Image source @ Visual China
Wen 丨 Kai Pineapple Finance (ID: kaiboluocaijing), author 丨 Wu Jiaoying, editor 丨 Jin Jiepan
The spicy story of the alley finally talks about the listing page.
A few days ago, Shanghai Yang Guofu Enterprise Management (Group) Co., Ltd. submitted a listing application to the Hong Kong Stock Exchange, officially sprinting for the "first hot share".
A northeastern couple who once made a living from stalls have achieved the spicy hot business that originated in Sichuan to the whole country and even overseas, opening 5783 stores. The story sounds quite inspirational, but the business behind it is not very clever.
The large-scale franchise system and the extremely asset-light chain operation have enabled Yang Guofu to expand rapidly at the lowest cost and seize market share and head position. To put it bluntly, Yang Guofu earns all the money of franchisees, such as collecting franchise fees, selling ingredients, and reselling ingredients.
5780 franchise stores, creating about 1.1 billion yuan in revenue for Yang Guofu every year, and the net profit margin of the brand is as high as 15%-17%. For franchisees, it seems that there is no loss. According to Yang Guofu's official website, the gross profit margin of its franchise stores is as high as 65%, the initial investment is 100,000-300,000, and the monthly net profit is 100,000-40,000, and under normal circumstances, it will return to the capital in 7 months.
Yang Guofu's spicy hot business is booming, but there has been no financing before listing, in the eyes of capital, spicy hot is not a good track, both because the category ceiling is relatively low, but also because the profit margin contributed by the store to the brand under the franchise model is too small.
In the future, Yang Guofu's uncertainty in the capital market is also considered to come from this large-scale franchise model of management cost sharing and management decentralization, such as the food safety risks it may bring, the non-compliance phenomenon of franchised stores, the challenge of continuing to scale the brand's internal management ability, and the "high price is not high-end" to persuade consumers.
Yang Guofu earns 1.1 billion yuan per year, and "Xue" is self-franchised
Back in 2003, Mr. and Mrs. Yang Guofu opened the first spicy hot shop in Harbin. At the beginning, the name was "Yang Ji Spicy Hot", there was no memory point, the boss simply named it after himself and changed it to "Yang Guofu Spicy Hot".
The couple made some improvements to the spicy scalding that was popular in the northeast at that time, with less oil and more soup at the bottom of the pot, and staple foods such as noodles, which was more in line with the eating habits of northerners, and became their signature later - "spicy hot that can be drunk".
Yang Guofu, who did a good job, had his first franchise store in 2007 and spread rapidly in the streets and alleys across the country in the next 15 years. According to the prospectus, Yang Guofu currently has 5783 stores, except for 3 directly operated stores in Shanghai, the rest are franchise stores, of which 21 are open overseas.
Yang Guofu spicy hot AMERICAN store Source / Weibo
It is also these 5780 franchise stores that support almost all of Yang Guofu's spicy and hot revenue.
According to the prospectus, in 2019, 2020 and January to September 2021, Yang Guofu's spicy hot revenue was 1.18 billion, 1.11 billion and 1.16 billion, respectively, of which the revenue contributed by franchisees accounted for about 90% every year, reaching 1.04 billion, 1.06 billion and 1.1 billion, respectively.
The majority of Yang Guofu's income is the "raw material price difference" earned from franchisees. According to the name of the prospectus, there are three major blocks, one is to collect franchise fees, system maintenance fees, training fees, security deposits, etc. from franchisees; the second is to sell raw materials to franchisees, mainly the raw materials produced by Yang Guofu's self-operated factories; the third is to resell raw materials and equipment to franchisees, which require franchisees to purchase raw materials from brands in a unified manner.
During the reporting period, Yang Guofu collected various fees such as franchise fees every year, about 0.5-0.6 billion; the sales income of self-produced raw materials was about 300 million; and the resale of raw materials and equipment earned the most, reaching about 700 million.
Yang Guofu revenue composition Source / Prospectus
However, Yang Guofu, who adopts the franchise model and mainly makes money by reselling raw materials, naturally has a much lower gross profit margin than that of traditional Chinese catering enterprises directly operated. In 2019, 2020 and January-September 2021, its annual gross profit was 330 million, 320 million and 350 million, respectively.
The corresponding gross profit margin increased during this period, from 27.9% in 2019 to 30.2% in 2021, because Yang Guofu's factory in Chengdu, Sichuan Province, was put into operation in September 2018, and as the production line and output increased, the scale effect was revealed, and the marginal cost was continuously reduced.
In the view of Li Yingtao, research director of the brand retail industry center of Analysys, the flow data of enterprises that make money by joining will not be too good, but for Yang Guofu in the expansion stage, the franchise model is almost an inevitable choice.
The asset-light franchise model has indeed allowed Yang Guofu to minimize expenditure. At the same time, because franchise stores are self-financing, this model can also help enterprises hedge some risks, such as sharing the cost burden of manpower and rent for enterprises during the epidemic.
For example, the company currently has 464 employees, but the cost of employees is only more than 30 million per year; its research and development expenses are less than 2.5 million in the first three quarters of 2021, compared with 630,000 in 2019; advertising and marketing expenses are less than 5 million in the first three quarters of 2021, and even only 770,000 in 2019.
Under low-cost operation, Yang Guofu's profit during the reporting period reached 180 million, 170 million and 220 million, and the net profit margin was as high as 15%-17%. Compared with other Internet celebrity catering brands, Yang Guofu can indeed be said to be "making a small amount of money in a muffled voice".
Li Yingtao analyzed that the golden time for the rapid rise of an industry is only 3-5 years, and the franchise model is more conducive to Yang Guofu's market sinking, quickly seizing market share through scale, and this is also in line with the cost-effective attributes of spicy hot products in public perception.
From the perspective of store distribution, the sinking trend of Yang Guofu's market is indeed more obvious. According to the prospectus, 45% of its stores are distributed in third-tier cities and below, 43% of its stores are in second-tier cities, and only about 12% of its stores are distributed in first-tier cities.
The gross profit of the store is 65%, why does the capital not love spicy hot?
Yang Guofu earns money by joining, so is the franchisee "cutting leeks"?
According to Yang Guofu's official website, the cost of joining its stores is not high, with 23,900 yuan in first-tier cities, 13,900 yuan in second- and third-tier cities, 10,900 yuan in county seats, 6,900 yuan in townships, and 39,900 yuan in Beijing. Combined with the security deposit, advertising and publicity fees, equipment, pre-raw materials and decoration, rent, manpower and other expenses, the total investment amount ranges from 109,200 yuan to 281,900 yuan.
In addition, according to the profit analysis of its official website, the gross profit margin of franchise stores can reach 65%, which is roughly in line with the average gross profit margin of the industry learned by Kai Pineapple Finance. In Beijing, first-, second- and third-tier cities, counties and townships, the unit price of customers is calculated according to 20 yuan, 18 yuan, 16 yuan, 14 yuan, 12 yuan and 10 yuan respectively, and the net profit of normal passenger flow can reach 158,400 yuan to 489,600 yuan respectively. According to this estimate, the return cycle of a Yang Guofu spicy hot franchise store is about 7 months.
Yang Guofu spicy hot franchise profit analysis Source / Yang Guofu official website
In the prospectus disclosed this time, Yang Guofu did not announce the average annual revenue and unit price of franchised stores, but measured the operational performance of franchised restaurants by unifying the sales of goods purchased by franchisees to the brand.
Taking the first three quarters of 2021 as an example, the average annual purchase amount of each store is 315,000, which is the cost of raw materials for a store. According to the gross profit margin of 65%, the revenue of a store in three quarters is about 900,000 yuan and the annual revenue is about 1.2 million, which is basically consistent with the profit analysis given on the official website.
Many analysts believe that for franchisees, spicy hot is indeed a good business.
"Spicy hot is a daily fast food, the ingredients are relatively rich, the consumer acceptance is high; the degree of standardization is high, it is easy to be copied, and it is addictive." In addition, this category has lower requirements for chefs and service personnel than other Chinese food, and labor costs are also lower. Li Yingtao pointed out that the most important thing is that the gross profit margin is relatively high.
Of course, this is also the reason why Yang Guofu can quickly open stores and form large-scale chain formats through joining.
Yang Guofu spicy hot standardized product raw materials Source / Prospectus
The spicy hot that makes franchisees flock to it is not "fragrant" in the eyes of capital.
In the past two years, the Chinese catering industry has been unique in the capital market, and hot pot, barbecue, noodle restaurant, and brine have been invested all over again. The market size of nearly 200 billion yuan of spicy hot, but few people asked.
According to public information, only two brands in the spicy hot industry have received financing, among which the small wild pepper spicy hot, which was founded in 2015, has obtained 3 rounds of financing from 2018 to 2021; in addition, Fuke spicy hot has received a financing of tens of millions of yuan in 2017. The two major industry giants, Yang Guofu and Zhang Liang, have never had financing experience.
"The problem is on the supply side." Ling Xiao, an investor in the catering field, told Kai Pineapple Finance.
The first is the issue of business model. Ling Xiao analyzed that if the direct operation model is adopted, the brand will face a relatively long capital cycle, and it will also take into account regional site selection, store management, etc., and the expansion will be very slow. However, if the franchise model is adopted, the raw material cost of the store is the brand's supply chain income, and the high gross profit of the store means that it contributes less to the profit of the brand. "Even if Yang Guofu is so large, nearly 6,000 stores contribute 1.1 billion yuan a year, which is not much."
In addition, the game between franchisees and brands is difficult to avoid. "In fact, it is difficult for brands to fully control the choice of ingredients and supply chain in stores, and some franchisees may bypass managers to purchase their own in order to reduce costs, and the result is that product quality becomes difficult to control." Ling Xiao said.
The existing competitive landscape in the industry has also dissuaded many investors. In the past two years, the pyramid of the spicy hot industry has obvious characteristics, the head position has been occupied by Yang Guofu spicy hot and Zhang Liang spicy hot, and the waist and tail have been shared by more street spicy hot shops. Ling Xiao commented, "The track is basically formed, the incremental space is not large, and it is more difficult to differentiate. ”
Joining often overturns, high prices are not high-end, and Yang Guofu's listing road is not good
Large scale, can make money, few opponents, does not mean that Yang Guofu can sit back and relax.
Judging from the prospectus, the loyalty of franchisees to Yang Guofu is not high. In 2019, the number of new stores opened and closed was 986 and 1068, respectively, and by the first nine months of 2021, 962 new stores and 439 stores were closed. At the same time, there are more and more stores that have been operating for less than two years, and fewer and fewer stores that have been open for more than three years.
Many analysts believe that There is great uncertainty about Yang Guofu's performance in the capital market, the first of which is the hidden worry of the large-scale franchise model.
According to the prospectus, Yang Guofu does not directly manage a large number of franchised stores, but hires and authorizes third-party enterprises to assist in the management and supervision of the operation of franchised stores. Generally speaking, the authorization management period is 1 year, and the service fee paid by the brand to the third-party enterprise is directly linked to the performance of franchise stores, the purchase amount and the number of new stores. As of the end of September 2021, it had 18 third-party partners.
Cooperative control of the regional franchise management model Source / Prospectus
Under this management system, Yang Guofu needs to spend about 40 million yuan in service fees to third-party enterprises every year, but the cost of employees is greatly reduced.
"This model is equivalent to sharing the cost of management, allowing a third party to assume management functions, and also obtaining so-called management profits." However, at the same time, it also reflects that the organizational ability of an enterprise company is relatively poor, and there is no strong cross-regional management ability and self-built team ability. Ling Xiao analyzed.
Under this franchise management system, in the past few years, Yang Guofu's spicy scalding has been repeatedly exposed to food safety problems.
In 2017, more than 20 of its stores were exposed to the problem of inconsistent licenses on the takeaway platform; in 2018, one store was exposed to employees putting their feet on the desk when cutting meat; in July 2021, a blogger secretly visited its stores and photographed the problems of continued use of ingredients after being bitten by rats in the back kitchen, washing rags used to polish shoes, and meat being cooked directly without washing.
Blogger @ Insider Picket Bureau secretly visited Yang Guofu spicy hot store kitchen source / video screenshot
In August last year, according to the State Administration for Market Regulation, the market supervision departments of 11 places in Guangdong and Shanghai investigated 3323 Yang Guofu spicy hot stores in their jurisdictions, ordered 841 rectifications, and filed 24 cases for investigation. In September, three more Beijing stores were fined for violations such as food scraps in tableware.
"The attention of listed companies is higher and more concentrated, and once food safety or product quality problems occur, the volume of public opinion will be rapidly amplified, which will have a negative impact on stock prices." Li Yingtao said.
He believes that Yang Guofu's franchise model still has two problems to be verified, one is whether the management and control of franchisees by enterprises after listing can be continuously stable and in place, "the more it develops to the later stage and the larger the scale, the less stamina and the weaker the explosive force." "Second, listed enterprises must comply with the law, and some non-compliance phenomena existing in existing franchisees must be corrected, which also tests the management and control capabilities of enterprises."
Ling Xiao believes that the performance of enterprises in the secondary market is related to their growth in the long run. "At present, Yang Guofu does not have a second growth curve, and the ceiling of this category of spicy and hot is relatively low, even if the size of the store doubles after three or four years, it is difficult to see profits rise."
When the ceiling of scale gradually appears, Yang Guofu's income-increasing strategy seems to be moving towards the other end of the scale - raising prices. Judging from the feedback of some consumers, although it is weighed by the pound, the price is not transparent and is becoming more and more expensive.
The franchise profit analysis table on its official website shows that the per capita consumption of the Beijing store with the highest unit price is only 20 yuan. According to the prospectus, Yang Guofu's three directly operated stores in Shanghai have had unit prices of 34.3 yuan, 32.3 yuan and 29.3 yuan respectively in the past three years. But this price is different from the feedback of many consumers, on social platforms, there are many consumer feedback, a normal amount of spicy hot usually can reach forty or fifty yuan. Even in the county seat, the price of a piece can easily reach more than 30 yuan.
Consumers call Yang Guofu "getting more and more expensive" source / Little Red Book
Consumer Pei Pei told Kai Pineapple Finance that according to her observation, Yang Guofu's spicy and hot price-performance ratio is only based on the large full reduction of the takeaway platform. The takeaway order she showed to Kai Pineapple Finance showed that a Yang Guofu spicy hot dish that included nine dishes usually cost about 50 yuan, and the platform and store subsidies were usually discounted by 20 to 30 yuan. "But I once stopped by the store to eat, and I was stunned to take more than 50 pieces of food and order it." She added.
In Ling Xiao's view, the price of the spicy hot category has a ceiling, and it is unlikely to tell a high-end story. "The concept of affordable fast food has been deeply rooted in the hearts of the people, and brands may slowly raise prices according to supply and demand or with confidence in products, but when consumers find that the gap in psychological expectations is too large, it is likely to reduce the frequency of consumption."
"The way to play first and then mention value is more suitable for the early stage of the rapid development of the industry, and after the scale and profit stability, the enterprise must cultivate the 'internal strength', otherwise the future development pressure will be very large." Specific to Yang Guofu, in Li Yingtao's view, perhaps the first step is to enhance channel control and direct profitability, such as slowly reducing franchise stores and increasing the proportion of direct stores.
Note: At the request of the interviewees, Ling Xiao and Pei Pei are pseudonyms in the text.