In Africa, the parent company, Senda, has become the number one in "diapers" and is also the top seller of local tiles in Africa | IPO Observation

Author | Zhang Ziyi

Editor | Yuan Silai

On the diaper shelves in African supermarkets, besides products from Procter & Gamble and Kimberly-Clark, chances are you will spot a brand named Softcare. Its price is low, with an average of less than 9 cents per piece (about 0.56 yuan), and its sales volume ranks first in Africa.

Many people might not be aware that Senda Group, the parent company of Softcare, is one of the earliest Chinese enterprises to enter Africa. It operates in multiple industries and has considerable influence in the local area. They established a joint venture with the domestic listed company Keda Manufacturing early on, and their joint brand "Twyford" is the largest local tile brand in Africa. Senda Group has also invested in many factories in Africa that are rooted in the local area, such as those for washing powder, hardware, and ceramics, and has also created several consumer brands. According to media reports, the overall revenue of Senda Group has exceeded 10 billion yuan.

At the same time, Senda also has a manufacturing base in the local area, covering industries such as hardware and personal care.

At the beginning of this year, Softcare Limited, a subsidiary of Senda Group, submitted a prospectus. The latter produces hygiene products, and its baby diapers have been in Africa for more than 10 years, finally defeating foreign giants to become the sales champion. In the period from January to September 2024 alone, the revenue of the Softcare brand reached 334 million US dollars, approximately 2.441 billion yuan.

Shen Yanchang, the founder of Senda, resigned from a public institution in Heilongjiang Province in the 1990s. Later, he joined Nigeria General Steel Co., Ltd. (a Hong Kong-funded enterprise) as the purchasing manager. After resigning due to suspected malaria and returning to China, he helped a Nigerian supplier carry out a foreign trade business by chance. In 1999, he returned to Guangzhou to establish a trading company and officially engaged in trade with Africa.

Senda Group in Africa has shifted from early export trade to the development of processing and production, and has gradually established local channels and developed local brands. Shen Yanchang's entrepreneurial history is also closely related to China's reform and opening up, accession to the WTO, and the macro development trend of going global. However, Shen Yanchang is a pioneer in the new market and has reaped great rewards.

If Transsion is the well-deserved "invisible king" of African mobile phones, then Senda is a giant in African home building materials, daily consumer goods, and fast-moving consumer goods.

01 Dominating Africa with Down-to-Earth Distribution Channels

Softcare is a fast-moving consumer hygiene product business spun off from Senda Group, and this business started in 2009.

In 2003, Senda realized that the export market competition was becoming increasingly fierce and it was necessary to deeply cultivate the local African market. Therefore, from 2004 to 2012, it began to establish companies in dozens of African countries, and the terminals of its established sales network reached deep into wholesalers, supermarkets, and even small stores in various parts of Africa.

In the past, many Indian enterprises had been deeply rooted in Africa for many years. Taking Kenya, the most developed economy in East Africa, as an example, the local economic lifeline was once controlled by Indian enterprises.

In the early stage of developing the tile business, Senda bypassed the first-level agents controlled by Indian enterprises and went to communities and villages to find second-level agents to supply them directly. When Transsion entered Africa, it also chose to focus on second- and third-tier cities to avoid the strong areas of Samsung and Nokia.

In the African market where the Internet economy is not developed, mastering offline sales channels is the key to success.

Softcare also stated that in Africa, offline purchasing is the main consumption mode, and the population is highly dispersed. A mature channel network requires years of operation and maintenance and is not easily replaced. Due to the unbalanced urban-rural development and the immature transportation and logistics network, consumer products need to reach consumers through a multi-level sales network.

The prospectus shows that as of September 30, 2024, Softcare has established 18 sales branches in 12 countries, covering an extensive sales network of more than 2,500 wholesalers, distributors, supermarkets, and other retailers. Among them, the revenue contribution of wholesalers accounted for 64.3%, reaching 215 million US dollars; the revenue contribution of distributors accounted for 31.9%, reaching 107 million US dollars.

The down-to-earth capabilities of Softcare and Senda in Africa are evident.

With the sales network jointly expanded with Senda, Softcare's sales have grown rapidly. By 2023, the sales of its baby diapers and sanitary napkins have reached 3.713 billion pieces and 1.33 billion pieces respectively, with year-on-year growth rates of 24.0% and 39.1% respectively, far exceeding the sales of Procter & Gamble and Kimberly-Clark in Africa.

The market size of baby diapers in Africa (Source: Prospectus)

However, perhaps limited by the resource limitations of Senda Group and the challenges of expanding offline sales channels, Softcare's layout in the African market focuses on West Africa and East Africa, and has not yet entered North Africa and South Africa.

Judging from the prospectus disclosed by Softcare, only in the diaper product market, the market size and growth rate of North Africa and South Africa are similar to those of East Africa and West Africa, with great potential.

Softcare also expanded into the Latin American and Middle East markets in 2020 and 2024 respectively, but has not yet formed a scale, with the sales in the African market accounting for as high as 98%.

02 The Durability of the Low-Price Strategy

Economic development has a gradient. Some entrepreneurs will look for incremental opportunities for China in more developed countries, while Shen Yanchang saw opportunities in Africa during China's rapid economic development.

This is the case for carrying out the hygiene product business in addition to the ceramic business. The former takes advantage of the decoration needs of ordinary people for houses under the process of African urbanization; the latter sees the new needs under the increase in the African population.

In 2023, 50% of the global births came from Africa. Compared with developed countries, the market penetration rate of baby diapers and baby pull-up diapers in Africa is 22.7%, far lower than the penetration rate of about 70% to 86% in the European, North American, and Chinese markets.

As for the sanitary napkin market, the market penetration rate in Africa is 30.8%, which is also lower than the penetration rate of about 35% to 80% in the European, North American, and Chinese markets.

In the case of the low penetration rate of hygiene products in the African market, Shen Yanchang found that the prices of well-known European and American brands of sanitary napkins in Africa are relatively high, and many rural African women cannot afford them due to the price. Even some female students do not go to school during their menstrual periods to avoid embarrassment and inconvenience.

Therefore, Softcare adopts a low-price strategy, making the price of sanitary napkins only one-third of that of European and American products, quickly opening the market.

The brands under Softcare include Softcare and Veesper, which are positioned in the mid-to-high end; Maya, a mid-range brand; and Cuettie and Clincleer, which are targeted at the general public.

Take the core brand Softcare as an example - this brand contributes more than 70% of the revenue from baby diapers and more than 90% of the revenue from sanitary napkins. In 2023, the average selling price of Softcare baby diapers was 8.87 cents per piece. According to data calculated by Frost & Sullivan, the average selling prices of Procter & Gamble and Kimberly-Clark's baby diapers in the African market are 11.58 cents per piece and 11.38 cents per piece respectively.

Softcare is able to implement a low-price strategy because it builds factories in Africa, which can reduce costs and shorten the sales link. As of September 30, 2024, the company has 8 production plants and 44 production lines in Africa. The Frost & Sullivan report shows that the company is the hygiene product manufacturer with the largest number of local factories in Africa.

In addition to the price, Softcare's local production in Africa can also shorten the sales link, reduce costs, and facilitate a quick response to the market. According to the Frost & Sullivan report, Softcare is the hygiene product manufacturer with the largest number of local factories in Africa.

In fact, for overseas enterprises, local production will always play an important role.

Not only are hygiene products produced locally in Africa, but Senda Group's ceramic industry is also built locally in Africa.

Senda and Keda once jointly established the Kenya Twyford Ceramics Factory. By setting up factories locally, Senda can save about 2 US dollars in cost for a box of 300x300 (mm) tiles by avoiding tariffs, logistics and other links.

At present, Senda and Keda have built 6 ceramic factories in 5 African countries and a total of 14 ceramic production lines. The sales revenue in 2022 exceeded 3 billion yuan, making it one of the largest architectural ceramic suppliers in Africa.

It is worth noting that Softcare mentioned in the prospectus that the company has the problem of not fully paying social insurance and provident funds for employees.

From 2022 to the first three quarters of 2024, the total difference in Softcare's social insurance and provident fund contributions reached 1.6 million US dollars, equivalent to more than 10 million yuan.

This problem alone does not affect the capital market's evaluation of Softcare. However, for Senda, which has such a broad and in-depth business layout in Africa and focuses on investment and production in Africa, not fully paying the social insurance of employees is not honorable.