On August 11, Haitian Flavor launched its first hot pot base product, officially announcing its entry into the hot pot base market.

The share price of Haitian Flavor Industry has doubled in less than half a year from 76.16 yuan on March 19th to 152yuan, with a market capitalization of nearly 500 billion yuan. Today, the market capitalization of Haitian Flavor is more than twice that of Yili (210 billion), which is higher than SAIC, China Evergrande Group and Vanke.

However, as Haidilao International Holding's "brother wearing the same pair of trousers" (the founder and major shareholder are both Chairman Haidilao International Holding), Yihai International has been in the track for many years and has found a way out by virtue of its status as "Haidilao International Holding's exclusive supplier of raw materials". Together with eldest brother Haidilao International Holding, they are all listed companies on the Hong Kong Stock Exchange.

This means that the Haitian flavor industry sells hot pot ingredients, facing a competitor not only to Yihai International, a seasoning manufacturer, but to hot pot giant Haidilao International Holding.

Hot pot ingredients are on the market, Haitian has been pursuing to broaden the track.

On Aug. 11, Haitian Flavor Industry Tmall flagship store launched the first Haitian brand hot pot base, with Korean spicy beef, Xinjiang tomato and other four flavors.

Haitian flavor industry Tmall flagship store customer service staff said that the hot pot base product is a new product launched in recent days, as to whether there will be more flavor-related products, the customer service staff said that "it is not clear, only four flavors have been launched."

In fact, the Haitian flavor industry in recent years, in addition to the layout of soy sauce, oyster sauce, soybean paste main business, has been constantly trying to broaden its own track.

In April 2014, Guangdong Guangzhonghuang Food Co., Ltd., a subsidiary of Haitian Flavor Industry, bought Kaiping Guang Zhonghuang Food Co., Ltd. for 90 million yuan to enter the fermented bean curd industry.

In February 2017, Foshan Haitian (Jiangsu) seasoning Food Co., Ltd., a subsidiary of Haitian Flavor Industry, acquired a 70 per cent stake in Zhenjiangdan and vinegar industry for 40.271 million yuan to speed up the layout of vinegar products.

This layout hot pot bottom material market, Haitian flavor industry has a plan for a long time. In June 2017, Societe Generale Securities said in a research report entitled "Haitian Flavor Industry: the steady high-end cost pressure of soy sauce has been alleviated" that vinegar, cooking wine and hot pot ingredients are the direction of its layout.

Hot pot catering industry-- another round of potential track

Based on the radiation effect of the rapid development of hot pot catering industry, hot pot base material has become one of the most potential fields in recent years. According to the whole Industry chain report of Hot Pot Industry, the hot pot industry has maintained a high growth rate of more than 10% since 2011, with total sales rising from 184.3 billion yuan in 2011 to 480 billion yuan in 2018.

The rapid development of hot pot industry has promoted the simultaneous development of upstream raw material production, mid-stream hot pot base and hot pot seasoning. At present, the hot pot base market has become the second largest market segment of composite seasoning.

According to a research report released by Everbright Securities on August 10th, Haidilao International Holding, as a seasoning brand, still ranked first in July, with a market share of 3.65%, with a clear advantage of 1.65% (2% market share). And Haidilao International Holding's market share rose 0.6 per cent compared with the same period last year.

Yihai International has such a big brother, of course, "leaning against big trees to enjoy the cool". The data on August 11 show that its market capitalization is second only to the Haitian flavor industry. It can be said that in the hot pot bottom material track, Haitian flavor industry faces the biggest competitor is Yihai International.

On August 12, Yihai International had a market capitalization of more than 100 billion yuan, and Haitian Flavor Industry had a market capitalization of 490 billion yuan.

According to the annual report, revenue from Yihai International Hot Pot seasoning products reached 2.813 billion yuan in 2019, an increase of 43.9% over the same period last year, accounting for 65.7% of the total revenue. Revenue from selling hot pot seasoning products to related parties increased by 39.3%. Revenue from selling hot pot seasoning products to third parties increased by 50.3%.

Some market participants said that Yihai International, relying on Haidilao International Holding, has an inherent advantage in the field of hot pot ingredients and has firmly occupied the top position in the market share in recent years. Haitian flavor industry is now too late to layout hot pot ingredients, it is difficult to compete with Yihai International.

But Haitian is not easy to mess with-Everbright Research News shows that Haitian is the absolute leader of daily condiments (with a market share of 18.49%). Although it has declined from the previous month, it still opens the distance of 5.9% of Li Jinji, the second place.

In terms of offline channel layout, Yihai international dealers cover more than 30 provincial regions in China, as well as 49 overseas countries and regions, with more than 1800 dealers and about 1000 overlapping dealers of seasonings and small hot pot.

By contrast, by the end of 2019, the total number of Haitian flavor industry dealers nationwide has exceeded 5000, and the distribution channels have penetrated into the county and township level.

The industry continues to develop, and the future competition pattern is unknown.

The economic environment is not good, but Haitian is blessed by misfortune. No matter how bad the economy is, you don't have to go out, you don't have to buy clothes, and you always have to eat. After the outbreak of the epidemic, the grand occasion of "people making cold skins" has increased the demand for condiments.

Condiments in food are less affected by economy, and the correlation coefficient between condiments and GDP is between 0.2 and 0.3, which is lower than that of other categories. Condiments are indispensable in Chinese food. Compared with alcohol and other consumer goods, its growth is more stable. Moreover, consumers are low sensitive to the price of condiments, and brands have the ability to raise prices, so that their gross profit margin has been higher than the overall level of the industry.

Buffett is a big fan of the food and beverage industry. He likes the characteristics of the food and beverage industry, such as "stable profits, abundant cash flow, less need for investment" and so on. The seasoning track where Haitian and Yihai International are located is a consumer product with rigid demand in food and beverage, which is less cyclical and seasonal, and the price sensitivity of consumers is lower, which makes it better.

From the perspective of future growth, the industry concentration of condiments is very low, far lower than other consumer goods, and there is more room for big brands to grow.

According to the data, the top five brands of hot pot ingredients are Yihai International, Red 99, Tianwei Food, Dezhuang and Red Sun. Among them, Yihai International has a market share of 13%, Red 99 has a market share of 8%, and Tianwei has a market share of 5%.

Market analysts said that the Haitian flavor industry layout hot pot ingredients field is relatively late, not enough to compete with Yihai International, nor will it break the overall pattern of the market in a short period of time. However, with the follow-up development, with the strong channel layout of Haitian flavor industry, it is possible to form a certain degree of competitiveness.