After two submissions, Quzhi Group passed the listing hearing on the main board of the Hong Kong Stock Exchange on May 9, with Haitong International as the sole sponsor.
As an FMCG outdoor marketing service provider, Quzhi Group mainly uses vending machines as the carrier of marketing and publicity, so that FMCG brands can convey product information and brand image to consumers in a vivid, intuitive and influential way.
According to CICG, the FMCG outdoor marketing market accounted for 6.4% of the FMCG marketing market share in 2023. In terms of revenue in 2023, the company is the fourth largest FMCG outdoor marketing service provider in China, with a market share of approximately 1.2%, compared to the largest market player with a market share of 14.3%.
Quzhi Group, which is among the niche tracks, has a big gap between its market share and the leader, can it be regarded as a "small and beautiful" target?
Behind the turnaround in 2023: volume for price
According to CICG Consulting, the total marketing and sales expenditure of China's FMCG industry increased from RMB482.8 billion in 2018 to RMB594.9 billion in 2022, with a compound annual growth rate of 5.4% from 2018 to 2022, and is expected to reach RMB895.1 billion in 2027, with a CAGR of 8.5% from 2022 to 2027.
However, compared with the rapid development of the industry, the performance of Quzhi Group is slightly inferior. During the period from 2021 to 2023 (hereinafter referred to as the reporting period, the same below), although the revenue of Quzhi Group increased from 502 million yuan (unit: RMB, the same below) to 1.067 billion yuan, from 2021 to 2022, the company recorded continuous losses, about -139 million yuan and -116 million yuan respectively, and the cumulative loss amount reached 367 million yuan. However, it is worth noting that in 2023, the company successfully achieved a turnaround and made a profit of 137 million yuan.
In terms of business, marketing services, as its largest business, had revenue of RMB377 million, RMB405 million and RMB808 million respectively during the reporting period, accounting for 75%, 73.1% and 80.3% of the total revenue. During the same period, revenue from merchandise sales was $105 million, $111 million and $144 million respectively, accounting for 20.9%, 20.1% and 14.3% of the total revenue. It can be seen that marketing services are the revenue growth engine of Quzhi Group, especially in 2023, the scale of this business will double, helping the company's revenue to increase highly.
Specifically, Quzhi Group's marketing services cover new and mature products in the FMCG industry. According to CIC, during the track record period, the company provided FMCG marketing services of approximately 1,400 SKUs to 472 brand customers, including products of 74 emerging brands among the top 100 emerging brands in China's beverage, food and daily necessities industry by revenue in 2022.
It is worth noting that the large-scale growth of the marketing service business is mainly due to the company's exchange of price for volume. During the reporting period, the gross profit margin of the business decreased significantly, from 79.7% in 2021 to 59.4% in 2023. During the same period, gross margin on merchandise sales decreased from 36% in 2021 to 20.6% in 2023. As the two major businesses have taken the initiative to reduce prices, the company's overall gross profit margin has declined for two consecutive years, and from 2021 to 2023, the company's gross profit margin will be 68.77%, 60.45%, and 53.17% respectively.
According to the Zhitong Financial APP, in addition to price reduction, increasing sales promotion is also an important means for the company to expand the market. Reflected in the financial report, the company's sales and distribution expenses increased significantly, during the reporting period, about 189 million yuan, 167 million yuan, 239 million yuan respectively, with a compound annual growth rate of 12.38%. The company's sales and distribution expenses increased significantly, further eroding the company's net profit.
Customer acquisition costs continue to increase FMCG outdoor marketing is a good business?
Since the number of new registered users peaked at 9.271 million in 2021, the number of new registered users of Quzhi Group has declined rapidly, reaching 6.065 million in 2022 and 7.039 million in 2023.
The continuous increase in marketing expenses supports the increase in customer acquisition costs of Quzhi Group.
During the reporting period, the cost per user acquisition was $9, $11 and $21 respectively. During the same period, the company's user churn rate continued to increase, from 58.5% in 2021 to 63.4% in 2022 and 64.7% in 2023.
In fact, as the vending machine is the core equipment to attract and reach consumers, Quzhi Group needs to expand the coverage of advertising and marketing by laying more machines, so as to obtain more user traffic.
As of 31 December 2023, Quzhi Group operated 7,543 vending machines in 22 cities in China, including all first-tier cities (i.e. Beijing, Shanghai, Guangzhou and Shenzhen) and many new first-tier cities (including Hangzhou, Chengdu, Chongqing, Tianjin, Xi'an, Wuhan, Zhengzhou, Nanjing, Suzhou, Wuxi, Ningbo, Xiamen, Dongguan, Foshan, Hefei, Jinan and Qingdao) and Yantai).
In order to maintain its existing customers, Quzhi Group has continuously reduced its voice and its receivables have increased year by year, from 243 million yuan in 2021 to 494 million yuan in 2023. During the same period, the company's net operating cash flow was negative for two consecutive years until the net operating cash flow turned positive in 2023, which was 192 million yuan. At the end of each reporting period, the company's cash and bank balances were 192 million yuan, 87.342 million yuan and 299 million yuan respectively.
According to the Zhitong Financial APP, the reason why Quzhi Group is eager to seize the market is that the scale of the company's outdoor marketing services for FMCG products is not large.
According to CIC, there are many competitors in the FMCG outdoor marketing market, including Asiaray Media, Beiba Media, Focus Media, East West Holdings, JCDecaux Group, Mega-info Media, Ubox, Wojie Media and New Trend Media. In terms of FMCG outdoor marketing revenue in 2021, 2022 and 2023, the Company is the seventh, fifth and fourth largest service providers in China's FMCG outdoor marketing market, with market shares of approximately 0.8%, 0.9% and 1.2%, respectively. During the same period, the market shares of the largest market players were 13.1%, 12.7% and 14.3% respectively. From this point of view, it can be seen how big the gap between Quzhi Group and the industry boss is.
Zhitong Financial APP has learned that with the continuous improvement of Chinese residents' living standards and the continuous upgrading of consumption, the market size of China's FMCG industry has reached RMB 6.5 trillion in 2023 and is expected to continue to expand, and the scale of China's FMCG industry is expected to reach RMB 8.1 trillion in 2028, with a compound annual growth rate of 4.5% from 2022 to 2027.
The trillion-yuan market is undoubtedly a "big cake".
Relying on the continuous growth of China's FMCG industry and the advantages and capabilities of FMCG outdoor marketing services to effectively meet the unmet needs of FMCG brands, the market size of FMCG outdoor marketing has grown from RMB 36.7 billion in 2019 to RMB 41.3 billion in 2023, with a CAGR of 3.0% from 2019 to 2023, and is expected to continue to grow at a CAGR of 10.2% from 2023 to 2028. The growth rate continues to accelerate, which shows that the market has great development potential. Quzhi Group is optimistic about its long-term growth space.
On the whole, the rapid expansion of the FMCG outdoor marketing service market has driven the growth of the performance of leading enterprises in the industry such as Quzhi Group. However, as far as the company itself is concerned, it has taken the initiative to reduce prices in the process of development, but the customer churn rate is still high, which shows that the company's business barriers are not deep. In terms of finance, Quzhi Group is also full of hidden worries, while its profitability continues to decline, the growth of marketing expenses and the continuous increase in receivables will further increase its cash flow pressure.