"Fruit sellers" is an ancient and huge group, and now the three giants in the industry, "South Hundred Fruits, North Xianfeng, and Xihong Jiu", are sprinting through the capital market.
However, "Xihong Jiu" may have to be the first to board. On 3 August 2022, Chongqing fruit distributor Hongjiu Fruit Co., Ltd. (hereinafter referred to as Hongjiu Fruit) passed the listing hearing on the Main Board of the Hong Kong Stock Exchange.
According to public information, Hongjiu Fruit was founded in 2002, and the founder Deng Hongjiu first helped people pick and unload goods at The Chaotianmen Wharf in Chongqing, and after earning the first bucket of gold through wholesale red oranges, he started a fruit wholesale business. In 2005, Deng Hongjiu targeted imported fruits.
Guangzhou Jiangnan Wholesale Market is a primary market for imported fruit wholesale, accounting for 70% of China's imported fruit trading volume. In the early years, Deng Hongjiu had to import fruits wholesale from Guangzhou to Chongqing. It was not until 2011 that Deng Hongjiu realized that the secondary wholesalers of fruit did not have price advantages, quality advantages and quantity advantages, and the customer source was gradually reduced, which decided to lay out the origin and become a "cargo owner".
Hongjiu is mainly engaged in imported fruits from Southeast Asia, accounting for more than half of the revenue, and durian is the category with the largest income among core fruits. Hongjiu is the largest distributor of durians in China, and for every 10 durians Chinese eat, almost 1 originates from Hongjiu.
Jiang Jun has been out of the fruit industry for four or five years, and he was one of the largest distributors in the Jiangnan fruit market in Guangzhou, when "those who are famous for durian distribution in South China have not heard of Chongqing people." He asked friends who are still in the industry and learned that around 2019, Hong Jiu began to emerge in the industry.
How can Hong Jiu expand the scale of distribution in just a few years?
1. Scale effect
Around 2016, Cheng Qing, an investor focusing on the fresh track, looked at the downstream Red Sea and began to look at the upstream enterprises of fresh food, and Hong Jiu "was still a company with an annual revenue of one billion yuan at that time, and the scale in the fruit industry was not large."
According to the prospectus, Cheng Qing holds 51% of the shares of Qingdao Gaohong, who is one of the general partners of Chongqing Tengrong, an investor in Hongjiu Fruit.
At that time, Deng Hongjiu had been groping in Thailand for 5 years, and the core fruit was longan. Deng Hongjiu once clearly stated in an interview that "only Southeast Asia, the first choice is Thailand".
Cheng Qing found that Deng Hongjiu established a bilateral market in the process of purchasing longan from Thai fruit farmers, thus bringing about scale effects.
In an interview with CCTV, Deng Hongjiu once explained the bilateral market: Upstream, he set up a factory in Thailand and hired people familiar with Sino-Thai bilingualism as professional managers to win the trust of local fruit farmers and receive a large number of longans from scattered fruit farmers. Every year, he receives 35,000 tons of fruit from Thailand, and in order to digest these tens of thousands of tons of goods, he has cooperated with the wholesale markets of more than a dozen provinces to supply them.
Today, Hongjiu Fruit introduces its sales channels covering 300 cities on its official website, and has established 19 sales branches and 60 urban sorting centers.
All along, fruit wholesale pays attention to the principle of proximity, and most wholesalers in China have been deeply rooted in the local area, serving the surrounding areas, and have distinct regional characteristics. Hong Jiu also introduced in his prospectus that there are about 300,000 fresh fruit distributors of different sizes in China, most of which are regional and difficult to expand across regions.
"There are very few players with ambitions to swallow upstream and downstream supply chains." Cheng Qing found in his early due diligence that on the one hand, because fresh fruit distribution requires huge funds, there are many levels of distribution chains, and each level has a large number of players to share the financial pressure. On the other hand, most fruit dealers start from the bottom, they are used to being in a quiet corner and making money in the comfort zone.
"Once someone can connect the upstream and downstream, it is possible to obtain a high market share in the fruit distribution market." Cheng Qing said that in addition to longan, Deng Hongjiu's imported Southeast Asian fruits later gradually covered durian, mangosteen, dragon fruit and so on. China's durian consumer market is growing rapidly, and in 2019, durian became the category with the highest revenue contribution under Hongjiu Fruit Products.
"When the market is good, the Jiangnan wholesale market has 120 cabinets a day, and more than half of the durian comes from Hongjiu." Yin Yue told Southern Weekend reporters. He works for a fruit supply chain and wholesale company and has worked with Hong Jiu Fruit.
He said the three products with the largest fruit trade were New Zealand kiwifruit, durian and cherry. Fruit categories with high procurement costs, long capital chains and large transaction scales also have a relatively high entry threshold.
This type of fruit can form its own moat when made. Especially after forming a certain advantage, it is difficult to be leveraged. If the funds are sufficient, it can be done on a larger scale.
2. Wait for Hong Jiu to strike
According to the prospectus, from 2019 to 2021, the comprehensive gross profit margin of Hongjiu Fruit products was 18.9%, 16.6% and 15.7%, respectively, and the cost of sales was as high as 80%, and it increased year by year. The comprehensive gross profit disclosed by Baiguoyuan in the same period was 9.8%, 9.1% and 11.2% respectively.
Sun Yi, founder of a Thai durian supply chain company, told Southern Weekend that the gross profit margin announced by Hongjiu Fruit was significantly higher than the industry average, and the gross profit margin disclosed by Baiguoyuan was basically the same as that of the industry.
The gross profit margin of the core fruits of Hongjiu Fruit was 17.5%, and the fruit with the highest gross profit margin was durian, which had a gross profit margin of 18.9%-21% in the past three years. The gross profit margin of the four core fruits of dragon fruit, grape, longan and mangosteen is close to the company's comprehensive gross profit. Chelizi has been dragged down by the new crown pneumonia epidemic, and market demand has dropped sharply.
Southern Weekend reporters visited the Jiangnan Wholesale Market in Guangzhou and the Global Agricultural Batch Market in Changsha Red Star and found that the prices of durians of various brands under Hongjiu Fruit are often the lowest in the market.
Judging from the A6 grade durian in the Red Star global agricultural wholesale market, some sell 900 per piece (box), some sell 920 yuan per piece (box), some sell 950 yuan per piece (box), and Hongjiu's durian sells 850 yuan per piece (box). A staff member of Hongjiu Fruit Changsha Distribution Company confirmed to the Southern Weekend reporter that the price of Durian under Hongjiu is low in the market.
The wholesale price is the lowest in the industry, where does the high gross profit of Hongjiu durian come from?
"Hong Jiuyi took a shot, and the entire Thai durian market began to rise in price." In April 2021, Yin Yue happened to be in Thailand to participate in durian procurement, after he quoted to the fruit farmers, but received various excuses from the fruit farmers to postpone the reply, and afterwards he understood that the fruit farmers were waiting for the quotations of large companies, and then set the market and grade according to the quotations of large companies.
Yin Yue's company at the time offered 120 baht/kg, Hong Jiu quoted 140 baht/kg, and the durian market rose to 160 baht/kg the next day. In other words, Hongjiu Fruit bought a large number of durians, the number of durians in the market decreased, and the price naturally went up. This also means that the cost of Hongjiu Fruit to purchase raw fresh fruit is lower than that of its peers.
Yin Yue noted that the scale effect of Hongjiu fruit can also reduce costs in many links. For example, Hongjiu Fruit has set up sorting and processing factories overseas, and the more fruits are processed, the more labor costs can be diluted.
Even the sea and land containers will be given priority to Hong jiu fruit. "The price of 100 and 1,000 containers with the transport company is still different, and even customs clearance is one or two days faster than your peers."
It is worth noting that the operating net profit margin of Hongjiu Fruit products in the past three years is low, 7.85%, 0.05% and 2.84% respectively. Cheng Qing said that the net profit of less than 3% in 2021 is in line with the financial requirements of the Hong Kong Stock Exchange to include the performance commitment of the five-year listing of the previous financing into the financial liabilities. After adjustment, the net profit in 2021 is around 12%.
3. Rich and powerful
After 2016, Hongjiu Fruit began to become "rich", and the Pre-A round received its first financing of 53.64 million yuan. In 2018, it obtained a Series A financing of 180 million yuan. Counting the subsequent Series B and C financings, the amount exceeded one billion.
Its investors include Shenzhen Venture Capital, China Merchants Capital, SF Holdings and so on. In 2020, Alibaba entered the game with a high profile and currently holds 8% of the shares.
After getting the money, Hongjiu fruit products expanded rapidly. According to the prospectus, in 2018, Hongjiu Fruit built fruit processing plants in Thailand and Vietnam. Construction of sorting centers in China to sort fruits into small packaged products of different specifications according to customer needs for easy sales. As of December 31, 2021, the number of fruit processing plants reached 16 and the number of sorting centers reached 60. From 2018 to the submission of the prospectus, the total investment is about 2 billion yuan.
Yin Yue explained that dealers have extremely high requirements for funds. Dealers need to come up with a large amount of money to advance, the front-end fruit farmers often require cash payment, and the back-end has to give the buyer a certain repayment period. "To make a million yuan durian, at least two million yuan of funds to operate."
Durian market ups and downs are unpredictable, Yin Yue has seen too many people in the market because of the durian business to enter the gold, or because of durian and ruined. Especially when the market is not good, the most good reputation of the enterprise can not afford to take the goods, half of the loss can not stand, Yin Yue's company once in the durian category lost more than ten million a year.
The Hongjiu fruit products with capital investment allowed Yin Yue to truly see the wealth and wealth. When he first entered the industry, durians only sold for two or three hundred yuan per piece (box), and when the durian market soared to more than 1,000 yuan, only Hong Jiu dared to take the goods in the entire market. Because Hongjiu fruit products are distributed in various places, when one market is not good, the goods can be transferred to other markets to earn back. "China's consumer market is very large, and even the most expensive durian will be in demand."
Cheng Qing said that the large-scale production brought about by the capital effect allows dealers to obtain higher profit margins, and only a few percentage points in the profit margin can bankrupt competitors.
However, capital injection seems to be difficult to keep up with the pace of Hongjiu fruit expansion. According to the prospectus, the net cash used in the operating activities of Hongjiu Fruit has been negative for many years, expanding from -467 million yuan in 2018 to -804 million yuan in 2020, and the net cash in the first half of 2021 alone has reached -743 million yuan.
The prospectus explains that operating cash outflows are mainly due to a significant increase in trade and other receivables, with advance payments for quality fruits. The amount of advance payments is 1.3 billion, while the accounts receivable are as high as 3.7 billion.
Cheng Qing has calculated many times, and she attributed the tight cash flow of Hongjiu Fruit to the rapid increase in market share in the short term, "which is still acceptable at present." ”
4. "Don't underestimate the ghost"
According to the prospectus, Hongjiu Fruit mainly has four types of distribution channels, terminal wholesalers, emerging retailers, supermarket customers, and direct sales. From 2019 to 2021, the revenue contribution of terminal wholesalers will account for more than half, followed by emerging retailers and supermarket customers, with the smallest direct sales scale.
From the perspective of gross profit margin, in 2021, the gross profit margin of direct sales of Hongjiu fruit products is higher than that of the other three types of distribution channels, reaching 17%, followed by terminal wholesalers with 16.6%, and the gross profit of emerging retailers and supermarket customers is almost the same, 13.8% and 14% respectively.
From the top five customers, in 2021, the largest customer is an emerging retailer, contributing 3.8% of Hong jiu's revenue. New retailers refer to community group buying, community fresh chain stores and instant e-commerce.
Guangzhou Jiangnan Wholesale Market is mainly for terminal wholesalers. On August 6, a reporter from Southern Weekend came to the imported fruit shed A according to the vibrato of a Guangzhou employee of Hongjiu Fruit, where tall trucks were parked on both sides of the A shed, and boxes of durian were neatly arranged in the car. It opens at four o'clock in the morning, and by ten o'clock in the morning, there are almost only sporadic tail goods left. Wholesalers place durian barriers on trucks on the ground for customers to choose from.
However, on the same day, it was not possible to see The durian of Hongjiu Fruit Products batched here. Southern Weekend reporter telephone consultation with The Hongjiu fruit staff of Guangzhou Jiangnan Market, the other party explained that the recent arrival of durian is small.
Hongjiu Fruit wrote on its official website that the 14 main fruit categories of Hongjiu Fruit have created 18 brands. The durian brands disclosed in it include HJ, Hong Jiutai Delicious, and Mengxiang.
Yin Yue revealed that many small brands under Hongjiu Fruit products can often be seen in the wholesale market, such as big cats and dragon bays. These brands have not been announced, but everyone in the market knows that it is The employees of Hongjiu Fruit who are distributing. Sticking small brands to sell durian is also to distinguish between different grades of fruit.
Cheng Qing said that Hongjiu Fruit does not want its characteristic brands to be wholesale in the primary wholesale market, so as not to compete with sales branches across the country within the distribution level after that.
In her exchanges with Durian farmers in Thailand, she found that orchards often value the purchaser's ability to "wrap the circle". "Wrapping round" means that buyers can harvest all the orders regardless of the advantages and disadvantages, and the fruit farmers do not have to worry about the disposal of secondary fruits and poor fruits.
The person in charge of the wholesale department of a fruit supply chain service brand in Hunan told the Southern Weekend reporter that there are inevitable differences in the quality of durians in large-scale and small-scale supply chain enterprises, and various problems such as types, raw bags, dead bags, and rotten thorns may exist. Small-scale enterprises can guarantee quality, but it does not mean that large-scale enterprises have no audience, "you get what you pay for".
He mentioned that under normal circumstances, various channels such as supermarket promotions, scooter brigades (street ghosts), and durian bakeries are all channels to solve defective and poor products. These people want to get the worst goods at the lowest price.
"Don't underestimate the ghost." Yin Yue reminded that sometimes you only see one board car, but in fact they may be an alliance, purchasing tail goods together and distributing them internally.
5. When to brand
Also a fresh fruit distributor, can Hongjiu Fruit become China's Jiapei?
Jiapei has become synonymous with New Zealand kiwifruit, while China's fresh fruit distribution market has long been highly competitive and lowly concentrated. A set of data provided in Hongjiu Fruit's prospectus shows that Hongjiu Fruit ranks second largest fresh fruit distributor in China with a market share of 1%, while The market share of China's largest distributor is only 1.1%.
Sun Yi often thinks about how durian can achieve a large-scale market like New Zealand kiwifruit. In his view, Jiapei was able to concentrate all the Kiwi orchards in New Zealand, and the reason why it could not be ignored was that the national level licensing license allowed Jiapei to grasp the exclusive distribution right of kiwifruit. No New Zealand orchard can skip Jiapei to export kiwifruit without permission.
Leaving aside this reason, durian orchards also found no reason to unite. Sun Yi has lived in Thailand for a long time, and when he came into contact with local fruit farmers, he learned that the main durian producing countries such as Thailand, Vietnam and Malaysia are family-based plantations, and the land is privately owned. No major company has been able to find a land spacious enough in Thailand to work on durian cultivation with its own funds.
Secondly, compared with other crops, durian has a long growth cycle, about 5-8 years to produce fruit, after which there will be a relatively stable yield. That is to say, it often takes a long time to invest in durian cultivation to see a return, and the return on investment is not high.
Due to the fact that durian cultivation and cultivation are affected by various complex factors, such as rain, temperature, typhoons, etc., durian cultivation cannot be standardized, which also leads to unstable durian quality. Many market practitioners compare the opening of durian to the opening of a blind box, and durian is also regarded as a higher risk investment category.
The most critical point is that since the liberalization of durian imports in China, the Chinese market has been enthusiastic about the consumption of durian, the demand has increased, and the output is also rising. So far, there has been no opportunity for Thai durian orchard farmers to collectively lose money and have to work together to develop together.
Yin Yue also felt the same way. At present, there is often vicious competition between merchants for plagiarism and price wars, and today a brand with a strong momentum will appear tomorrow to seize the market at a low price.
Southern Weekend reporters interviewed the relevant person in charge of Hong jiuguo, and the other party politely refused to interview on the grounds of a period of silence.
This article is selected from the WeChat public account "Southern Weekend" author: Zhou Xiaoling; Zhitong Finance Editor: Xu Wenqiang.
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