There is something that some people consider a treasure, worth a fortune; while others consider it a tax on intelligence, worthless. And that is bird's nest.

The history of Chinese people regarding bird's nest as a nourishing delicacy is not short, but for a long time, the business model was simply selling imported dried bird's nest.

After the "poisonous blood swiflet" incident in 2011, the "bowl bird's nest" developed by YanZhiWu emerged, turning bird's nest into a health-oriented fast-moving consumer goods, but also frequently sparking controversy over its status as a "sugar water mixture" intelligence tax.

Is bird's nest really a lucrative business or the biggest marketing lie?

Perhaps we can find the answer from the financial report of YanZhiWu, known as the "first stock of bird's nest".

01

Recently, Yan Zhiwu released its mid-year report for 2024. According to the financial report, in the first half of 2024, Yan Zhiwu achieved a revenue of 1.059 billion yuan, a year-on-year increase of 11.36%.

Looking at different channels, Yan Zhiwu achieved a total income of approximately 0.419 billion yuan through offline channels, a year-on-year decrease of 1.64%. In the e-commerce channel, Yan Zhiwu's total income is approximately 0.641 billion yuan, a year-on-year growth of 21.89%, accounting for 60.49% of the company's total income.

The rapid growth of e-commerce channel business will inevitably lead to an increase in sales costs, including raw material costs, employee welfare expenses, production costs, and delivery fees. Therefore, in the first half of this year, Yan Zhiwu's sales cost increased by 17.63% to approximately 0.546 billion yuan, compared to the same period last year.

In comparison, Yan Zhiwu's sales cost growth rate is much higher than the growth rate of revenue, which also leads to a sharp decline in Yan Zhiwu's profitability. In the first half of 2024, Yan Zhiwu's net profit was 60.05 million yuan, a year-on-year decrease of 44.07%.

During the reporting period, Yan Zhiwu's gross margin decreased from 51.24% in the same period last year to 48.50%. Yan Zhiwu attributed this to the conservative consumption trend of offline customers, which resulted in lower-than-expected growth in offline channel revenue and a decrease in the proportion of offline sales, leading to a decrease in gross margin.

Just six months after going public, Yan Zhiwu's performance has taken a sharp downturn, causing concerns about the company's business situation.

The biggest controversy lies in Yan Zhiwu's substantial investment in marketing.

In the first half of this year, the sales and distribution expenses of Yanzhiwu amounted to 0.365 billion yuan, a year-on-year increase of 38.45%, spending over 0.1 billion yuan more than the same period last year.

In the previous performance forecast, Yanzhiwu has already pointed out that this year's invitation of Wang Yibo and Gong Li as brand ambassadors has led to an increase in advertising and marketing expenses, and advertising promotion expenses are mainly concentrated in the first half of the year.

In fact, as early as the 2023 financial report, Yanzhiwu had pointed out that one of the reasons for the high sales expenses of the company is the increase in advertising and promotion expenses, but this issue has become more prominent this year.

Over the years, Yanzhiwu's spokespersons have been mostly big-name celebrities, from Carina Lau, Lin Chi-ling to Zhao Liying, Jin Chen, and now Gong Li and Wang Yibo. The marketing expenses of Yanzhiwu have been increasing year after year.

From 2021 to 2023, the sales and distribution expenses of Yanzhiwu were 0.399 billion, 0.504 billion, and 0.563 billion yuan respectively, with year-on-year increases of 25.55%, 26.3%, and 11.79%.

In 2023, the sales expenses of Yanzhiwu amount to 0.563 billion yuan, accounting for 28.68% of the total revenue.

Is bird's nest really a high-profile IQ tax?

02

The swiftlet and the golden swallow secrete saliva, mix it with other substances, and build a nest to form bird's nest.

Does bird's nest have nutritional value? The answer is, of course, yes.

Bird's nest contains rich water-soluble proteins, carbohydrates, sialic acid, calcium, phosphorus, iron, and sodium, as well as trace elements and amino acids. Therefore, it is believed to stimulate the growth of the body's immune system cells, promote metabolism, and enhance function.

However, up to now, many experts have pointed out that in terms of protein quality and amino acid composition, bird's nest is not as good as milk and eggs, and in terms of other nutritional components, foods containing mucilage such as Tremella, lily, and yam can also be used as substitutes for bird's nest.

In other words, consuming a moderate amount of meat, eggs, milk, and seafood on a regular basis is enough to obtain all the nutritional value that bird's nest can provide.

But no matter what, bird's nest does have certain nutritional value. Compared to the 'brainXgold' that claims melatonin as a nutritional component, bird's nest is much better.

There is some nutritional value, but it is not high. So why is bird's nest so expensive?

This is because bird's nests are mainly produced in Southeast Asia, especially in Malaysia and Indonesia. Therefore, despite bird's nests being introduced to China hundreds of years ago, their consumption scope was relatively small before.

In the late 1990s, many businesses saw the profitability of the bird's nest industry and switched from other industries to the bird's nest industry, leading to a small boom in the bird's nest industry.

However, due to the varying qualifications of businesses and the inability to ensure the upstream procurement process, the bird's nest market quickly became flooded with inferior and counterfeit products.

With the industry's rampant growth, the bird's nest industry's crisis of trust gradually surfaced and finally erupted with the "toxic bird's nest" incident in 2011.

In 2011, some consumers reported symptoms such as fever, headache, and nausea after consuming the "superior blood bird's nest" from brands like Yanzhiwu and Yinghuang. Testing revealed that the nitrite content in these blood bird's nest products exceeded the national mandatory standard by 33 times.

In the end, it was discovered that unethical businesses in Malaysia and Indonesia placed ordinary white bird's nests in boxes filled with bird droppings and smoked them, counterfeiting them as superior blood bird's nests to make money.

In that year, Yanzhiwu was seeking listing on the Hong Kong Stock Exchange, but with the situation escalating, Yanzhiwu was forced to terminate the listing.

Data from the National Commission of Bird's Nest shows that in 2012, the national bird's nest industry's sales volume plummeted from 6.5 billion yuan in 2011 to 2.2 billion yuan. Although it rebounded to 6.05 billion yuan in 2013, it has since remained at a scale of 6 billion yuan for four consecutive years, without the previous rapid growth.

However, it was not until 2012 that Yan Zhiwu developed the 'bowl swallow' product that can be eaten immediately, transforming the dry swallow's nest that used to require stewing into a fast-moving consumer goods with e-commerce attributes. Starting in 2017, the bird's nest market also resumed growth.

Since then, bird's nest sales have entered a new era, and the sales proportion of dry bird's nest in major bird's nest brands is now basically less than 20%. However, as a result, instant bird's nest has fallen into greater controversy.

03

In 2020, the Kuaishou anchor Xinba promoted instant bird's nest, which was later questioned by consumers as sugar water, causing a huge controversy.

However, in fact, as early as 2018, organizations had tested many instant bird's nest products on the market and found that more than 97% of instant bird's nest from brands such as Yan Zhiwu, Beijing Tongrentang, and Kangfulai were sugar water and thickening agents, with almost no nutritional value.

Li Youquan, the executive director and chairman of Yan Zhiwu, has responded by claiming that the 97% sugar water and thickening agent content in the products is appropriate. He pointed out that the content of dry bird's nest in all Yan Zhiwu products has been carefully calculated and scientifically formulated.

Taking bowl swallow as an example, Li Youquan stated that the content of bird's nest in the product is 5.2 grams, accounting for approximately 3% of the net weight of the 180-gram bowl swallow. This proportion is an ideal ratio that can ensure the nutritional value of bird's nest and the delicate and comfortable taste.

So what is the truth?

In the flagship store of the e-commerce platform, a set of 10 bowls of 108g bird's nest, with a discounted price of nearly 2000 yuan. Each bowl of dried bird's nest contains 3.1g, and after deducting the cost of purified water and rock sugar, the average price per gram of bird's nest exceeds 60 yuan.

In the flagship store of Yan Zhi Wu, a beautifully packaged 3-star Indonesian dried bird's nest is sold for only 1500 yuan for 50g. The average price per gram of bird's nest is about 30 yuan.

The answer is self-evident.

In 2014, based on the bowl bird's nest, Xiao Xian Dian developed a fresh stewed bird's nest with lower unit price and shorter shelf life. Compared with Yan Zhi Wu, Xiao Xian Dian's marketing methods can be described as even more innovative.

Not only did they hire Zhang Ziyi and Chen Shu as spokespersons at the same time, they also hired Wang Junkai as the "Fresh Power Quality Control Officer".

In addition to Yan Zhi Wu and Xiao Xian Dian, emerging bird's nest brands such as Qiao Chu are also attracting female consumers by relying on celebrities in the entertainment industry.

To attract high-end elite female groups, they hire top female stars to improve the brand image. To attract young middle-class female groups, they hire influential male celebrities to expand the market.

It is not difficult to find that both Yan Zhiwu and Xiao Xian stew are companies mainly driven by marketing.

In 2021, Yan Zhiwu once prepared for an A-share listing and submitted the listing application.

However, in April 2022, the China Securities Regulatory Commission issued a 24-page review feedback to Yan Zhiwu, raising 57 questions, inquiring whether Yan Zhiwu is suspected of false advertising, whether bird's nest has nutritional value in its advertising, whether performance is supported by a large amount of advertising marketing, and so on.

Yan Zhiwu did not respond, probably unable to respond either.

Obviously, the exorbitant advertising costs, overwhelming advertising campaigns, make it difficult for the brand to truly establish a moat, and also difficult to maintain its strength in a declining economic environment.

04 Conclusion

The reason why the bird's nest market has experienced ups and downs for decades, and still has quite a number of brands entering the market, is ultimately driven by enormous profits.

However, with the shift in the consumption market trend, bird's nest products facing doubts about their intelligence tax, ultimately find it difficult to become truly valuable high-end commodities. Yet, bird's nest, accustomed to a high-end image, also find it challenging to truly lower their status.

Between the upgrade and downgrade of consumer, the swiftlet's nest brands have not yet found their direction. In such an industry where it is difficult to form a real moat, with the gradual homogenization of products and the increasing consumer awareness, how these brands will continue to tell the story of swiftlet's nest in the future will be quite a challenge. (End of the full text)