In the 2020 Hurun Rich List released a while ago, the number of people on the list of Haitian Flavor Industry reached 27, and the Ali family, which is known as the "crazy demon of making wealth", ranked first.
However, brokers seem to feel that these "modern salt merchants" are not rich enough, so in recent research reports, they have manipulated the price increase for condiment companies (as shown in the chart below).
Figure: The first four results obtained by searching for the keyword "seasoning" on the research platform
In fact, I wanted to talk about this topic before, but I suffered from not finding a suitable seller research report until December 10, when I waited for this "Condiment Special Report: Price Increase Two or Three Things" from Industrial Securities. Borrow it today.
(Interested readers can search directly on the Internet, if it is troublesome, directly reply to the keyword in the background of the public account: "seasoning" can get the original report)
Brokerage research is rigorous, so the title uses the "motivation" of price increase. In fact, we don't need to engage in these virtual points, to be direct, to find "motivation" is to find "excuses".
As long as enough premium capacity is accumulated, the company will eventually raise the price, which is nothing more than an excuse to get on the table. This excuse can be for consumers (perfectly competitive markets) or for regulators (non-perfectly competitive markets).
Of course, if companies want to raise prices, even if they find a reasonable excuse, they must pick a time to fish in muddy waters. Especially in the catering food industry, which is the people's food for the day.
If you do not understand the current affairs, or if public opinion has not yet been laid in place, then the price increase involving people's livelihood will become negative news in the whole society. For example, at the beginning of the year, Haidilao raised prices when the epidemic was still at a high point, when the "hit workers" had just resumed work and wages had plummeted, it was obviously a sign of insult.
Therefore, industries involving the appetite of the public, even if there is a premium ability to raise prices, they must create a good momentum and wait for the opportunity at the same time. After all, it is already a big industry with 27 places on the list of the richest people in one company, and it is always right to be cautious, and it cannot be as iron as Haidilao.
And to create momentum for price increases, it is mainly by selling "miserable". The masses are sympathetic to the "weak.". Companies can complain to the public that although they are giants, their lives are not good. It's just that for sauce companies that are not worried about sales but involve people's livelihood, selling miserably on the income side is a bit of a fool for the public, so they mainly sell "miserable" on the cost side.
Therefore, I speculate that the protagonist of our article, the "modern salt merchant", should also do the same.
1.1 Cost is the main reason for driving price increases
The rising cost of raw materials is the most direct reason for condiment companies to raise prices.
Split the cost composition of the condiment leader Haitian Flavor Industry, in which soybeans and white sugar are the main agricultural raw materials for condiment production, accounting for about 1/3 of the production cost.
Looking back at the time of price increases of major condiment companies in the past five years, it is found that their price increases have converged.
At the same time, the timing of price increases is basically consistent with the time point of rising soybean and sugar prices.
1.2 From the cost pressure, the industry is expected to enter the price increase window period
From the PPI (Food Manufacturing) year-on-year comparison, it has maintained an increase for two consecutive years.
The South China Agricultural Products Index has also turned positive year-on-year since July 2020 and has been going on for four months.
In view of the significant drive of rising costs for condiment price increases, we expect major domestic condiment companies to have the possibility of price increases.
In addition, from the cost composition of Haitian Flavor Industry split above, it can be seen that the four items that account for a relatively large proportion are soybeans, sugar, plastic bottles and glass bottles, with a proportion of 18.2%, 14.2%, 11.8% and 11.6% respectively.
Judging from the recent trend of raw materials, soybean prices have exceeded the average line of the past 4 years since March 20, and are at a high level of volatility, and have once again shown an upward trend. The price of white sugar is at a low level year-on-year.
In packaging materials, the glass and plastic price index was at a low level from March 2020, which hedged the upward pressure on soybeans to some extent, but showed an upward trend from October.
On the whole, the prices of soybeans and packaging materials have shown a significant upward trend, and the cost pressure has been reflected in the end of the Zhongju high-tech report (20Q3 gross profit margin decreased month-on-month), combined with the above inflation expectations, once again strengthened the judgment of price increase expectations
2.1 Just need to bring anti-cycle, low purchase frequency brings low price increase sensitivity
People take food as the sky, and their daily consumption attributes naturally have anti-cyclical ability, especially the condiments that are inseparable from every meal.
As a result, the condiment industry, as the "modern salt industry", is growing much more smoothly than overall food spending (below).
For products with rigid consumer demand, consumers have certain habits in the choice of products or brands, and product consumption is sticky. Businesses often don't need too much marketing and packaging to ensure the stability of demand.
As far as the food and beverage sub-industry is concerned, condiments have a more obvious rigid demand, whether it is cooking at home or eating out, it has the characteristics of habitual consumption.
This also makes products generally enjoy a longer life cycle, during which time they no longer need to invest heavily in research and development or heavy assets (Buffett's most hated business model). Classics are beauty.
For example, Haitian's gold standard has been on the market for more than 20 years and is still selling well.
In addition, products with long production cycles, complex processing processes and high degrees of differentiation typically enjoy high mark-up rates.
Among them, wine and condiments are more typical, due to differences in taste, so that enterprises have certain product pricing power;
At the same time, wine and condiments belong to traditional fermented products, the production cycle of the product is long, and the processing process is complex, so the production profit is higher than that of other sub-sectors for a long time.
Another price increase for condiments and high-end wines is that consumers are less sensitive to the price increases of low-priced high-frequency or high-priced low-frequency consumer goods.
Whether it is the low-priced and high-grade Haitian soy sauce or the high-priced and low-frequency Feitian Maotai, the recent rounds of price increases have little impact on its sales.
2.2 Brand power gives price increase power
In the development of the industry, the market concentration of condiment brands has also shown a trend of increasing year by year, and there has been a situation in which the strong are stronger and the leader leads.
In the case of household consumption, brand power is a key factor for consumers to buy products, which in turn promotes the concentration of condiment brands.
In this process, the relevant enterprises can also take the initiative in product pricing, which can allow consumers to provide a certain payment premium for the brand.
Compared with overseas counterparts, there is still room for improvement in the market concentration of Chinese condiments, and there is still great potential for industry leaders.
Especially in the field of condiments and high-end wines, the competitive advantage brought by leading brands is huge.
Take Haidilao's affiliated supplier, Yihai International (which was granted the right to use the brand of "Haidilao") as an example:
With the expansion of Haidilao stores and the expansion of the "Haidilao" brand (Figure 30 below), Yihai International has also successfully expanded more third-party channels other than Haidilao hot pot stores (Figure 59 below), and has also successfully broken the circle with the super brand power of "Haidilao", expanding the product range from hot pot base to consumer areas such as convenience foods (Figure 23 below).
In the process, Yihai International's business has also grown rapidly, surpassing its peers (Figure 2 below), but benefiting from the super influence of the "Haidilao" brand, its rates (such as marketing expenses) in the process of developing its business are also lower than those of its peers (Figure 29).
(The above screenshot comes from the SPDB International Research Report "The feast has just begun, three dimensions to see Yihai International", interested readers can search directly on the Internet, if they are troublesome, directly reply to the keyword in the background of the public account: "Seasoning" can get the original text of the report).
3.1 Price increases will significantly boost the gross profit margin and performance of enterprises
The above-mentioned just-needed attributes determine that the price increase of condiments has less impact on its sales.
Price increases will continue to release the elasticity of corporate performance, but there is also amplitude differentiation, see the chart below.
In terms of gross profit margin, the price increase has significantly improved the gross profit margin. In terms of net profit margin, Haitian rose less (less than 1%); Zhongju rose more sharply (more than 2%).
3.2 The stock price has risen in stages and the valuation center has been improved
Judging from the stock price performance of condiment companies from mid-2016 to the end of 2017, the impact of price increases on Haitian, Zhongju, Hengshun and Qianhe is mostly one-time, and it is maintained for 15-30 days. Companies with smaller market capitalizations rose more sharply, while vice versa were more subdued.
From the perspective of PE (TTM), the impact of price increases on the valuation of Haitian, Zhongju and Hengshun is a significant upward shift of the hub, and if the subsequent superposition of performance improvement is assisted, the higher valuation center can be high. However, the valuation of Qianhe Flavor Industry has shown a short-term and rapid correction, which may be that Qianhe is still a sub-new stock in 2017, and the valuation is still at a high level, so it is difficult for the valuation to continue to break through without obvious performance catalysts.
At the moment of demand-side reform, it finally ends with this Weibo:
"There have been big salt merchants in China throughout the ages, which shows that this industry is OK. Soy sauce is modern salt, essentially a salt tax. Not only in these few years, but in all the dynasties. "
Statement of Interest: Last week, there were Condiment Tracks that held A shares through the Northbound (compliance reasons are not convenient to talk about A shares in public content) and H shares of Yihai. However, traders are born to sweep a single block to cut orders is also fast, the article is only for logical reference, we should not copy because of the text.
Two reports are cited in this article:
"Condiments Special Report: Price Increases 2 and 3" - December 9 - Industrial Securities
"The feast has just begun, three dimensions to see Yihai International" - August 24 - SPDB International
Readers who are interested in the original text of the report can search directly on the Internet, if they are troublesome, they can directly reply to the keyword in the background of the public account: "seasoning" to download.