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Three months after the new coach took office, Mengniu turned the cheese business all into Microcolando, can this really alleviate Mengniu's growth anxiety?
This article was originally published by Magnesium
ID：mgjing001
Author: Pan Yuwen
Editor: Wang Damei
Microcolando (600882. SH) performance has picked up.
On July 10, Microcolando disclosed its performance forecast for the first half of 2024, with a year-on-year increase of about 128%-215% in net profit attributable to the parent company.
At the same time as the performance is picking up, Microcolando is also accelerating the layout of the cheese industry. A month ago, it spent 448 million yuan to pocket Mengniu cheese, which is still losing money under its major shareholder Mengniu Group.
This is not only a business reshaping of Microcolando, but also an adjustment of the business sector after the new boss of Mengniu took office for 3 months.
What is driving this consolidation?
Miaokelando, which has not yet completely come out of the predicament, plus Mengniu cheese, which is still losing money, can achieve the effect of 1+1>2?
Mengniu's new coach has been in office for 3 months, and Miaokeland has "changed formations"
Microcolando once again joined forces with Mengniu Dairy (02319. HK) stirred up the cheese market.
On June 12, the announcement showed that Miaokeland will acquire 100% of the shares of Inner Mongolia Mengniu Cheese Co., Ltd. for 448 million yuan in cash. Upon completion of the transaction, Mengniu Cheese will become a wholly-owned subsidiary of Microcoland.
According to the announcement, the acquisition is mainly to solve the problem of competition between Microcolando and Mengniu Group in the cheese business.
In 2021, Mengniu Group became the owner of Microcoland, and at that time, Mengniu's cheese division and Microcolando had business overlap and competition. At that time, Mengniu promised to inject the cheese business into Microcolando within two years.
In 2023, Mengniu postponed the integration of the cheese business to July 9, 2024, on the grounds that the cheese business had just completed overseas cutting, had not completed internal restructuring and team integration, and did not meet the conditions for injection.
Is there a different significance to this acquisition, which was delayed by one year, just after the new boss of Mengniu Group, Gao Fei, took office?
In the first half of the year, there was a personnel upheaval at the top of Mengniu. On March 26, Lu Minfang, who had been at the helm of Mengniu for nearly 8 years, stepped down as president and Gao Fei took over. In less than 2 months, Mengniu adjusted its personnel again. On May 22, Qing Lijun succeeded Chen Lang as a non-executive director, chairman of the board of directors, chairman of the nomination committee and chairman of the strategy and development committee of the company.
And Microcolando also ushered in a "change of blood" in management. After Lu Minfang resigned as a director of Microcoland, on May 17, Chen Yiyi, who is currently the vice president of Mengniu, was elected as the chairman of Microcolando, a member of the nomination committee of the board of directors and the chairman of the strategy committee of the board of directors.
After the new president Gao Fei took office, although there were many actions, most of them focused on marketing. On May 15, Mengniu officially announced Jia Ling as the new spokesperson of the brand; On the 19th, Gao Fei met with IOC President Thomas · Bach, which was not only an important meeting after Mengniu won the Olympic sponsorship, but also the first large-scale event Gao Fei participated in after taking office.
Zhan Junhao, a well-known strategic positioning expert and founder of Fujian Great Aim Brand Positioning Consulting, believes that although Mengniu's personnel adjustment will cause uncertainty, Gao Fei, who has worked in Mengniu for many years, has rich experience in sales and marketing promotion, which may bring new opportunities to Mengniu.
Like Lu Minfang back then, Gao Fei was also ordered to be in times of crisis. The change of head of Mengniu occurred on the day Mengniu announced its 2023 performance report, and media reports interpreted that Lu Minfang's resignation seemed to be responsible for Mengniu's unsatisfactory performance.
According to the financial report, Mengniu will achieve revenue of 98.624 billion yuan in 2023, failing to exceed the revenue target of 100 billion yuan, and this year, Mengniu's market value fell by HK $26.7 billion, and even fell below HK $50 billion on June 16.
Not only that, Mengniu's revenue has fallen into growth difficulties. Mengniu's revenue growth rate will drop from 15.9% in 2021 to 6.5% in 2023, a decrease of more than half. The growth rate of net profit attributable to the parent company will decline from 42.6% in 2021 to -9.31% in 2023, showing negative growth.
▲Mengniu's revenue and net profit attributable to the parent company in the past five years, data source: financial report, magnesium group mapping
The growth rate of revenue slowed down, the net profit attributable to the parent company showed negative growth, and Gao Fei took over the hot potato. Song Liang, a dairy expert, believes that in addition to consolidating the development of white milk, Gao Fei also needs to speed up the breakthrough and expand new business areas, such as cheese and milk powder.
Since taking office, Gao Fei has always emphasized the need to improve the flat management level of the overall business, integrate resources, and reduce internal management costs. But liquid milk peaked and the milk powder business did not improve, so Goofy could only focus on the cheese business.
Microcolando's acquisition of Mengniu cheese may be the first step for Gao Fei to break the game.
If you want to "create another Mengniu", you can only rely on cheese?
Behind the "change of formation" of Miaokelando is Mengniu's growth anxiety.
In the context of liquid milk has changed from an incremental market to a stock market, Mengniu's basic growth has slowed down, with the growth rate of liquid milk in 2021 being 12.9%, and falling to 4.86% in 2023.
When Lu Minfang was at the helm, Mengniu pinned its hopes on the milk powder business, but after more than ten years, the gap with Yili was getting wider and wider. After Mengniu sold Junlebao, the revenue of milk powder products in 2020 fell by 41.89%, a decrease of 3.297 billion yuan. Yashili, which once shouldered the heavy responsibility of Meng's milk powder business, suffered a net profit loss for two consecutive years, and was privatized and delisted in July 2023.
In order to reinvent the milk powder business, Mengniu acquired Bellamy's in 2019. However, after being acquired by Mengniu, Bellamy's revenue fell off a cliff, from 1.032 billion yuan in 2020 to 124 million yuan in 2022. According to Mengniu's financial report, although Bellamy's sales will increase by 40% in 2023, Mengniu's milk powder revenue will decline by 1.6% year-on-year.
Relying on Bellamy's alone, Mengniu's milk powder business is difficult to compete with Yili's milk powder. In 2023, Yili's milk powder revenue will reach 27.598 billion yuan, while Mengniu's will be 3.802 billion yuan, less than a fraction of Yili's head. Obviously, the milk powder business is difficult to become Mengniu's second growth curve.
The milk powder business could not be done, so Mengniu could only pin its hopes on other businesses.
Let's start with the ice cream business. Lu Min said at the 2023 annual performance meeting that Mengniu's domestic ice cream business has dragged its performance. In 2023, the revenue of Mengniu's ice cream business will reach 6.03 billion yuan, a year-on-year increase of 6.6%, but compared with the revenue of Yili's cold drink products of 10.688 billion yuan, the ice cream business is also difficult to become the revenue growth engine of Mengniu.
The cheese business may be able to help Mengniu.
Last year, Mengniu's cheese business grew rapidly. According to the financial report, the revenue of Mengniu's cheese business in 2023 will be 4.357 billion yuan, compared with 1.3211 billion yuan in 2022, an increase of more than 3 times, and the proportion of Mengniu's total revenue will increase from 1.4% in 2022 to 4.4% in 2023, which has exceeded the proportion of revenue of milk powder business (3.9%).
The outlook for the cheese industry is also positive. Nielsen data shows that from 2020 to 2022, the retail sales of cheese in mainland China will be 3.238 billion yuan, 4.192 billion yuan, and 4.337 billion yuan, with growth rates of 29.5%, 3.5%, and 3.5% respectively. Although the average annual growth rate has declined, there is still room for growth. According to the China Dairy Association's "Three-year Action Plan for Cheese Innovation and Development to Enhance the Competitiveness of the Dairy Industry", by 2025, the national cheese output will reach 500,000 tons, and the national cheese retail market will exceed 30 billion yuan.
▲The size of the cheese retail market from 2008 to 2022. Data source: Euromonitor, source: SPDB International Research.
In recent years, Mengniu has also been increasing its investment in the cheese business.
In 2021, Mengniu invested 3 billion yuan to invest in Microcolando, and increased its holdings twice, eventually holding 36.51% of its shares.
At the same time, Mengniu accelerated the expansion of new retail channels, such as O2O, community group buying and live sales, to expand the coverage of terminal sales points in the cheese business.
In terms of project investment, the Phase 8 factory of Mengniu Industrial Park mainly produces cheese, with a total of 18 production lines, with an estimated annual production capacity of 60,000 tons of cheese sticks, butter, mozzarella cheese, leisure cheese and other products, with an output value of about 2.5 billion yuan.
In addition, Mengniu's emphasis on the cheese business can also be seen from some details. In Mengniu's 2023 financial report, the cheese business is no longer classified as "other dairy products", but is presented as an independent business in the financial report.
Gao Fei made it clear at Mengniu's 2023 results meeting that he would further strengthen the development strategy formulated by Lu Minfang's era, that is, to continue to promote the development of the cheese business, including the strategic integration of Microcolando.
It is worth noting that Mengniu's usual path of M&A expansion may not work. In June, Mengniu's board of directors' proposal to grant general mandates to directors to allocate, issue and dispose of additional shares not exceeding 10% of the issued share capital of the Company was voted down by the general meeting of shareholders.
Industry insiders believe that this means that shareholders do not support Mengniu's future foreign investment expansion by issuing new shares.
Now, Mengniu can only put the hope of the cheese business on Microcolando, which is undoubtedly another "big gamble".
Seeking transformation in a difficult situation, can Miaokeland take on a heavy responsibility?
If Mengniu wants Microcolando to become its new growth engine, it may have to get Microcolando out of the predicament first.
Affected by unfavorable factors such as the high cost of cheese raw materials and the decline in the birth rate of infants and young children, Microcolando, which is mainly oriented to the children's market, will suffer a "Waterloo" in 2023, with a cheese business income of 3.137 billion yuan, a year-on-year decrease of 18.91%, and a net profit income of 63.43 million yuan, a year-on-year decrease of 53.9%. In the first quarter of 2024, Microcoland's revenue will be 950 million yuan, a year-on-year decrease of 7.14%, and it has been six consecutive quarters of year-on-year revenue decline.
At the same time, the increasingly high marketing expenses and the price war caused by fierce competition in the industry further eroded the profit margin of Microcolando, and the gross profit margin of the cheese business decreased from 48.51% in 2021 to 40.73% in 2022.
▲Microcoland's revenue and profit from 2017 to 2023, the data comes from the financial report. Magnesium by the group.
In May this year, Mengniu officially announced that traffic star Wang Yibo was the brand spokesperson, hoping to recreate the growth myth in the field of adult snacks.
However, on the day of the official announcement of the spokesperson, the related entries of "Microcolan contains trans fatty acids" also appeared on the hot search on Weibo, causing heated discussions. Because some netizens found an ingredient called "edible oil products" in the ingredient list of Microcolando cheese products. The netizen believes that the ingredient is "trans fatty acids".
The acquired Mengniu cheese is still in the red. According to the acquisition announcement, Mengniu Cheese's annual loss in 2023 will be 3.3739 million yuan, while the net profit loss attributable to the parent company in the first quarter of 2024 will be 2.9525 million yuan.
The outside world questioned, in this case, can Mengniu cheese and Microcolando achieve the effect of "1+1>2"?
For Microcolando, this integration is also a business transformation. Microcolando focuses on the C-end cheese market, and Mengniu Ai's Chenxi cheese is mainly oriented to the B-end. Judging from last year's situation, the business of the C-end is not good, and the business of the B-end is more promising.
From the perspective of Microcolando's own situation, in 2023, the operating income of the catering industry series focusing on the B-end market will increase by 7.61% year-on-year, while the revenue of the ready-to-eat nutrition series and family table series for the C-end market will decrease significantly, -23.93% and -36.10% respectively.
In fact, since 2021, the growth rate of the C-end market in the cheese industry has slowed down, but there is still room for growth in the B-end market. According to Silver Arrow Financial Outlook, in the past ten years, the consumption of mainland cheese B and C end markets accounted for about 70% and 30% respectively, and most of the cheese products flowed to Western-style catering, baked bread and new tea enterprises.
Taking the tea industry as an example, new tea drinks such as Hey Tea, Nai Xue's tea, and Yishengtang have all launched drinks with added cheese, and the milk cap series of common tea drinks also use processed cheese as raw materials, which provides opportunities for the cheese B-end market.
Song Liang, a dairy expert, believes that the key to the future competition in the cheese industry lies in the scale effect and the cost advantage of the product supply chain, and the head enterprises such as Mengniu and Yili have greater advantages. After the acquisition of Mengniu cheese, Microcolando may be able to make a breakthrough in the B-end market.
Mengniu cheese's supply chain and channels on the B-end can help Microcolando reduce costs and increase efficiency. On the one hand, Microcolan can obtain a stable and low-cost supply of cream and raw milk, further reducing costs and increasing profit margins.
On the other hand, Microcolan can expand the B-end market through Mengniu's customer network. With the Ai's Dawn brand as the mainstay, Mengniu's cheese products provide raw materials for many brand enterprises, including chain restaurants, bakery, retail supermarkets, hotels and airlines, such as Starbucks, Yum Restaurant, Hema Fresh, Sam's Club, Shangri-La, China Eastern Airlines and many other enterprises.
Microcolando, whose performance fell sharply last year, also showed signs of recovery. On July 10, Microcolando released a performance forecast for the first half of 2024, and in the first half of the year, Microcolando is expected to achieve a net profit of 65 million to 90 million yuan, a year-on-year increase of about 128%-215%.
Song Liang, a senior dairy analyst, believes that in addition to the impact of the decline in the price of original cheese and the cost reduction and efficiency increase of the cheese stick business, Microcolando has launched 6 new products for adult snacks so far in 2023, among which new products such as mascarpone cheese launched this year have entered the baking track and are favored by B-end and C-end users. This is also one of the reasons for the growth of its performance.
However, it will take time to test whether Microcolando can return to the growth track and become the second growth curve of Mengniu.