At present, the growth of the halogen products industry has slowed down, and the future competitive strategies of several major leaders are surprisingly consistent: accelerating the expansion of franchise chains and suppressing competitors in a scale manner, which dooms participants to sacrifice part of their profit margins in exchange for market share.
Following the landing of the three giants of Absolute Taste Food (603517.SH), Zhou Black Duck (01458.HK), and Huang Shanghuang (002695.SZ) "Brine" in the capital market, there is recently another brine that wants to sprint A shares, which includes well-known flavor products such as husband and wife lung slices, Baiwei chicken, and rattan pepper chicken. Yes, it's Purple Swallow Food.
Since Ziyan Food entered the marketing counseling period in July 2020, it has lasted one and a half years. According to the latest information disclosed by the CSRC, Ziyan Food has entered the stage of submission and review, and the listing process has been further accelerated. Once successfully listed, the "Big Three" will become "Four Kingdoms Kill".
At present, the growth of the halogen products industry has slowed down, and although the competition pattern of the industry is scattered, it also tends to solidify. Head enterprises, including the "big three" of brine flavor, have accelerated the chain to join this asset-light model, intending to find a breakthrough in the stock market.
Similarly, Ziyan is no exception. As the "old third" of the halogen products industry (the international consulting agency Frost &; Sullivan 2018 halogen products industry research report, Ziyan food market share of 3%, ranking third), 2020 revenue of 2.6 billion, net profit of nearly 400 million, two indicators and more than Zhou Black Duck, Huang Shanghuang. At this time, what kind of "ambition" does it have when choosing to go public?
Capital reproduces the myth of tens of billions of riches
The most important thing in the capital market is the myth of wealth creation. As far as the halogen products industry is concerned, the listing of Zhou Black Duck has made the founder Zhou Fufu worth nearly 10 billion; in 2016, the market value of Huangshanghuang soared to 15 billion, and the value of the founder Xu Guifen's family also rose, exceeding 7 billion.
On the other hand, Ziyan Food, a typical family business, will also be expected to see a sharp increase in value after listing.
As an old brand with more than 30 years of development, Ziyan Food originated in Sichuan, originated in Nanjing, and the current management has gone through two generations of the family, the first generation of founders is Zhong Chunfa and his wife, and the current second generation of Zhong Chunfa's son Zhong Huaijun.
According to the data of enterprise investigation, among the top ten shareholders in the shareholding structure of Shanghai Ziyan Food, except for the eighth and ninth who have nothing to do with the actual controller, the rest are related to the Zhong Huaijun family.
Image source: Qi Cha Cha
The major shareholder Ning Guochuanqin has only partners Zhong Qinchuan and Zhong Qinqin, with a shareholding ratio of 55% and 45% respectively. Zhong Qinchuan and Zhong Qinqin are the children of Zhong Huaijun and Deng Huiling. The same fourth largest shareholder, Ning Guoqinsu, is also the same cooperative structure. The fifth largest shareholder, Ge Wuchao, is the husband of Zhong Qinqin.
Zhong Qinyuan and Zhong Qinru, two partners of the sixth largest shareholder, Ning Guoyuanru, are the children of Zhong Huaiwei (Zhong Huaijun's younger brother).
Zhong Huaijun, the seventh largest shareholder, Shanghai Huaiyan, holds 47.50% of the shares, and the remaining shareholders Cui Junfeng, Cao Pengbo and Zhou Qingxiang are all senior executives of Ziyan Food.
The tenth largest shareholder, Ning Guoguan, is also Zhong Huaijun, holding 44.62% of the shares (there are still Zhong family holding enterprises in addition to the top ten shareholders, but the shareholding ratio is small, so only the top ten shareholders are counted).
Taken together, the Zhong family, the top ten shareholders, holds a total of 88.63% of the shares.
In addition, according to public data, Ziyan Food has also undergone multiple equity financing, investment institutions include Kangxu Capital, Longbai Capital, Hongzhang Capital, Julin Chengze, Jiaxing Zhilu, etc., but the proportion of external capital equity is very low.
According to the foregoing, the current market share of the overall industry of Ziyan Food is the third, even according to the market value of the "big three giants" Zhou Black Duck of 12.106 billion, the founder's family value is at least more than 10.7 billion.
Husband and wife lung tablets support "a piece of the sky", and the growth depends on the reduction of fees and price increases
Ziyan food is not unfamiliar to everyone, Ziyan and Absolute Taste Zhou Black Duck have become the daily brine consumption distribution center. The logos of the store "from Leshan, Sichuan" and "Jiazhou, Sichuan" are particularly eye-catching, and have almost become the standard decoration of the store. It aims to highlight the flavor characteristics represented by Sichuan brine.
Unlike the scene of casual consumption of the same industry's absolutely delicious food, Huang Shanghuang and Zhou Black Duck, Ziyan mainly serves cooked food with meals, and the signature product is husband and wife lung tablets.
According to the prospectus, in recent years, the revenue of husband and wife lung tablets has accounted for more than 30%, which is a veritable "ballast stone".
Other revenues include whole poultry products such as flavor chicken, rattan pepper chicken, purple swallow goose, etc., which account for nearly 30%; spicy leisure products such as tiger skin tiger claw and overlord duck neck; other fresh goods and pre-packaged products such as sauce-flavored beef.
Source: Ziyan Food Prospectus
From the perspective of specific segmentation, the husband and wife lung tablets and whole poultry meal business is the company's main focus, and spicy leisure and other fresh goods are cultivation business, accounting for a relatively low proportion.
From 2018 to 2020, the compound growth rate of the four major businesses was 13.4%, 15.22%, 3.53% and 13%, respectively. That is to say, the core of the company's growth is still dependent on the income of husband and wife lung tablets and whole poultry.
It should be noted that the growth of revenue is very much related to price increases, and the rapid growth of franchise stores has not contributed much performance increment in the short term.
Especially in 2019 and 2020, the price of husband and wife lung tablets in the distribution channels increased by 12.5% and 9.06% respectively, and the price of whole poultry increased by 4.35% and 5.34%, respectively. In 2020 alone, the unit price of franchised stores increased by 12.64%.
Source: Ziyan Food Prospectus
At the same time, the number of franchise stores increased from 2849 at the end of 2018 to 4365 at the end of 2020, a total increase of 53.21% in two years, but the corresponding sales volume did not increase significantly.
Taking the distribution channel as an example, the sales of husband and wife lung tablets and whole poultry have increased by only 7.02% and 22.36% in the past two years.
Although the new store is basically in the cultivation period at the beginning, it is not stable in operation and management, and it is not expected to contribute too much increment, which is already common knowledge in the industry. But there is also a set of data, although the number of new stores has increased, but there are also many exits.
From 2018 to the first half of 2021, 940 new franchised stores, 1,053, 1,226 and 633 were added, and the number of withdrawals was 193, 391, 372 and 273, and the proportion of withdrawals and new stores was 20.53%, 37.13%, 30.34% and 43.13% respectively.
The increasing proportion of exits has further increased the volatility of sales expectations.
In addition, due to the short shelf life of food with meals, in order to alleviate the pressure on franchisees to buy goods, Ziyan Food allows expired goods in sales to be returned at 50% of the purchase price, which is also different from the tasteless and Huangshanghuang.
The high rate of new store closures and return policies has led to new franchisees not effectively contributing to sales growth.
In addition, the statement does not specifically explain the sharp rise in performance in 2020. In 2020, the company's net profit attributable to the mother was 389 million, an increase of 182% year-on-year. The current price increase does not support the substantial increase in performance, and the bigger secret lies in the control of expenses.
Source: Ziyan Food Prospectus
The prospectus shows that in 2020, the selling expenses and administrative expenses decreased by 74 million and 108 million year-on-year, which makes sense to consider this, and then the comprehensive price increase factor makes sense.
There are hidden concerns in the distribution channel model, and short-term expansion is faster than the solvency test
Different from the direct franchise model of other competitors such as The Black Duck of the Absolute Taste Week, Ziyan adopts the dealer management model, that is to say, a dealer checkpoint is added between itself and the franchise store, forming a two-level channel network of "company -dealer-terminal franchise store".
The sales relationship between Ziyan and the dealer is a regional buyout, and does not sell directly to the terminal franchise store. The distributor is responsible for the development of the regional market and the management of franchise stores, including store decoration, staff training, external publicity, market promotion and other store operation requirements.
The actual relationship between Ziyan and the terminal store is only brand authorization and product delivery.
As of the first half of 2021, the number of dealers in the company is 98, including 10 dealers of former employees. The average number of terminal franchised stores managed is 31.
The so-called former employee dealers are Ziyan's original marketing team. Before 2016, Ziyan adopted the direct franchise model, but due to the increasing number of dealers, it was inconvenient to manage, so it was changed to the dealer management model.
Dealer management model has pros and cons. Profit, as the prospectus says, saves the corresponding management expenses. But the problems are just as big.
One is that Ziyan does not directly manage terminal stores in management, such as employee training, company system and other issues are fully handed over to dealers, and lax management may lead to problems in personnel management, hygiene and quality control.
Typical examples include the problem of rats scurrying in the window of Shanghai Huguang Road store in September 2021; the total number of Ziyan Baiwei chicken colonies and coliform colonies sold on a platform in March 2017 that seriously exceeded the standard; the red oil shoot silk microbial test produced in November 2018 failed to pass the test and was fined 20,000 yuan.
A series of problems show that the company's quality control and quality inspection still need to be strengthened.
It is also very important that the increase in intermediate channels will inevitably affect the profitability of the company, such as the level of gross profit margin. During the reporting period, the gross profit margin of Ziyan Food has been 30% and below (it has reached 30.45% in 2020), and the company's gross profit margin in the first half of 2021 is 27.09%.
The peers of Absolute Taste Food, Huang Shanghuang and Zhou Black Duck were 34.61%, 33.97% and 59.00% respectively, compared with Ziyan, which was significantly lower.
The core point of the franchise channel model lies in the overall profit distribution, and the increase in intermediate channels will affect the channel profit distribution policy.
In addition to the unified manufacturer's factory price, there are dealers who independently formulate the wholesale price and terminal retail price of franchised stores in their respective regions, and report to Ziyan for approval and filing.
The increase in intermediate channels corresponds to the increase in rebate incentive expenditure, eroding gross profits. The company's rebates on channels include purchase rebates, store rebates, promotional rebates and so on.
According to the prospectus, from 2018 to the first half of 2021, the company's discounts and rebates were 0.75 billion, 103 million yuan, 212 million yuan and 112 million yuan, accounting for 3.72%, 4.21%, 8.11% and 7.99% of the total revenue, respectively.
In fact, increasing the dealer hierarchy is theoretically intended for better management, but the situation where administrative expenses are significantly higher than sales expenses is also intriguing. Management expenses during the reporting period were 190 million, 240 million, 132 million and 67 million, respectively, which were 1.62, 1.75, 2.1 and 1.41 times the sales expenses in the same period.
At the same time, the increase in short-term current liabilities caused by the rapid development of Ziyan is also worrying. According to the prospectus, the company's current liabilities in the first half of 2021 were 774 million, while the funds on the account in the same period were only 189 million, even if the company's net operating cash flow of 193 million yuan was fully calculated, it was not enough to cover.
From the perspective of the overall asset-liability ratio, Ziyan was 52.28% in the same period, while 13.4% of the same industry's tasteless food, 23.42% of Huangshanghuang, and 38.43% of Zhou Black Duck, which were much higher than the competitors in the same period.
At the same time, in the first half of 2021, the company's two important short-term debt repayment indicators, the current ratio and the quick ratio were 0.66 and 0.49, respectively, which were far lower than the averages of 3.51 and 2.78 of listed companies in the same industry, including Absolute Taste Food and Huangshanghuang, which were seriously lower than the industry average, indicating that the short-term solvency had encountered a serious test.
The company's explanation for this is due to the construction of new production bases and the purchase of machinery and equipment.
Admittedly, from the net cash volume of investment/financing activities during the reporting period, it can be seen that the company's pressure to repay cash debt is relatively large, and it is still -310 million in the first half of 2021, with no signs of improvement. Investment expansion activities have also been more aggressive in recent years, with a slight ease in the first half of 2021.
Therefore, for this Ziyan IPO listing, the first thing to solve is the debt problem rather than the capacity problem.
Conclusion: The road to horse racing can not turn back
At present, the growth of the halogen products industry has slowed down, and the future competitive strategies of several major leaders are surprisingly consistent: accelerate the expansion of franchise chains, suppress competitors in a scale manner, and exchange market share.
According to Frost & Sullivan's research on China's halogen products industry, the compound annual growth rate of the industry from 2015 to 2019 is only 7%, and the future industry growth expectations will certainly not be too optimistic in the past two years due to the impact of the epidemic and economic downturn.
In the store planning of the "three giants" of Absolute Taste Food, Huang Shanghuang and Zhou Black Duck, there is already a "scale expansion competition".
Among them, Ziyan Food plans to open 10,000 stores by 2025, and by the middle of 2021, the number of Ziyan stores nationwide will exceed 4,700.
That is to say, in the next four years, more than 1,000 stores will be added every year; 13,136 will be added in the same period of tasteless food, and it is planned to add 1,500 to 1,800 stores per year in the future; 4,840 in Huangshanghuang, which is planned to add 1,500 stores per year by 2025, reaching the goal of 10,000 stores; and 2,270 Zhou Black Duck, which is planned to add 1,000 stores per year.
Such a race between industry giants also predicts the inevitable of a scuffle. According to Frost & Sullivan industry research data, CR5 is only 21%, and the market share of leading tasteless food is 8.5%.
The crazy store expansion plans of other giants are naturally not far behind. Under the expectation of slowing down the growth rate of the industry in the future, this "inner volume" war will be more intense than expected.
Source: Frost & Sullivan Industry Research Report
This article originated from the Alpha Workshop Institute