"Zongzi stock" is coming, wufangzhai single product anxiety and geographical constraints

Economic Observer reporter Ye Xinran Every year during the Dragon Boat Festival, sweet and salted dumplings will always stage a PK battle in people's relish, and the difference this year is that in this wave of discussion, A shares or will usher in a "rice dumpling stock".

On the eve of the Dragon Boat Festival, Wufangzhai, a century-old brand, submitted a prospectus to seek A-share listing. Although the pre-disclosure documents for the listing of Wufangzhai disclosed on the CSRC's website state that "the application for issuance has not yet been approved by the CSRC and is only for pre-disclosure purposes", the market has been discussing its impact on the "first share of Zongzi" wave after wave.

Single category and geographical constraints

According to the data, Wufangzhai began in 1921, mainly engaged in glutinous rice food as the leading food research and development, production and sales, has formed a rice dumpling-led, set moon cake, tangyuan, pastry, egg products, other rice products and other food products as one of the product groups, with Jiaxing, Chengdu two major production bases.

The current main body of the company, Zhejiang Wufangzhai Industrial Co., Ltd., was reorganized in 1998 by the subsidiary of Jiaxing Wufangzhai Zong, and the joint venture was established by jiaxing department store, Jiaxing meat center, Jiaxing brewing and some natural persons as the initiators.

Three years after the establishment of the joint-stock company, Wufangzhai began to transfer state-owned shares. In April 2001, Jiaxing Brewing, Jiaxing Meat Center and Sino-Ocean Industrial (the predecessor of Wufangzhai Group) signed an equity transfer agreement. In 2004, Sino-Ocean Industrial successively transferred shares from the original shareholders Jiaxing Commercial Holdings, Jiaxing Zhonghua Chemical, and Zhao Jianping, Wei Rongming and Ni Jianeng.

After several rounds of capital increase and share expansion and equity transfer, Wufangzhai Group now directly holds 40.36% of the company's shares, and indirectly holds 9.7% of the shares through its wholly-owned subsidiary Sino-Ocean Decoration, holding a total of 50.06% of the company's shares, making it the controlling shareholder of the company.

According to the prospectus, Li Jianping, chairman of Wufangzhai Group, holds 20% of the shares of Wufangzhai Group, and his son Li Haojia holds 20% of the shares of Wufangzhai Group, and Li Jianping and Li Haojia thus indirectly hold 50.06% of the shares of the main body of the company, which is the actual controller of the company.

For such regional long-established catering brands, the market's attention and doubts about them mostly exist in the two major points of single category and geographical constraints, and then focus on Wufangzhai, which occupies a large revenue of zongzi, which also faces seasonal restrictions.

According to the prospectus, from 2018 to 2020, the revenue of the Zongzi series was 1.502 billion yuan, 1.609 billion yuan and 1.644 billion yuan respectively, accounting for 66.28%, 67.74% and 70.77% of the total revenue of the main business, respectively.

Moreover, the revenue of East China has accounted for half of the country for many years. From 2018 to 2020, the revenue of East China was 1.433 billion yuan, 1.460 billion yuan and 1.297 billion yuan, accounting for 63.23%, 61.45% and 55.82% of the total revenue of the main business, respectively.

According to the data, the main business income of Wufangzhai is divided into zongzi series, moon cake series, meal series and egg products, pastries and others according to categories. However, from the perspective of revenue in 2020, the mooncake series and cake series accounted for 7.96% and 11.41% of the revenue respectively.

Whether it is rice dumplings or mooncakes, there are obvious seasonality. Wu Fangzhai also suggested in the prospectus that the company's main products are traditional seasonal foods such as rice dumplings and mooncakes, which have obvious seasonal characteristics. If the company cannot make market forecasts during the concentrated consumption season of rice dumplings and mooncakes, the company will face the seasonal business risk of insufficient stockpiling of some products and losing business opportunities, or due to major changes in the external environment, overproduction will lead to backlog and waste.

At the same time, Wufangzhai is facing a double decline in revenue growth and gross profit margin. According to the prospectus, from 2018 to 2020, the company's revenue was 2.423 billion yuan, 2.507 billion yuan and 2.421 billion yuan, respectively; the net profit attributable to the mother was 96.985 million yuan, 163 million yuan and 142 million yuan, respectively. In 2020, the company's revenue and net profit were both negative year-on-year.

From 2018 to 2020, the company's comprehensive gross profit margin was 45.24%, 45.43% and 44.57%, respectively, showing a certain degree of decline. From 2018 to 2020, the sales volume of Wufangzhai zongzi was 50.2725 millionkg, 50.2415 millionkg and 44.6205 millionkg, respectively.

At the same time, it is the increase in the sales unit price of the company's main product series. From 2018 to 2020, the unit price of Wufangzhai rice dumplings rose from 2.99 yuan / 100g to 3.68 yuan / 100g, an increase of 23.1%; mooncakes rose from 64.91 yuan / kg in 2018 to 74.42 yuan / kg, an increase of 14.65%.

As of December 31, 2020, the Company has a total of 169 directly operated stores and 43 cooperative stores. The relevant operating indicators of each direct store disclosed in the prospectus show that at least 118 directly operated stores are in a state of loss in 2020, and 25 cooperative stores are in a loss. Compared with the 203 directly operated stores in 2018, there were 34 net decreases in three years.

At the same time, according to the operation of the subsidiaries disclosed in the prospectus, the net profits of many subsidiaries, including Wufangzhai Catering, Hangzhou Wufangzhai, Shanghai Youmijia, Hong Kong Wufangzhai and Macao Wufangzhai, are negative in 2020.

A new look for the old brand

In China, most of the old brands are mainly catering enterprises, and the aging problem of the old brands has always been an obvious shackle. According to the "Report on The Digital Transformation and Innovative Development of Time-honored Brands" (hereinafter referred to as the "Time-honored Report") released by the Circulation Industry Promotion Center of the Ministry of Commerce, among the 1128 Chinese time-honored enterprises, food and catering enterprises account for about 50%. The report mentions that the problems of "old", "old" and "weak" of long-established enterprises have caused a certain degree of obstacle to their digital transformation and development.

As for the issue of brand renewal, companies are trying to grasp the young people who represent the main force of consumption at present. Wufangzhai has been working on "breaking the circle", in the B station, some users joked that Wufangzhai was delayed by the sale of rice dumplings in the film factory, calling it "Wufang Film". In 2017, Huanshi Interactive Company began to be responsible for the Internet marketing of Wufangzhai and successively launched advertising short films such as "Homecoming" and "Guest House", and on the eve of this year's Dragon Boat Festival, Wufangzhai launched the feature film "Looking for Li Xiaofang".

Behind this is the urgency and anxiety of "old" brands to catch new consumers.

Wan Rong, a food and beverage analyst at Huaxin Securities, pointed out in an interview that in general, long-established catering enterprises lag behind emerging brands in terms of product innovation, brand operation, and diversified development. The current consumer environment has undergone profound changes, from product king, to channel king, and now consumer king, in terms of consumer experience, the old brand may need more thinking and reform.

The above-mentioned time-honored report suggests that in the future, long-established brands can have 5 major development directions, involving accelerating digital transformation, vigorously carrying out omni-channel operation, continuously improving product innovation, deeply excavating historical and cultural values, and continuously promoting institutional reform.

At the same time, Wan Rong said that the preciousness of the "old brand" lies in the classics it presents through cultural penetration, the epitome of social development, and the witness of historical development. If you can make good use of these points, find a new way to play that suits you on the road of domestic goods and national tides, and transform the topic and traffic into real consumption power, the "old brand" can also be rejuvenated.

Where is the future headed?

The development strategy of Wufangzhai in the next three years is: in the next three years, the company will take consumer experience as the core, take "glutinous rice" as the main line, and focus on creating high-value product lines around Chinese seasonal scenes such as "Dragon Boat Festival, Mid-Autumn Festival, Spring Festival, Lantern Festival, Qingming, Qixi, chongyang". With "Love Chinese Taste" as the brand proposition, strengthen consumer communication, guide consumers, form the brand mentality of "Wufangzhai = Chinese Seasonal Cuisine", and achieve the goal of brand rejuvenation and brand continuous value-added.

For the brand positioning of "Wufangzhai = Chinese Seasonal Cuisine", Zhang Jian, a brand positioning expert and general manager of Red Arrow Brand Marketing Company, pointed out that Wufangzhai tried to use "love Chinese taste" as a brand proposition, which was no problem, and there was no problem in communicating with consumers. However, there are many deficiencies in the "Wufangzhai = Chinese Seasonal Cuisine". "Chinese Seasonal Cuisine" is not a concrete, measurable "product", and the value of equating the brand with "Chinese Seasonal Cuisine" is not great.

In addition, Wufangzhai proposed to expand the company's production capacity of baked foods such as mooncakes, mung bean cakes, egg yolk crisps, and quick-frozen foods such as tangyuan, roasted and wontons. However, it should be noted that in the field of pastries and quick-frozen food, Wufangzhai also faces strong competition from many enterprises such as Guangzhou Restaurant, Sanquan Food, and Yasui Food. Zhang Jian pointed out that for Wufangzhai, it is difficult to break through the shackles of a single category. This is because, in the consumer's cognition, Wufangzhai has been deeply bound with Zongzi, Wufangzhai is Zongzi, and Zongzi is Wufangzhai . "In fact, this is an advantage for Wufangzhai. Breaking through a single category can be created by a new brand, although the short-term effect is not so obvious, but in the long run, it is beneficial for the enterprise. ”

New categories and new businesses are the directions that the market expects for Wufangzhai next. Wan Rong said that the next will pay more attention to the research and development and innovation breakthroughs of new products under other product categories or existing categories of Wufangzhai, "From the financial report, it can be found that more than 50% of the revenue occurred in the second quarter, that is, around the traditional Dragon Boat Festival." The market size of zongzi is still relatively limited. In the case of having become the industry leader and the first market share, the development space of enterprises in the future will come more from the development and innovation of new categories. ”

In the prospectus, Wufangzhai's store expansion plan points out that the number of directly operated stores will increase by 8 in 2021, 13 in 2022, and 30 in 2023. However, the specific pace of national expansion is not mentioned by Wufangzhai. At the same time, there is no mention in the specific planning prospectus for breaking through a single category, and it is rumored that according to the plan of Li Jianping, chairman of Wufangzhai in 2018, Wufangzhai plans to reduce the proportion of zongzi revenue to less than 50% in 2021. From the available data, this target has not yet been achieved. For the above situation, the reporter contacted Wufangzhai and sent an interview outline to understand the specific plan, as of press time, has not received a response.

Zhang Jian pointed out that Wufangzhai should rethink its strategy, whether to choose multi-brand or brand extension. Even if the brand is extended, it must have a certain boundary, and it is necessary to consider the scope of consumers' cognition of Wufangzhai and the boundary of the company's ability.