the screen clearly displayed the identity of the chicken in hand: the raw material chicken was brooded on Jan. 9, 2009 and was slaughtered on Feb. 24; it came from Dalian Yuantai Chicken Feeding Farm, and the owner of the farmer was HOU Linna. The page also showed the information about Ms. HOU. Moreover, the page listed such information as the source of feeds, production date, slaughtering unit and processing unit. The reassurance code equals to the ID card of a chicken.
Mark Han told the reporter that compared with the companies that used the same technology, DaChan Food would go further. “The Company is positively communicating with supermarkets and shopping malls. If there are places available, we will set electronic inquiring machine in the stores”. This will enable consumers to participate in the system of internal control of product quality and to access to such information anytime, and this has justified the higher price of DaChan Food’s products and received recognition of consumers. Though at present there are only two terminal stores in Beijing, yet through commercial super-channels, the products have received recognition from high-end consumers and the sales has surpassed that of the products of the same kind.
Then, does this mode of high price and high profit have simple replicability?
Professor LUO Yunbo, one of drafters of the “Food Safety Law”, tells the reporter that the food safety traceability system had precedents abroad, but it was not publicized in large scale domestically. The underlying reason is that there is enormous breakdown of trust of China’s consumers in enterprises. “In fact, the profits of meat, egg and milk industries are not high, but consumers did not think so. The traceability system must increase the cost of enterprises and lead to the rise of the terminal prices, so ordinary enterprises do not want to take the risk”. 
Taking DaChan Food as an example. In order to realize the successful monitoring of broiler chickens via the Internet, firstly, DaChan Food has undertaken technical innovation of basic feeding and circulation links; secondly, DaChan Food has increased the amount of veterinarians and quality inspection personnel at the primary level; thirdly, DaChan Food has set another 100 central control sites inside DaChan to collect and transmit the information about different links of the industrial chain, aiming to realize the network interactions. Mark Han says that the investment in this system mainly occurred at the beginning of the establishment, and there is not too many expenses for the maintenance.

Professor LUO Yunbo thinks that the establishment of traceability system conforms to the long-term interest of food enterprises. “Consumers may not inquire about the information one by one, but their confidence and trust in the enterprise have been built up”.
During the interview, the food marketing expert DING Hua agreed with Professor LUO Yunbo. “DaChan Food should attract high-end consumers at first and then gradually set up its brand”. He thinks that after severely affected by a series of food safety accidents, for example, the melamine accident, consumers have paid more and more attention to the food safety. “DaChan Food has given consumers the right to know and invited consumers to supervise its production processes together with the enterprise. In return, they gain the consumers’ trust”.
 Protein industrial chain
“It’s not merely an interactive network. What displays via the Internet is just the tip of the iceberg”, Mark Han says, “What behind the iceberg is DaChan Food’s protein industrial chain”.
At present, DaChan Food has about 4,000 contract chicken feeding farmers throughout the country. This has raised difficult questions to the downstream food processing factories. Actually, the occurrence of melamine accident arises from that the enterprise cannot undertake effective control of the upstream cow feeding farmers.
DaChan Food’s solution to this problem is to adopt “Five Concerted” policies to realize the vertical integration of chicken meat industrial chain. In whole links, DaChan adopts “Five Concerted” policies, namely concerted supply of chicks, concerted supply of feeds, concerted supply of immunity services, concerted purchase and concerted processing, so as to control different links of the chicken feeding industrial chain.
In 1957, Mark Han’s father, a man of Shandong origin, Mr. HAN Haoran set up DaChan Great Wall Group in Taiwan. At that time, it was a small soybean and oil extraction factory with 12 employees. The boss as he was, Mr. HAN had to peddle the soybean cakes in villages.  
In 1990, DaChan Great Wall Group stepped into the period of handover of rights. Mark Han became the top leader of the Group and began to think about the entry into the markets in mainland China.
DaChan Food’s protein industrial chain firstly starts from the feeds. Now, its feeds are not only supplied to its contract chicken feeding farmers, but also sold to the external clients. Besides feeds, the breeder chicken factory and incubation factory are important links of DaChan Food’s protein industrial chain.
After selection and sterilization, the chickens from the breeder chicken factory will be sent into the incubation factory. In the incubation area, there are nearly 40 procedures for a hatching egg to be hatched into a healthy chick.
The chicks from the incubation factory need the injection of vaccine and registration before they are sent to the contract farmers. There are detailed handover records in the handover activities of the above-mentioned links.
In Mark Han’s opinion, DaChan Food’s entry into B2C from B2B is very natural. After all, compared with B2B, the profits made under the mode of B2C are higher. As one of the largest local suppliers to KFC and McDonald’s, though DaChan Food can gain orders of large amount, yet its profit per unit product is not large.
Mark Han says that compared with the exportation market, the domestic processed food market is not opened yet. Hence, the Company will distribute more resources to promote processed food business that will bring relatively high gross profits so as to increase the profit-making ability of the Company.
“It is estimated that in next 3 years, the proportion of the processed food in the gross profits will climb up to 20%, while the proportion of profits from raw chicken materials will gradually decrease”, Mark Han has had the plan.
In Professor LUO Yunbo’s opinion, what other enterprises (for example, the dairy product factories including Mengniu) can learn from DaChan Food is that though they have no such perfect industrial chain, yet these enterprises can follow DaChan Food’s example. “Even though you do not produce feeds, at least you can tell consumers what your cows have eaten”.