This is the Allen Song of China

(Note: This is based on an editorial translation of the cover profile of Alan Song, founder of Beijing Headquarters Harvest Capital, in Forbes China Magazine in December.)

China's largest restaurant chain is not as well known as McDonald's and KFC. However, one of the country's most successful venture capitalists believes that their international momentum will increase over time, indicating an important trend for investors seeking growth during a time of economic uncertainty.

In a latest interview with Forbes China, Alan Song, founding partner of Harvest Capital, like Chinese, in interviews with European world, like Laos and Babi food, the companies we invest in – like Laos and Babi foods, can all be McDonald's and Starbucks of the East.

He added: “The world is facing the possibility of consumption downgrade and China is no exception. We will be closely aligned with the development trends of China and global economies, with a greater emphasis on developing global loyalty and growth.

Song holds a PhD in business from the University of Minnesota and founded Harvest Capital in 2007 with a focus on consumer retail business. He is an industry mentor at the Chinese Elite School of Economics and Management, and he is also a member of the New York University Global Committee. Song joined the finance industry in 1995, working at Everbright Securities and Huatai Securities early in his career.

Since its inception, Harvest has been focusing on value investing. Song said other key success factors include being the sole external shareholder and bringing enough funds to influence the company's operations.

His basic belief in his strategy is that China's growing “consumer society” will be a key driver of spending, thereby improving the country's overall quality of life. By focusing on essentials such as clothing, food, housing, transportation, healthcare, education and entertainment, Song said he wants to meet the core and frequent needs of 80% of Chinese consumers.

As revenues rise, Song wrote in an article last year that consumption “is no longer just a higher price, but a higher quality.” “Since the last century, companies from the United States and Unilever from the United Kingdom have grown the world by providing high-quality, affordable products. Similarly, more and more companies will emerge in China.”

So far, this is the winning method for the song. Harvest now manages more than $4 billion in assets. One of his most successful investments was earning more than $1 billion in return from the 350 million yuan (about $50 million) investment in Energy Beverage Company Eastroc. Since its listing on the Hong Kong Stock Exchange in December, Xiaocaiyuan, a restaurant chain that has gained investment, has risen 25%. In the month, LXJ International, which owns 1,400 stores in China and is the largest Chinese fast food chain in Harvest's portfolio, filed its application for listing on the Hong Kong Stock Exchange. Song noted that Harvest, which purchased 5% of LXJ International in 2018 with a first-round investor, is the only external shareholder.

Looking ahead, the song believes that as China transitions from a production-oriented society to a consumption-oriented society, the share of consumer spending in China's GDP has nearly 20% room for last year's 50% (including public and private consumption). He believes that in the process, China will generate more global companies, including many in the Harvest portfolio.

Song said he has learned success from the catering industry in the United States and Japan. The three major beef bowl chains in Japan – Yoshinoya Holdings, Sukiya and Matsuya fought a fierce price war in the 1990s, establishing the core value and cost structure of Japanese fast food chains.

Song said the lessons learned from their experience have affected business communities in China and the United States. Despite domestic leaders in Japan, the organization has not yet succeeded with KFC and McDonald's because they are unable to synchronize supply chain management efficiency with business expansion. Song believes that Chinese companies may do better now.

Editorial excerpts from a recent interview with the song's cover.

Forbes China: You are the best interest on the New Forbes China Midas list. How did you do it?

Song: In the financial industry, most people follow the philosophy of investment based on portfolio theory. After introducing mathematics into finance, it became a game for smart people trying to profit from market volatility. Wall Street history has proven that most narrow stories won't be very good over the past 100 years. In contrast, those who insist on entrepreneurship usually receive great rewards.

We have been committed to being the main driver of company growth over the past two decades. We are not limited to making recommendations on the board; our (ideas) extend deeply to the day-to-day operations of the enterprise, including brand building, channel expansion, marketing, insights into consumer trends, digital transformation and the establishment of business intelligence systems. We are not speculators seeking short-term arbitrage. In the journey of life, flow (completely immersed in tasks) is crucial, and the essence of success is more than money.

I use the following as a metaphor for my work: I bring a group of athletes to the company’s Olympics. I would be very proud if I could help more Chinese companies become champions.

I believe in Peter Drucker's management science. For example, I have invested in many restaurants, fast growing consumer good companies, food and beverage businesses, cosmetics, and especially fast food foods. Many people often ask why Chinese food cannot globalize and create world-class brands. I believe the reasons are non-standard. The diversity and complexity of Chinese cuisine makes it difficult to standardize; it requires extensive training for chefs and personalized speeches.

With so many diverse global cuisines, why can only the United States cultivate the most open companies and brands? The United States has 61 listed restaurant companies, and the world's largest industrial restaurant brands are all in the United States – McDonald's, KFC, Starbucks and Chipotle. If you study this phenomenon seriously, you will find that Americans believe in supply chain and management science. The globalization, industrialization, standardization and modernization of its products are the secret weapons of success in the United States' fast food industry.

The companies we invest in (such as LXJ International, Xiaocaiyuan and Babi Food) can all become McDonald's and Starbucks of the East. Chinese people can create their own brands and deserve a better life. Chinese entrepreneurs will also become owners of outstanding brands like the West.

Charlie Munger once said that life has many opportunities, but there are few structural structures. If you catch them, you will be a big winner. People who keep trading cannot have a perfect life.

Forbes China: Does the harvest itself surpass China in China?

Song: When the economy develops to a certain extent, it will have a certain degree of economic spillover. Capital, brands and entrepreneurs face challenges of going abroad and participating in global competition. I think this is a good phenomenon. Reaping capital is no exception. We are currently in a critical stage of international expansion. We are an institution that deeply participates in consumption, has achieved significant results, and will participate in global consumer goods business competition. So far, we have set up companies in the United States, Japan, Singapore and Hong Kong.

However, consumer investment is different from other types of investments. According to Maslow's hierarchy of needs, ethnic cultures and racial backgrounds vary, but the basic logic of consumption is fundamentally similar. People’s basic consumption needs are consistent.

Therefore, there are common points in consumer culture, consumer civilization and the consumption needs of different markets, cultural and ethnic groups. In the future, we will focus on the mass consumer goods market – mainly essential high-frequency products and services.

At the same time, we will also meet the daily needs of ordinary people and focus on products with excellent cost-effectiveness. I do not refuse elite consumption, but mass consumption has always been the mainstream demand for consumer product development. We will do what we are good at in understanding to create value to society.

In the past, reform and opening up in China meant that foreign investment came to the country. In the future, reform and opening up will mean that Chinese entrepreneurs will go abroad and become an important force in global competition. Harvest Capital will undoubtedly also move towards globalization, using the experience we have gained in the global Chinese market.

Forbes China: What are your plans for the next year and beyond?

Song: In the future, China's economy will face challenges. The world is facing the possibility of downgrading, and China is no exception. We will closely align with the development trends of China and global economies, emphasizing the development of high-quality consumer industries.

Harvest Capital’s core investment principles currently rely on the cash flow discount model. Over the next one to two years, we will focus on building new channels in basic consumer goods areas such as convenience stores, beverages and cosmetics. These areas are highly resilient to market risks and have strong cash flow conditions.

As a financial practitioner, my goal is to transform harvest capital into harvest industry, not only in China but globally. We are now looking at markets in New York, London, Paris and Japan. Industry is the reason why it truly creates value, has social value, produces wealth spillover effects and truly promotes social progress. This is the principle we abide by, the true core spirit and the pursuit of capital harvesting. So from this perspective, we are different from most PE and VC companies.

Forbes China: In short, why does this boil down?

Song: Upstream Sports. Charles Dickens once said, “That was the best moment, that was the worst.” But all we have to do is to be one of the strongest people of this era.

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