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Recently, Juewei Food Co., Ltd. (603517.SH) released the third quarter report for 2024. In the first three quarters of this year, the company achieved revenue of 5.015 billion yuan, a decrease of 10.95% year-on-year; net income attributable to the parent company was 0.438 billion yuan, an increase of 12.53% year-on-year.

Looking at the single-quarter indicators, Juewei Food Co., Ltd. achieved revenue of 1.675 billion yuan in the third quarter, a decrease of 13.29% year-on-year; net income was 0.143 billion yuan, a decrease of 3.33% year-on-year.

The decline in revenue of Juewei Food Co., Ltd. is due to the slowing growth of the traditional condiment snack food industry in recent years, with overall industry pressure caused by weak demand. However, what makes Juewei Food Co., Ltd. not only headache is not only the performance of its main business, but also most of its external investments have also become a drag.

In response to the situation of declining revenue and continuous losses in external investments, the reporter from Lanjing News contacted Juewei Food Co., Ltd. to understand the reasons and follow-up measures, but as of the deadline, no response has been received.

Close to a thousand stores have been closed within six months.

Established in 2008, Juewei Food Co., Ltd. mainly focuses on products such as duck necks and duck heads. Among many condiment snack food companies, Juewei Food Co., Ltd. was established the latest but expanded rapidly and is a leading company in the industry, known as the 'Duck Neck King.'

Specifically, fresh products are the company's revenue pillars, but they have gradually reached a ceiling, and the revenue scale has always been difficult to break through. From 2021 to 2023, its revenue scales were 5.607 billion yuan, 5.437 billion yuan, and 5.768 billion yuan respectively, with year-on-year changes of 15.47%, -3.03%, and 6.09% respectively. In the first three quarters of 2024, fresh products achieved revenue of 3.868 billion yuan, a year-on-year change of -13.31%. China Securities' research report shows that fresh products are under great pressure due to continuous adjustments at the store end and the impact of the external consumption environment.

In addition, the continued contraction of the number of stores is also an important factor affecting performance.

It is known that for a long time, the number of Juewei Food stores has been continuously increasing. At the end of 2019, Juewei Food surpassed the scale of ten thousand stores, with a total of 10,954 stores (excluding Hong Kong, Macao, and Taiwan). In the following years from 2020 to 2023, the net increase in the number of stores per year was 1,445, 1,315, 1,362, and 874 respectively. The expansion of store numbers has also brought great help to Juewei Food's revenue scale, increasing from 5.172 billion yuan in 2019 to 7.261 billion yuan in 2023.

However, in the first half of this year, the total number of Juewei Food stores in mainland China decreased by 981 compared to the beginning of the year. As of the end of June, the total number of stores in mainland China was 14,969. Juewei Food did not disclose the latest store numbers in the third quarter report.

In the 2024 interim report, Juewei Food pointed out that in the first half of this year, it shifted from a policy of rapid store expansion to refined operation, with the primary task of improving single-store revenue and ensuring the survival of franchisees. It will adjust store models according to the actual situation in different markets and work with franchisees to overcome difficulties.

Behind the contraction of store expansion policy is the overall pressure on the braised food industry caused by declining consumer demand.

Frost & Sullivan and the Red Dining Industry Research Institute's data show that the growth rate of the braised product industry has significantly slowed down. In the first half of 2024, although raw material prices have decreased compared to the previous year, the industry as a whole faces severe operational pressure, and leading companies are also undergoing survival tests.

In fact, not only Juewei Food, but the other two braised food giants, Jiangxi Huangshanghuang and Zhou Hei Ya, have also seen a contraction in store expansion. As of the end of the first half of this year, Jiangxi Huangshanghuang had 4,052 stores, 445 fewer than the end of the previous year, and Zhou Hei Ya had 3,456 stores, 360 fewer than the end of the previous year.

Jiang Han, senior researcher at Panguglobal think tank, analyzes that the current saturation of the condiment market is increasing, market competition is becoming increasingly fierce, the influx of large and small condiment brands has increased consumer choices, thereby dispersing consumer demand, resulting in weaker consumer demand for condiment stores. Previously, condiment companies continuously expanded the number of stores, which also required higher operating costs, including rent, manpower, logistics, and other expenses. If the consumer demand of the stores fails to meet expectations, this expansion may lead to a decrease in profitability, or even losses.

Investment failures have occurred year after year.

In the situation of declining performance and weakening industry demand, Juewei Food also received regulatory letters from the Shanghai Stock Exchange due to years of investment losses.

The Shanghai Stock Exchange mentioned in the regulatory letter that from 2017 to the present, the company's net cash flow from investment activities has been continuously negative, with investment activities not generating net cash inflows. In the semi-annual reports of 2022, 2023, and 2024, Juewei Food's cash payments for investments were 0.88 billion yuan, 2.422 billion yuan, and 1.063 billion yuan respectively, with investment returns of -94.2185 million yuan, -116.4555 million yuan, and -3.252 million yuan, showing consecutive periods of investment losses.

In the response letter, Juewei Food disclosed the investment targets for the first half of 2023 and 2024.

In 2023, Juewei Food's equity investment expenditure was approximately 0.262 billion yuan, invested in 5 enterprises including Second Jue Wei Fund, Golden Hoop Private Equity Fund, Xinjin 15 Fund, Ganxiao Food, and Jiangsu Man Guan. Only Gan Xiao Food under Di Huang Restaurant realized a profit in that year, confirming an investment return of approximately 0.711 million yuan in 2023, with all the others in losses totaling about 0.106 billion yuan for the company.

In the first half of 2024, Juewei invested in Jiangsu Mang Guan and Changsha Nanyun, two enterprises with related brands Amian Hundred Chicken and Shengxiangting, both encountering losses, with confirmed investment returns of -4.0183 million yuan and -3.8763 million yuan for the first half of 2024.

In external investments, Juewei Food mainly uses its wholly-owned subsidiary Shenzhen Wangju Investment as the main investment entity, focusing on condiments, light dining, seasonings, cold chain logistics, and other related industries in its investment targets.

As of the end of June this year, Juewei Food holds equity in 28 external investment projects, with a total book value of approximately 2.646 billion yuan. Among them, there are 6 investment projects with risks of capital withdrawal, with a total book value of approximately 0.107 billion yuan.

In the response letter, Juewei Food explained the necessity of its investments, stating that in recent years, the traditional leisure seasoned food industry has been significantly impacted by changes in consumer demand, with a clear trend of overall closures in the industry. Therefore, the company, based on its understanding of the seasoned food industry, is strategically expanding into the table-seasoned food track to diversify the operational and investment risks of the traditional leisure seasoned food industry.

Under pressure, Juewei Food is preparing to scale back investments and focus on its core business. In the announcement, Juewei Food stated that on one hand, it will organize or deploy post-investment management teams to help invested enterprises improve operational efficiency, and on the other hand, actively seek exit strategies for non-seasoned food related projects to reduce investment losses.

At the same time, regarding the slow progress of the company's raised investment projects mentioned by the Shanghai Stock Exchange, Juewei stated that it is due to the weak overall industry demand, with the company still having excess production capacity. In this situation, if the construction of ongoing projects is to proceed as planned, additional construction costs would be required. Therefore, the company is cautious about investing in raised funds projects.