The author | Munch
On May 2, Baiguoyuan, China's largest fruit retailer, submitted an application for listing to the Hong Kong Stock Exchange.
In Baiguoyuan, which is labeled "the most expensive fruit", a watermelon may sell for more than 100 yuan, but in fact, the company's earning power is not strong. In 2021, Baiguoyuan's revenue was 10.289 billion yuan, net profit was 226 million yuan, and the net profit margin was only 2.2%.
What is even more surprising is that on May 6, Baiguoyuan was exposed by the media for using spoiled fruits to make fruit cuts and sell moldy fruits, and then Baiguoyuan publicly apologized. Since 99% of Baiguoyuan's stores are franchise stores, the management ability of franchised stores has also been questioned by public opinion.
Unavoidably, Baiguoyuan is facing the fiercest market competition in the past 20 years - in addition to offline chains such as Hongjiu Fruit, it also includes a number of Internet giants: Daily Excellent Fresh, Dingdong Grocery Shopping have been successfully listed, and Meituan, Pinduoduo, JD.com, and Ali have spared no expense to attack the city in the fresh field.
Selling fruit, Baiguoyuan has been doing it for 20 years, and finally achieved the first in the scale of the industry, but the market share is only 1%.
At present, each of the giants is burning money in a big way, either subsidizing users with ultra-low prices or holding high to do market promotion. And Baiguoyuan did not choose to "face the front" with the giant, showing a "blunt feeling" of Internet thinking.
On the one hand, although Baiguoyuan has experienced many rounds of financing, it has always "not burned money" and has maintained profitability for three consecutive years from 2019 to 2021. The selling expense ratio remains at 4% to 5% of revenue.
On the other hand, although a comprehensive e-commerce system has been established, Baiguoyuan's revenue from online channels in 2021 is only 325 million yuan, accounting for 3.2%; 780,000 paid members, membership fee income will be 77.76 million in 2021, accounting for 0.8% of the company's revenue.
Baiguoyuan spent the most energy on a set of its own fruit rating system, as well as the layout of several upstream industrial chains - in Yunnan and Jiangxi have established their own orchards, and established 27 fruit category brands, of which the best are "red ballet strawberries" and "good branches apples".
However, compared with the popular "Dandong 99 Strawberries", "Light Snow Strawberries" and "Sunshine Rose Grapes", the "private brand" built by Baicaoyuan is somewhat laborious and undesirable.
In addition, unlike many chain brands that expand their stores on a large scale to "cut leeks" or burn money to open direct stores on a large scale, Baiguoyuan uses a "partnership system" to cooperate with franchisees, and even provides loans to its 815 franchise stores, accounting for 15% of the number of all stores, with an average loan amount of 220,000 yuan per house, which can cover 60% to 70% of the cost of opening a store.
In the early stage of development, the competition in China's fruit industry is highly fierce, and Baiguoyuan is a "maverick" existence.
01 Fruit, cheap or expensive?
Born in an ordinary peasant family in Jiangxi, Yu Huiyong has always had a "restless" heart.
This "restless" personality made him take the initiative to contract the long-term loss of the edible mushroom research base when holding the "iron rice bowl", and after leading the base to turn losses into profits, he carried the 200,000 yuan earned to go south to Shenzhen.
After experiencing two failed experiences of stock speculation and passenger accidents, Yu Huiyong entered the familiar agricultural industry, quickly promoted to the sales manager of Aidi Company, a food retail company, and germinated the idea of making a fruit retail chain.
He first told this idea to the boss of Aidi, and after being rejected, he found the largest fruit supply chain enterprise at that time, Xin Rongmao.
But the founder of Xin Rongmao, Liao Maohua, spent 100,000 Hong Kong dollars to ask a Hong Kong consulting company to conduct industry research, and came to the conclusion that the fruit chain was a loss-making transaction, and also rejected Yu Huiyong.
Yu Huiyong decided, then do it yourself.
At that time, the fruit chain retail market was still a blank, there was no precedent to follow, and Yu Huiyong, who began to start his second business in his life, embarked on the road of exploration that swayed left and right.
On July 18, 2002, the first store of Baiguoyuan opened in Shenzhen and earned 19,000 yuan in revenue. One month after opening, the monthly sales exceeded 400,000 yuan.
After opening 4 stores, the problem of fruit stores was gradually exposed, the store was flowing, but the profits were meager, and the conclusion of the loss-making business was not an empty phrase.
There are many reasons why fruit retail is difficult to be highly profitable.
According to Frost & Sullivan data, even now that cold chain logistics technology has been greatly developed, the loss rate of the fruit industry is still at the level of 35 to 45%.
At the same time, as one of the people's livelihood products, consumers are often more sensitive to the price of fruits.
"I don't care if I lose money by playing mahjong in the New Year, I go downstairs to buy fruit and pay a few more dollars, but I am angry to death." Yu Huiyong once described consumers' feelings about fruit prices in an interview.
Therefore, like many new brands, Baiguoyuan adopted a low-price strategy in order to attract customers and started a price war. But in this way, the already meager profit margin is further compressed.
Yu Huiyong's method of breaking the game is to recruit franchises, build chain brands, and achieve scale effects, thereby enhancing the bargaining power of Baiguoyuan as a retail end and reducing the cost of purchase.
In order to achieve this goal, Yu Huiyong set two policies - every "8" must be opened, open to 300 stores.
Yu Huiyong believes that "opening 300 stores, any one product can be transferred from the origin of the whole vehicle, which means that the cost is minimized and the quality is optimized." ”
For these franchise stores, "how to open a store I (Yu Huiyong) does not care, do not participate, as long as tell me when to open, I can cut the ribbon, only one, to open a chain of stores." ”
This practice of throwing hands at the treasurer quickly exposed its drawbacks. There is no unified governance regulations and standards, franchisees are chaotic, in order to increase profits, shoddy "stringing" behavior has become the norm.
By 2007, the number of Baiguoyuan stores exceeded 100, but the company lost money for 7 consecutive years, and the total loss reached 200 million.
Without waiting for Yu Huiyong to continue to grit his teeth and insist, a report by the central media exposing the use of domestic bananas as imported bananas by Baiguoyuan franchise stores became the first turning point of Baiguoyuan.
The report hit the brand image of Baiguoyuan hard and also raised a new question, in the minds of consumers, is the cheaper the fruit, the better? Why is it that the same banana, with an import label, is more than half as expensive, but consumers are still willing to pay for it?
Fruit is not only a people's livelihood product, but also has the added value of improving the quality of life and bringing pleasant emotions. Just like the cherry, the sunshine rose grape and the Dandong 99 strawberry that have become the social transportation goods, the fruit is no longer just a fruit, but also a representative of a way of life.
Consumers are willing to pay a higher premium for safe, tasty, premium fruit.
Baiguoyuan thus embarked on the high-end route of high quality and high price, and in three years, it has created a brand image of "safe and delicious" in the hearts of consumers.
If you want to let consumers consume with confidence, the protection of the rights and interests of return and exchange is undoubtedly the most powerful proof.
In 2007, Baiguoyuan proposed that customers who bought fruit in Baiguoyuan thought it was not delicious and could take the fruit to Baiguoyuan to return it. However, after eating the unpalatable fruit, it is better to keep it and return to the fruit store to return it, for most consumers, it is better to do more than less, and this measure has not had any effect.
In 2008, Baiguoyuan improved the return policy, no physical goods are required, as long as the receipt can be refunded.
By 2009, it was a step further, no need for a small ticket, no need for physical goods, as long as the reason for the lack of good food was clear, and the refund could be issued.
But this step is a little off, when the customer comes to the door to refund, it is easy to have verbal friction with the clerk.
Therefore, by the end of 2009, the reason was also abandoned, and the "three noes" return policy of No physical object, no receipt and no reason was formed.
Baiguoyuan data shows that after the implementation of the policy, the overall number of return customers did not increase sharply, but maintained at about 0.5%, and the return amount was less than 1% of sales.
The "three noes" policy has been recognized by consumers and has also become an important weight for Baiguoyuan to flaunt high-end.
02 Fruit shop, franchise or direct operation?
While moving towards the high-end route, Yu Huiyong also adjusted the expansion model of Baiguoyuan.
"Scale doesn't necessarily produce brands. Chain, not connected not big, not lock not strong, the core is lock, is the standard unity. This is the same as 'ten thousand small ships are not equal to aircraft carriers'. Yu Huiyong understood this truth with the tragic price of 7 years of losses.
In order to establish strict management standards from scratch, Baiguoyuan directly stopped accepting new franchises, and repurchased existing franchise stores, all of which were directly operated, and learned from the employee shareholding model of Haidilao Chain.
Outstanding employees are appointed as store managers and hold 20%-40% of the store's shares, directly involved in dividends. After the store began to profit, the share ratio between the company and the store manager even reached four or six points. And if the loss, the company bears 70%, the store manager bears 30%.
This model strengthened the store staff's sense of belonging to the Baiguoyuan brand and began to create a real chain brand.
The store construction design, fruit display planning, cold chain transportation and refrigeration preservation requirements of Baiguoyuan have all formed standards in this period.
More importantly, the core of the industrial chain, the fruit itself, has also formed a detailed fruit grading system and completed standardization.
In 2012, the number of Baiguoyuan stores nationwide finally exceeded 300, reaching the scale target set by Yu Huiyong.
In 2015, the number of directly operated stores in Baiguoyuan has exceeded 1,000.
The shortcomings of the asset-heavy direct operation model have been exposed, and Baiguoyuan has reached a negative critical point in terms of capital, operation and management.
As a result, Baiguoyuan, which has been established for 14 years, introduced external capital for the first time. In September, Tiantu Investment led a Round A financing of 400 million yuan in Baiguoyuan. In the following 5 years, Baiguoyuan has completed 7 rounds of financing.
Founded in 2014, Daily Excellent Fresh has received a total of 10 financings before listing, accumulating more than 10 billion yuan. According to its financial report, the performance cost of the large-scale expansion of the front warehouse accounts for the largest proportion of operating expenses.
However, the financing of Baiguoyuan did not "burn" in the opening of the store.
In 2016, Baiguoyuan proposed a 5-year plan of "the number of stores in 2020 will reach 10,000" and began to re-test the franchise model.
Before 2018, Baiguoyuan liberalized a small part of the traditional franchise model. That is, the franchisee invests in full, needs to pay a franchise fee of 50,000 yuan, and pays a franchise resource use fee at 3% of the sales, without the need to serve as a store manager.
By 2019, the franchise expansion of Baiguoyuan is more aggressive, franchisees can choose not to invest in full, but to joint venture with Baiguoyuan, the franchise fee has also been reduced to 30,000, the franchise resource use fee has also been changed to a step-by-step progressive collection, and franchisees are required to assume the responsibility of store manager.
In order to attract more franchisees and strengthen the connection between franchisees and brands, Baiguoyuan also provides interest-bearing loans to franchisees.
Under this model, the number of stores opened in Baiguoyuan has risen rapidly, and as of now, 5351 stores have been opened in 22 provinces and cities across the country, with the largest distribution network in the industry.
However, even so, this figure is nearly half way from the goal of "ten thousand stores".
At the same time as Baiguoyuan joined, the rise of fresh e-commerce and community group buying has impacted the entire fresh industry and stood on the stage of competition.
03 Fruit terminal, online or offline?
In fact, since 2008, Baiguoyuan has explored the possibility of e-commerce, like Amazon, which originally only sold books, to build an e-commerce platform for vertical categories of fruits.
However, at the beginning of 2015, Yu Huiyong admitted that although e-commerce has been working on it, it has never found a sustainable profit model, and the online layout mainly adopts the model of supply chain services for platform-based e-commerce.
This is because the high cost caused by the high requirements of fresh products for warehousing and logistics, and the characteristics of the fruit itself can not form a high premium, so that if the fruit wants to be sold online to achieve profitability, it is necessary to achieve a higher unit price.
The various types of full discount coupons often issued by fresh e-commerce companies such as daily excellent fresh and Dingdong groceries are actually a means to increase the unit price of customers.
However, the development strategy of letting the market continue until now, and the fresh e-commerce platform is still in a huge loss dilemma.
Baiguoyuan, which has been on the high-end route for more than ten years, has a unique advantage at this point, and consumers have corresponding psychological expectations for the price of their products.
In 2016, when Internet giants with great advantages in platform setting and logistics distribution have entered the fresh e-commerce market, Yu Huiyong published an article "My Thoughts on the Fruit Format", proposing that Baiguoyuan should develop to the "online and offline integration" model.
This model is similar to the integration of hema fresh stores and warehouses.
But Yu Huiyong believes that the advantage of Baiguoyuan is that the store is a warehouse, which directly eliminates the cost of building another warehouse.
In 2016, Baiguoyuan acquired the fresh O2O enterprise One Meter Fresh and introduced an e-commerce team headed by Jiao Yue. According to the prospectus, Jiao Yue is still the executive deputy general manager of Baiguoyuan and is responsible for the online and offline integration business operations.
Baiguoyuan has high hopes for this merger and acquisition, hoping to make up for the shortcomings of the platform technology.
However, before the acquisition of Baiguoyuan, the operation of one-meter fresh was actually in jeopardy.
Founded in 2014, Yimi Fresh fell into operational difficulties in early 2016, constantly laying off employees and starting to look for buyers. After contact with Wumart was rejected, contact with Baiguoyuan began in June.
Since then, Baiguoyuan has made many online attempts, including the Baiguo Xinxiang App that extends to the vegetable field and the Panda Daxian App that expands to the field of big fresh food, but now it has disappeared.
Baiguoyuan, which started in the traditional retail industry, still seems to have failed to develop Internet thinking.
This can also be seen from the fruit grading system of "lonely and self-congratulatory" in Baiguoyuan.
Although it has always wanted to get more brand premiums with high-quality fruits, and launched signature products such as Daba Musang King Durian, Red Ballet Strawberry, Fragrant Jade Qingti, etc., and has also made many marketing attempts, the fruits of Baiguoyuan have never been able to "go out of the circle".
For example, the fragrant jadeite green tip launched in 2020 is actually an A+ grade sunshine rose grape, but in 2021, the sunshine rose is on fire, and the fragrant jadeite is still unknown.
Online, Baiguoyuan has never been able to tell the story that the capital market wants.
However, there is no persistence in doing what is not good at, and perhaps it is an opportunity for Baiguoyuan to stand out.
When the goal of Wandian joining was proposed, it was doomed that Baiguoyuan would no longer be a "special supply" in first- and second-tier cities. When the impact on the capital market, Baiguoyuan began to sink the market.
Baiguoyuan began to implement four different stores in parallel, namely experience stores, high-end stores, ordinary stores and simple stores. Among them, the simple store is a new storefront aimed at the third and fourth-tier cities.
In 2021, nearly 30% of the newly opened stores in Baiguoyuan will be opened in third- and fourth-tier cities, and in 2022, the number of new stores in the third- and fourth-tier lines will account for more than 40%.
Jiao Yue said in an interview with the media that the simple stores of Baiguoyuan have no difference in fruit quality and service standards, but will adjust the proportion of fruit categories.
In detail, the fruits of Baiguoyuan come from four channels: global harvesting, national collection, local procurement and market procurement. Among them, the imported types of global harvesting and the well-known types of national unified harvesting are often the categories that support the high quality and high price of Baiguoyuan.
In the sinking market, Baiguoyuan will introduce more regional peripheral goods, thereby reducing commodity pricing.
Jiao Yue said that this will not affect the high-end positioning of Baiguoyuan, because the positioning is relative, and Baiguoyuan can still do the high-end positioning in the local market.
For Baiguoyuan, its breakthrough may eventually be offline, in the fruit itself.