"The method of concoction, the application of things", the magic of condiments has been extended from table dishes to the capital market. However, whether the industry leader Haitian Flavor Industry is that "golden stone" or not, there is still controversy.
Reporter | Vince Min
Edit | Xu Bingqing
This article was published in the September 2020 issue of CBN magazine
After several months of climbing, on September 2, Haitian Flavor industry ushered in a record high in the past 6 years since its listing. On the same day, the company's stock price closed at 198 yuan, and the intraday market value reached 657.7 billion yuan, ranking third in the A-share consumer goods industry after Guizhou Moutai and Wuliangye.
However, such an excellent performance did not last long. In the following week or so, the stock price correction caused the company's market value to evaporate by about 130 billion yuan, and the market discussion about whether the "Xiaomaotai" company was overvalued and whether there was a bubble was also increasing.
China's condiment market ushered in retaliatory consumption in the second quarter of this year after the epidemic eased, and the average price of A-share condiment fermented products in the first half of this year rose by 52.84%, of which the most active performance was the "soy sauce stock" led by Haitian Flavor Industry.
In every Chinese kitchen, fierce wars are fought between bottles and cans of condiments. What happens when the story of a bottle of soy sauce suddenly has a lot of imagination?
A secret that trumps its peers
Haitian flavor industry originated in the 1950s in Foshan, Guangdong Province, a "sauce garden reform". At that time, 25 local sauce gardens with a certain scale in Foshan were planning to merge and reorganize, and decided to take the oldest of them, "Haitian (Ancient) Sauce Garden", as the leader, and the new soy sauce factory after the restructuring was named "Haitian Soy Sauce Factory".
In 1994, under the social background of the reform of state-owned enterprises, Haitian launched the shareholding system reorganization and has since become a modern company controlled by the Foshan municipal government and employees. Since 1998, Haitian Flavor's sales data has achieved a breakthrough in Hubei Province, and since then it has begun a period of rapid growth of up to 13 years. In 2007, Haitian Flavor Industry was restructured for the second time, and after the 30% state-owned shares were acquired by other shareholders, it was completely restructured into a private enterprise.
There are jokes in the industry that there are three unsolved mysteries in the Chinese condiment market, one of which is the coloring effect of Haitian old soy sauce - why is it that when stir-fried with other soy sauces, the color of the dish will turn black and dark, and the dishes fried with seaweed mushrooms can still remain transparent?
In the matter of making soy sauce, Haitian does have a set. The company's 2019 financial report shows that the soy sauce category contributed more than 58% of the company's revenue, reaching 11.6 billion yuan. The gross profit margin brought by soy sauce products exceeds 50%, ranking first in the industry. In addition to soy sauce, Haitian's other two main businesses are sauce and oyster sauce, which are the core of Haitian products and contribute more than 90% to revenue.
Zhang Xin, secretary of the board of directors of Haitian Flavor Industry, once said that the reason why Haitian's gross profit margin is higher than that of similar enterprises is that the level of automation control in the production process is higher, and many links rely on industrial equipment rather than manual operation. On the other hand, Haitian is very "economical" compared to its peers.
Chen Xiaolong, a former employee of Haitian, said in the "First Book of Condiment Marketing" that one of the long-term insistence of Haitian is to soak the soy sauce residue in water and use this "by-product by-product" as brine to reduce costs. The practice of peer companies is usually to use soy sauce residue directly as feed and sell it to the outside world. Huajin Securities has calculated that the cost per ton of products of Zhongju High-tech, which is also a listed company in the condiment industry, is about 1.4 times that of Haitian Flavor Industry.
In the past three years, Haitian has continued to reduce management rates and sales rates, and both data have dropped by nearly 3 percentage points. More illustrative of its management efficiency is another statistic - the same employment of an employee, Haitian each employee to create a gross profit, more than 3 times that of peer companies. Reducing costs and increasing efficiency is always the secret of enterprise success.
From the data of 2019, the average sales price of Haitian soy sauce is 5355.54 yuan / ton, while the average price of soy sauce products of the top 100 enterprises of The China Condiment Association in 2018 is 5346 yuan / ton, that is to say, the pricing strategy of Haitian soy sauce is no different from its peers.
However, strict cost control can enable Haitian Flavor industry to achieve higher gross profit margins, and it has maintained an upward trend in the past 10 years. In 2010, Haitian's overall gross profit margin was 32.99%; in 2014, when the company went public, this figure was 40.41%; by 2019, it has climbed to 45.44%, the highest level in the industry.
Is Haitian a "little Moutai"?
In China, "one super and many strong" is a description of the pattern of Haitian and its competitors. In 2019, Haitian's revenue approached 20 billion yuan, followed by Zhongju High-tech and Qianhe Flavor Industry, with revenue of 4.675 billion yuan and 771 million yuan respectively. Haitian's advantage is "rolling grade".
During the dazzling period of this year's stock price, the outside world also gave Haitian Flavor Industry the title of "Xiao Maotai". One reason is that the main business of both is brewing, one is brewing, one is brewing soy sauce; the other is that the two have similar endogenous genes, such as the absolute control of channels mentioned above.
Moutai's brand value is its unshakable crown, and its core products can be sold for high prices without a penny of advertising. In 2016, Haitian also determined the development strategy of vigorously investing in brand building, spending marketing expenses on various TV and online variety shows. According to the data of the "White Paper on Advertising and Marketing of Chinese Variety Shows in the First Half of 2019", in 2018, Haitian Flavor Industry participated in a total of 12 variety show marketing, with a cumulative implantation time of nearly 80 hours, ranking 5th in the total implantation time.
However, it is more difficult for Haitian to achieve a Moutai monopoly in terms of products. As far as food is concerned, the use of technology to achieve special flavors and tastes is still the key to gaining the favor of consumers, but the advantages of soy sauce brewing technology and products have not been able to expand into the "scarcity" attribute differences like Maotai.
Haitian mushroom old soy sauce and gold standard raw soy sauce are national best-selling items, targeting the low-end soy sauce market at a price of less than 10 yuan. In recent years, Haitian has also opened up a high-end soy sauce market with greater profit margins. CITING THE SURVEY DATA OF THE WE PUBLIC ACCOUNT "CONDIMENT BUSINESS COMMUNITY" THAT THE PROPORTION OF HAITIAN'S HIGH-END PRODUCT REVENUE HAS RISEN FROM 10% WHEN IT WAS LISTED IN 2014 TO 40% IN 2018.
The three-six-nine soy sauce and so on, in the industry standard, mainly depend on the indicator of "amino acid nitrogen content per 100 ml product", reaching 0.7 grams is first-class soy sauce, and 0.8 grams and above is special soy sauce. High-end product concepts such as "fresh soy sauce", "zero additive" and "organic" are basically included in the classification of "special soy sauce". E-commerce channel data show that the unit price of "zero additive" soy sauce is generally more than 3 times that of "first-class soy sauce", and the price of "organic soy sauce" produced with organic soybeans is more than 4 times.
Just doing high-end soy sauce can feed a listed company – and it happened to another condiment company, Qianhe Flavor Industry. In the early days of the company's development, the core product of Qianhe Flavor Industry was the industrial-grade food additive "caramel color", and after expanding to the public condiments, the current main products are the so-called "zero additive" soy sauce and "organic cellar vinegar" and other high-end products. According to the data of the 2020 semi-annual report, Qianhe Flavor Industry was also affected by the recovery of consumption, and the revenue of its soy sauce and vinegar products increased by 38.84% and 58.92% respectively, and after deducting non-recurring gains and losses, the company's net profit attributable to shareholders increased by more than 91%.
However, consistent with the law presented by all catering categories, high-end condiments are only suitable for directly facing consumers with certain insights, and it is difficult to open up the mass market represented by restaurants. Different from the characteristics of ordinary consumers with a long single consumption time, the purchase frequency of catering channels is higher, the demand is large, and the consumption is fast. Therefore, for many condiment companies, winning restaurants is an important step to win the market.
Haitian is mainly to break through the circulation of catering channels as the main direction. In addition to using distributors to break into as many restaurants as possible, the company has also sponsored the New Oriental Chef School and various culinary competitions for many years, strengthening their memories of the taste of their own condiments during the chef's learning stage. The parent company of New Oriental Chef School, "China Oriental Education", disclosed before its listing in 2018 that 1 in every 4 chefs in China who receive culinary vocational skills training is from China Oriental Education.
According to CICC's market research data, Haitian Flavor currently accounts for more than 60% of the circulation of catering channels, while retail channels account for only 40%. The situation is the opposite for other condiment companies, such as Zhongju Gaoxin's catering channels accounting for only about 20%, and the remaining 80% are large channels such as retail, e-commerce, and other industrial enterprises that need condiments.
The catering industry also has risks, mainly in the difficulty of chasing money. On the issue of collecting money, The way Haitian Flavor Industry adopts is to pay first and then buy goods, and dealers must advance funds to get goods. This strategy keeps Haitian's operational risk at a very low level. According to the financial report released by Haitian Flavor Industry, in 2017 and 2018, The accounts receivable of Haitian Flavor Industry accounted for only 0.01% of the total asset ratio, which was almost negligible.
Haitian flavor industry related people and company announcements have repeatedly shown the outside world that the company's sales performance is driven by the sales of the "double carriage" - a two-level sales structure. In Haitian's sales system, the distributor is a direct customer of Haitian Flavor Industry, only has the direct sales right to part of the product, and the distributor is a direct market-oriented party, which is jointly managed by the brand and the dealer.
The entry threshold for condiments is not high, and the differentiation of most condiment products is not so obvious. If it loses control of the terminal, Haitian is likely to lose the final pricing power of the product. Most small and medium-sized condiment companies are caught in such a dilemma, fighting in low-quality products and price wars. In order to grasp more initiative, Haitian even introduced a number of distribution systems to allow dealers to form a competitive effect, so as to complete the comprehensive sinking of channels and deep distribution.
CICC had expected that as of 2019, Haitian Flavor industry had covered all provinces, 90% of the prefecture-level market and more than 60% of the county-level market through this distribution system.
In addition, Haitian's management of logistics is also worth mentioning. Condiments themselves are products with a long shelf life, and the pursuit of sales rates by enterprises will be weak. However, haitian can deliver the product to the dealer one to two weeks after the product is produced, so the inventory turnover is small and fast, basically it is produced and sold. Moutai and Gree are also loyal practitioners of this methodology.
From soy sauce to taste
Because of its vast territory, China has a difference between "sweet party" and "salty party" in the taste of many traditional foods such as bean blossoms, rice dumplings, and mooncakes. Soy sauce, which is an important condiment, is actually called sweet and salty.
According to the manufacturing process, the common soy sauce currently on the market can be divided into three categories: Chinese dark soy sauce (dark soy sauce), Chinese light soy sauce (light soy sauce) and Japanese soy sauce. Including Haitian and Lee Kum Kee, the production of most Chinese soy sauce processes requires sun and night dew, natural fermentation, and the production process also needs to add sugar substances, which belongs to the "sweet party"; the "swastika soy sauce" produced by the Japanese soy sauce giant Tokai koma, whose process needs to use modern technology to control the temperature, fermented indoors, and the salinity and alcohol content are generally higher than those of Chinese soy sauce, which belongs to the "salty party".
Although there are some differences in the manufacturing process that determines the taste, the raw materials and filling processes used in the production of different soy sauces are almost the same. Commodity raw materials such as soybeans, sugar, and wheat account for about half of the cost of soy sauce; packaging materials such as glass bottles, plastic bottles, and cartons account for about 30% of the cost. A survey by Huajin Securities shows that in 2017, it was precisely because the price of corrugated paper rose by 60%, and the gross profit margin of Haitian was affected by fluctuations that year, so the price was raised across the board.
In order to minimize the impact of raw material price fluctuations, the soybeans and sugar used by Haitian are purchased through quantitative and pricing from important suppliers, and almost all domestic raw materials are basically unaffected by import trade policies or exchange rate changes. Therefore, soy sauce is considered by ordinary consumers to be a daily commodity with a fairly stable price, and in addition to soy sauce, Haitian Flavor Industry has already tried to cover more flavor-type experiences through business expansion and mergers and acquisitions.
In 2014, Haitian Flavor announced the acquisition of Guangzhong Huang, a curd milk manufacturing company; in 2017, Haitian Flavor Acquired 70% of danhe vinegar industry to enter the vinegar market; this year, Haitian won 67% of the equity of Hefei Yanzhuang for 169 million yuan, the latter's main business is edible oil.
According to Haitian Flavor's 2018 financial report, Guangzhong Emperor and Danhe Vinegar Industry brought net profits of 1.9037 million yuan and 7.2094 million yuan respectively. "We are still looking for vinegar factories in Shanxi and other places, hoping that with the original production capacity, the company can also achieve the first place in the whole industry in the vinegar category." Zhang Xin, secretary of the board of directors of Haitian Flavor Industry, once told the media.
Curd milk and vinegar, the former has Wang Zhihe and Liu Biju, and the latter has Hengshun. As a latecomer in these categories, it is not easy for Haitian to gain market share in a short period of time. However, judging from Lee Kum Kee's transformation experience, it is still a feasible attempt to infiltrate into other condiments - Lee Kum Kee has been known for oyster sauce for many years, but it can also open up the soy sauce market through the "steamed fish soy sauce" product.
However, Lee Kum Kee's good time of "steaming fish and soy sauce" was not long, and soon attracted the imitation of Haitian and lost its dominant position. Reaping the same fate is the Oyster Sauce Battlefield. As we all know, Lee Kum Kee started with oyster sauce, and his mastery of oyster sauce production technology makes him stand out from the crowd. Lee Kum Kee's brand products are positioned in the high-end market, and a bottle of old zhuang oyster sauce can be aimed at a price of more than 30 yuan. In 2000, after finally breaking through the oyster oil water technology, Haitian officially began its struggle with Lee Kum Kee in the oyster sauce market. Soon, Haitian quickly rolled out low-priced products in various channels at less than half the price of Lee Kum Kee, and the dual advantages of price and channel caught Lee Kum Kee off guard. Since then, Haitian has dominated the low-priced oyster sauce market with two products, gold label oyster sauce and high-grade oyster sauce, completing the journey from imitation to market share "counterattack".
In addition to mature condiments, compound condiments may also be the next development direction of industry leaders.
Different from single condiments such as soy sauce, vinegar, oyster sauce, etc., the composition of compound condiments is more complex, and the common hot pot base, hot pot dipping sauce, and bibimbap sauce all belong to this category. Compared with traditional condiments, compound condiments have a shorter production cycle, but the pricing can be higher, which can effectively save R&D costs, shorten production time, and improve profit margins for small enterprises.
In some countries with a high degree of food industrialization, compound condiments have proven their market space. A research report released by Zhongtai Securities at the end of 2019 shows that at present, in the condiment markets of the United States and Japan, traditional condiments and compound condiments account for almost half of the market share, and between 2015 and 2016, the annual per capita consumption of the latter exceeds 80 US dollars; but at present, in China, the situation of burning a dish to use several bottles and cans is still the mainstream, and the market share of compound condiments is less than 1/5.
With the listing of Haidilao, its compound condiment supplier and Hong Kong Stock Exchange listed company "Yihai International" has attracted some market attention. Including tianwei, Dezhuang and other veteran hot pot base manufacturers, in recent years, they have also tried to "break the circle" with the help of innovative products such as self-heating small hot pot. From the perspective of the change of stock price alone, Yihai International's performance of rising by more than 40 times in 4 years is far better than that of Haidilao.
In August this year, Haitian Flavor Also launched its first batch of hot pot base products, divided into four flavors: Korean spicy beef, Xinjiang tomato, Yunnan sour soup and Korean troop hot pot, avoiding a head-on confrontation with the mainstream Sichuan hot pot in the market, and the goal of attracting young people is also relatively clear.
However, whether Haitian Flavor Industry can find its own direction in the complex market situation of compound condiments still needs to be questioned.
Learn from Tortoise Shell Man
If you count from the "first tank" of soy sauce opened in Foshan Ancient Sauce Garden more than 300 years ago, Haitian Flavor Industry is also a "long-established brand" with a long history. But in terms of global influence, the 103-year-old Japanese soy sauce brand "Kakura Man" may be the more well-known one.
In June this year, CBN magazine published "The Best Soy Sauce Food Company in Japanese History, What Is Different?" In this article, how Kame kokwan has transformed from a traditional family business into a large condiment company that adapts to modern business developments. The international expansion that began in the 1960s was an important step in the transformation of Kameko.
At that time, the consumption space of the Japanese soy sauce market had peaked, and Kamekoshi had to look to overseas markets. Initially, The judgment of the top management of The Kamekoma was that instead of importing raw materials from the United States, making soy sauce in Japan, and then exporting soy sauce to the United States, it was better to set up factories directly in the United States, which could save cross-border transportation costs in the middle.
In 1972, Walworth, Wisconsin, USA, set up the largest soy sauce factory in the Western region. In the shadow of World War II, Kamekoman's soy sauce factory became the first japanese manufacturer to set up in the United States, earlier than Sony and Panasonic. Since then, the returns from the factory have validated the correctness of this initiative. According to the biography of The Turtle Koman Corporation, in the 20 years after the establishment of its U.S. factory, soy sauce consumption in the United States increased by a factory of 10 times.
Top executives recall that the success of their own soy sauce in the United States is also due to the company's bold marketing strategy. Instead of just winning Asian restaurants and supermarkets, Kamekoma sells soy sauce as a "global" condiment and an international commodity. The company promotes Western recipes using Japanese soy sauce to Western-style restaurants, and develops Teriyaki, which is now famous for its local diners.
In addition, Kameko began to actively explore other categories of diversified business, such as red wine, enzymes, soy milk, and even the biological industry, which are traced back to the source, these are all businesses developed around the basis of the soy sauce business. At present, the top four core businesses of Kamekoman are mainly Oriental Food Trading, Overseas Soy Sauce, Japanese Food Manufacturing and Japanese Soy Sauce. Among them, Oriental Food Trade contributed 42% of its total revenue to TortoiseShell.
Data from Northeast Securities shows that in the performance statements of international condiment companies such as Heinz, Tokaijiawan and McCormick, overseas business accounts for more than 30%. Although Haitian Flavor and Lee Kum Kee are well-known condiment head companies in China, their presence in overseas markets is mostly limited to the Asian community, and the overall contribution rate of overseas business to revenue is not worth mentioning.
From an optimistic point of view, the current gap between Haitian and Tokaijiawan in terms of market size, marketing strategy and international ambitions is also an excellent benchmark for its future development. The key question is still - how long does it take for the pearls to be in front and how long will it take for the latecomers to really catch up?
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