Author 丨 Wang Jiarui
Editor 丨 and Yi Rong
The inscription | the official website of Dongpeng Special Drink
"When you are young, you have to wake up and fight!" "Tired and sleepy to drink Dongpeng special drink!" Whether it is TV advertising, bus body, drama implantation or event sponsorship title, the advertising slogan of Dongpeng Special Drink is active in all major scenes of life and entertainment.
According to the official website of the China Securities Regulatory Commission, Dongpeng Beverage (Group) Co., Ltd. (hereinafter referred to as "Dongpeng Beverage") has made its first offering, and the main board of the Shanghai Stock Exchange is about to usher in the "first share of functional beverages".
The company's main business is the research and development, production and sales of beverages, the main products include Dongpeng special drink, citrus lemon tea, tangerine special drink, packaged drinking water, etc., and its Middle East Peng special drink is the company's main product.
This time, Dongpeng Beverage plans to publicly issue 40.01 million shares and intends to raise 1.493 billion yuan, so it is estimated that the valuation of Dongpeng Beverage after the completion of the IPO will be as high as about 15 billion yuan. As the actual controller, Lin Muqin, who holds up to 56% of the shares, is expected to become the richest man in Xinchaoshan Province.
At present, the market for functional beverages in China is monopolized by Red Bull with a market share of nearly 60%, how will Dongpeng Beverage, as the second oldest, break through?
Find opportunities in the markets monopolized by Red Bull
Founded in 1987, Dongpeng Beverage Group is a long-established beverage manufacturer in Shenzhen. Due to the extensive management of state-owned enterprises in the past, the group was on the verge of bankruptcy, and the management planned to give priority to the transfer of the company's assets to internal employees, and Lin Muqin, who was the general manager of sales at the time, seized the business opportunity of functional beverages and decided to take over Dongpeng Beverage.
Before Dongpeng Beverage entered the functional beverage market, Red Bull had already formed an oligopoly in the Chinese market.
However, Red Bull's weakness is also obvious, after entering the Chinese market in 1996, it began the state of "raising the day", and there was no innovation in products and brands, and the packaging was also the same for decades.
Due to the high price of Red Bull, the needs of some consumers cannot be met, and Lin Muqin found this pain point.
"Only by understanding both production and raw material technology and product development can we make products that are cheaper and more technical than competitors," Lin Muqin said in an interview with the media.
Dongpeng drink tastes almost the same function, but the price is half that of Red Bull. At the same time, Lin Muqin began to promote the brand in the form of celebrity endorsement in Guangdong, and quickly opened up the Guangdong market with packaging differentiation and price differentiation.
From the privatization and restructuring in 2003 to 2010, the company's output value of Dongpeng Beverage soared from 15 million yuan to 250 million yuan, and it became a "dark horse".
In 2017, Dongpeng Beverage has developed into a well-known functional beverage enterprise with annual sales of more than 4 billion yuan. Gahua Capital also invested 350 million yuan in 2017 to become the only external investment institution of Dongpeng Beverage.
Before the listing, Lin Muqin held a total of 203 million shares in the company, accounting for 56.41%, and was the controlling shareholder and actual controller of the company. Junzheng Investment (a shareholding company of Gahua Capital) holds 10% of the company's shares, which is the second largest shareholder, and Kunpeng Investment is the third largest shareholder, holding 7.36% of the shares.
Source: Dongpeng special drink official website
Dongpeng Special Drink contributes more than 90% of revenue
From 2017 to 2019, the performance of Dongpeng Beverage climbed steadily, achieving operating income of 2.844 billion yuan, 3.038 billion yuan and 4.209 billion yuan respectively, with revenue growth rates of 6.81% and 38.56% respectively; in the same period, the company achieved net profits of 296 million yuan, 216 million yuan and 571 million yuan, and the net profit growth rate was -27.13% and 164.36% respectively.
Dongpeng Beverage's products cover energy drinks, non-energy drinks and packaged drinking water three types, energy drinks are the company's main products, Dongpeng special drink series of beverages for the company to contribute more than 90% of the revenue.
According to the prospectus, Dongpeng Special Drink series energy drinks are divided into four product lines, namely 500ml gold bottle, 250ml gold bottle, 250ml gold can and 250ml gold brick. From 2017 to the first half of 2020, the energy drink revenue was 2.735 billion yuan, 2.886 billion yuan, 4.003 billion yuan and 2.273 billion yuan, accounting for 96.19%, 94.99%, 95.11% and 92.05% of the company's revenue, respectively.
Based on the 2019 data, the total sales volume of the four product lines of Dongpeng Special Drink is 848,600 tons, and 1 ton canned 4,000 bottles of 250 ml beverages, which is equivalent to about 3.4 billion bottles sold a year.
Source: Prospectus
More than 90% of dongpeng beverage's revenue relies on the "big single product" of Dongpeng special drink, which also brings the market concern about its single product structure.
There are many companies that benefit from large items, such as: Coca-Cola, Chengde Lulu, Nongfu Spring, etc. Liu Chang, chief analyst of food and beverage at Tianfeng Securities, believes that the beverage industry can only be diversified, and after the large single products stand in the market, and then develop new categories, this trend will certainly not change. For example, Nongfu Spring first had a traditional product mineral water, and then developed vitamin water, black tea, farmer orchard and other mixed juice drinks, including "scream", "farmer tea", "farmer soda", "water soluble C100" and other beverages.
Dongpeng Beverage's other products other than energy drinks have not been very successful, and they need to continue to do diversification attempts after listing.
Zhu Danpeng, an analyst in the Chinese food industry, told Chuangbang that the big single product strategy has its benefits, and diversification also has its drawbacks. The advantage of large single products is that the company's main business will be very strong, the ability to resist risks will be strong, and the brand effect and scale effect can be further highlighted. Diversification is a game played by giants. Premature diversification of SMEs may not be a good thing. For example, Weiwei shares, the main business is not strong, the side business is too weak, the front line is too long, is the consequence of blind diversification.
Gross margin is too high?
Dongpeng Beverage also caused inquiries from the CSRC for its high gross profit.
In the feedback on the application documents for the initial public offering of shares, the CSRC asked Dongpeng Beverage to respond to the question of whether its high gross profit is sustainable.
According to the prospectus, from 2017 to the first half of 2020, the operating costs of Dongpeng Beverage were 1.481 billion yuan, 1.641 billion yuan, 2.242 billion yuan and 1.323 billion yuan, respectively, mainly including direct materials, direct labor and manufacturing costs.
Among them, direct materials are the most important component of the main business cost, accounting for 85.88%, 83.18%, 83.77%, 86.43% of the main business costs, respectively; direct labor accounted for 2.76%, 4.08%, 3.25%, 2.39%; manufacturing costs accounted for 11.36%, 12.73%, 12.98%, 11.17%, and the costs were relatively stable during the reporting period.
According to the prospectus, from 2017 to the first half of 2020, the gross profit margin of Dongpeng Beverage was 47.92%, 45.97%, 46.74% and 46.44%, respectively. The average values of comparable companies in the same industry (Xiangpiaopiao, Yangyuan Beverage, Chengde Lulu) in the reporting period were 43.52%, 45.05%, 48.88% and 46.11%, respectively.
Chuangbang found that except for 2017 and 2018, the gross profit of Dongpeng Beverage was slightly higher than the industry average, and the average gross profit level of companies in the same industry in 2019 and the first half of 2020 was almost the same.
Liu Chang, chief analyst of food and beverage at Tianfeng Securities, told Chuangbang that the gross profit margin of about 50% in the beverage industry is normal, and the gross profit margin of functional beverages will only be higher. Competition in the industry is fierce, and in the future, net profits may be pushed down because of marketing expenses, but high gross profit is an advantage for the beverage industry.
Brand marketing "spares no effort"
The more successful brand marketing strategy is an important reason for Dongpeng Beverage to gain today's market position. In addition to putting forward the brand proposition of "young to be awake to fight", Dongpeng Beverage has also carried out multi-dimensional and saturated marketing publicity online and offline to enhance brand exposure and influence.
In addition to the traditional TV advertising, bus body, subway, high-speed rail station and other outdoor publicity methods, Dongpeng Beverage has also combined the lifestyle and consumption habits of young people to carry out new marketing models such as Internet advertising, film and television implantation, and event naming.
In 2013, Dongpeng Beverage invited Nicholas Tse as a brand spokesperson, which greatly improved the brand's national popularity through CCTV advertising, and in 2018, the company successively sponsored the Chinese Super League, CCTV Russia World Cup broadcast, Portugal national football team, etc.
In 2020, Dongpeng Special Drink named Hunan Satellite TV's "Every Day Upward" and "54 Evening Party", implanted popular movies and televisions such as "Love Apartment 5", "AnJia", "Fox Hunting", "Tomb Robber Notes - Restart" and so on.
A series of titles and sponsorships have brought visibility and sales volume to Dongpeng Beverage, as well as higher marketing expenses.
According to the prospectus, the sales expenses of Dongpeng Beverage include publicity and promotion fees, employee salaries, transportation costs, etc. From 2017 to the first half of 2020, the sales expenses of Dongpeng Beverage were 825 million yuan, 969 million yuan, 984 million yuan and 452 million yuan respectively, accounting for 29%, 32%, 23% and 18% of the current operating income, respectively, decreasing year by year.
Among them, the publicity and promotion expenses reached 385 million yuan, 482 million yuan, 345 million yuan and 128 million yuan respectively, accounting for 46.67%, 49.74%, 35.06% and 28.32% of the sales expenses, respectively.
Dongpeng Beverage has the largest cost of TV and radio advertising, followed by outdoor advertising, and spends relatively little on event sponsorship, spokespersons and other aspects.
The national market has yet to be developed
From the perspective of sales area, since Dongpeng Beverage started in Guangdong, Guangdong has always been the main position of Dongpeng Beverage. According to the data, from 2017 to the first half of 2020, the sales revenue of Guangdong region accounted for 66.66%, 61.10%, 60.12% and 53.91% of the main business income of Dongpeng Beverage, respectively.
From the above data, it can also be seen that the proportion of sales revenue of Dongpeng Beverage in Guangdong is decreasing year by year, and the proportion of markets outside the province is expanding year by year.
At present, Dongpeng Beverage is actively exploring the markets of Guangxi, Central China, East China and other markets, forming a sales model based on the distribution model, combined with direct operation and online sales. As of the end of June 2020, Dongpeng Beverage has 1,386 distributors and products covering about 1.2 million terminal stores.
Dongpeng beverage sales model Source: Dongpeng special beverage prospectus
From the overall situation of dealers, Dongpeng Beverage is still continuously strengthening the distributor layout in Guangdong, East China, Central China, North China, Southwest China and Northern China during the reporting period. However, combined with its sales situation, nearly 60% of the sales revenue still comes from Guangdong, and the market outside the Guangdong region still needs to be further developed.
According to the IPO investment project, the company also plans to build two production bases in Chongqing and South China to form a production capacity layout that radiates the whole country in Guangdong, Anhui, Guangxi and Chongqing. The total project investment of the production base is 1.237 billion yuan, and the total investment of the South China production base and the Chongqing Xipeng production base is 729 million yuan and 509 million yuan respectively.
For the project construction, Dongpeng Beverage said in the prospectus that the construction of the production base can alleviate the bottleneck of production capacity, improve the company's supply capacity, further expand the central and western regions, improve the layout of production capacity, and strengthen the scale effect to enhance the competitive advantage of the market.
Red Bull's leading position is difficult to shake in the short term
In recent years, the market size of Energy Drinks in China has been continuously improved, and the total sales amount of the energy drink market from 2014 to 2019 has increased from 465.216 billion yuan in 2014 to 578.560 billion yuan in 2019, with a compound growth rate of 4.46%. Among them, the compound growth rate of sales amount of off-site consumption of energy drinks reached 15.02%, which is one of the fastest growing sub-categories in beverages.
Source: Energy Drinks in China
According to Euromonitor International statistics, in 2019, there were 6 companies with a market share of more than 1% in China, namely Red Bull, Dongpeng Special Drink, Lehu, Physique Energy, War horse and Amway Group XS. Dongpeng special drink market share ranked second, second only to the industry leader Red Bull.
However, Red Bull occupies 57% of the market share, while Dongpeng Special Beverage only accounts for 15%, and the market position of the two is still far from the same. Although Dongpeng Beverage has established a certain competitive advantage in brand building, consumer reputation, marketing network and other aspects, there are still certain variables in whether the company can continue to maintain and respond to market competition and changes in a timely manner in the future.
Zhu Danpeng, an analyst in the Chinese food industry, believes that Dongpeng Beverage will not be able to surpass Red Bull in a short period of time or ten years. But Dongpeng will gradually open up the distance with Lehu.
Like brands such as Xicha and Yuanqi Forest, Dongpeng Beverage understands the needs and preferences of the new generation. Occupying the new generation of markets, we have mastered the future. Whether it is from the perspective of market development space, market share, or performance growth, Dongpeng Beverage still has great growth potential.
Disclaimer: In no event shall the information in this article or the opinions expressed constitute investment advice to any person.