Financial Services Association, March 30 (Reporter Wu Weiling) At high-end fruit retail stores, the 9.9 yuan “Solitaire Fruit” is favored by consumers, but according to franchisees, it can only “gain popularity.” Currently, high-end fruit retail competition is fierce, and franchisees are also facing many problems such as fewer customers arriving at the store and the lengthening payback cycle, which in turn affects store revenue and desire to open stores.

For high-end fruit chain retail brands represented by Baiguoyuan, franchise stores and revenue from franchise stores are an important component of the group's overall revenue. Judging from Baiguoyuan's 2023 financial report, the number of customers arriving at franchisees decreased, further affecting the year-on-year decline in franchise store revenue. Currently, how to improve the profitability of stores is an important proposition that brands need to face.

Franchisee who sells high-end fruit at low prices says it's “not profitable”

Recently, at a Baiguoyuan store in Changsha, a Finance Association reporter noticed that in about an hour, the store welcomed four waves of customers one after another, three of which went straight to “Solitaire Fruit.”

The store clerk told the Financial Federation reporter that the solitaire variety is very cost-effective compared to the store variety, so it is popular with customers. “It's just a little smaller, but the taste is about the same. For example, we have a type of fruit. The store costs 15.2 yuan/kg, but the solitaire is 9.9 yuan/piece, which is about 4 to 2 kg.”

Discounts are quite attractive to consumers. On the same day, at another Baiguoyuan store, there were also quite a few customers. Franchisee Ren Jun told the Financial Federation reporter that this is related to the membership day. “Today's 7.9% off. There will be a little more people coming to the store, so there are three people (looking at the store) today, usually one or two people.”

Currently, discounts are quite common in high-end fruit stores. A Financial Services Association reporter noticed that in the first Baiguoyuan store mentioned above, various discounted fruits such as 4.98 yuan/kg of Zigui Navel Orange, 23.8 yuan/kg of the signature Huahuang Golden Pineapple, and 28.8 yuan/piece (6 pieces) of Nanshui pears were on sale.

Information on discounted fruit posted by a Baiguoyuan store

However, from the perspective of a franchisee, discounted fruit “can only earn popularity.” “Discounted fruit definitely sells better, but it doesn't make any money when calculated. Like last year, I had a cherry activity for a while. I remember 5 kg/box, and I could only earn 2 to 3 yuan per box. But there's no way. If the company has activities, they have to do it; otherwise, customers place orders online, and they won't be able to pick up the goods when they come to the store.” Lao Ma, a franchisee of Hunan Green Leaf Fruit, told the Financial Federation reporter.

Based on this, Lao Ma told the Financial Federation reporter that as a franchisee, he actually doesn't want to do activities. “There is no money to make money. If you don't do activities, even though there are fewer customers, the profit is about the same. For example, if a store makes 3,4,000 yuan a day, the gross profit is nearly 1,000 yuan. If you do activities, even if it reaches 20,000 yuan a day, the gross profit is probably only one or two thousand yuan.”

“Moreover, the activities are all nearby customers. I bought 2,300 today and left, and they probably won't come in a few days, especially oranges and pineapples. If you buy them back, you can keep them for several days. So after doing the activity, you will notice that the business has obviously deteriorated for a few days. Like our previous Double Eleven, once the event was over, obviously, the business declined for several days.” Lao Ma added to the Financial Federation reporter.

The payback cycle lengthens franchisees to “quit” and open stores

The Financial Services Association noticed that in high-end fruit stores such as Baiguoyuan and Luye Fruit, discount fruit mainly posts information and purchase links through channels such as WeChat applets, Douyin group purchases, and store WeChat groups, and is carried out by purchasing offline bills of lading online.

According to brands, the purpose of establishing WeChat groups and launching Douyin and WeChat mini-programs is mainly to increase interaction between brands and customers, meet consumers' demands for multi-scenario and multi-channel consumption, and enhance consumer stickiness. Baiguoyuan Group (2411.HK) mentioned in its recently disclosed 2023 financial report that in order to pursue “Baiguoyuan” as the preferred brand for consumers to buy fruit, in 2023, the group will continue to expand online and offline channels to improve market coverage and customer loyalty.

Furthermore, Baiguoyuan believes that community WeChat group chats help to better interact with customers, retain loyal users, and promote cross-selling, thereby increasing the frequency of their transactions.

With the help of Baiguoyuan, financial reports show that orders placed through the Group's multiple online channels accounted for about 27.6% of the Group's total orders, and the total number of customers ordering fruit and fruit products through Douyin channels increased 190% compared to 2022. As of December 31, 2023, the total number of WeChat groups established by store managers has grown to about 27,455, and the total number of WeChat fan groups has exceeded 162 million, an increase of about 25.6% over 2022.

The increase in the number of brand fans does not mean that joining a high-end fruit store is a good business now. “Many people also asked me how much it would be to join (Baiguoyuan). I said, if you are a Xiaobai, I don't recommend it.” Ren Jun told the Financial Federation reporter. To the same question, Lao Ma's answer was more straightforward: “If you can't open a store, don't open one.”

As for the reason why starting a business is not recommended, Ren Jun and Lao Ma invariably mentioned “it's not easy to do business”. “Like before 2018, it paid back in six months and started making a profit, but now it takes a little longer. Choosing a location is very important. Some business districts may be profitable after opening, but others may take two years to make a profit.” Ren Jun further told the Financial Federation reporter.

The franchisee's “bad at doing business” can be seen in Baiguoyuan's financial report. Financial data shows that in 2023, the number of franchise stores supervised by the Group increased from 4,577 to 4,818, but the average annual revenue of each franchise store decreased from 2 million yuan in 2022 to 1.8 million yuan, a decrease of about 9.8%. In response, the financial report explained that due to the full return to normalization of the domestic economy and society, residents are traveling more during the holidays (especially summer vacation), leading to a decrease in the number of visitors entering small community-based stores.

Affected by this, Baiguoyuan's revenue from franchise stores in 2023 was 8.5 billion yuan, a year-on-year decrease of about 3.97%.

The competitive position of the industry is very important

As for the reason why the business is not doing well, Lao Ma told the Financial Federation reporter that intense competition, fewer customers arriving at the store, and low gross profit from group purchases are all current problems faced by stores. “There are too many fruit stores. There are 5 fruit stores on my street.”

Competition has further led to the diversion of target customers. Wang Huaiyuan, executive director of Sullivan's Greater China region, analyzed that currently consumers prefer fruit products at the right price. In the face of competition through internet channels, high-end fruit retail prices do not have a competitive advantage. At the same time, high-end boutique supermarkets are also diverting many offline target users.

“Entering 2023, high-end retailers are starting a price war on high-end fruit categories such as strawberries, cherries, and durians, which further weakens the profitability of various retailers.” Wang Huaiyuan added.

Standing in the present, “location” was jointly selected by Lao Ma and Ren Jun as an important indicator for judging whether it is possible to open a store.

“A store like mine can reach about 300,000 (turnover) a month, but you have to find a good business district. Like Baiguoyuan, we need to consider quality neighborhoods, and analyze whether the neighborhood is just needed or improved. For example, in this neighborhood, there is no pressure on (residents') lives, and the view on consumption is not the same.” Ren Jun gave an analysis to the Financial Federation reporter.

In addition to this, wear and tear is also an issue that franchisees need to consider. Ren Jun told the Financial Federation reporter that in terms of profit margins, there are usually around 20 points, but some stores may have negative net profit. Among these, fruit loss is a big problem. “There will be many doorways here, such as ordering and delivery. We need to know what people like to eat, and we also need to know the bottom line about the competitor.”

It is worth noting that franchisees that compete fiercely in the industry are the main source of revenue for high-end fruit chain retail brands. According to Baiguoyuan's financial report, the Group's revenue in 2023 was 11.391 billion yuan, and revenue from franchise stores accounted for 74.62% of total revenue. Of the 6093 stores as of the end of 2023, franchise stores accounted for 99.8%.

Looking ahead to 2024, Baiguoyuan Group mentioned that it will comprehensively enhance brand awareness and reputation through strategic renewal, increase the share of signature fruit sales, and create fruit gift boxes to further enhance the profitability of retail stores. Details include: upgrading the store's image, signing celebrity endorsements, and increasing Baiguoyuan brand influence; continuing seasonal promotion of signature fruit throughout the year, and striving to provide more new categories to lead the market trend; and strengthening high-quality fruit gift boxes to seize the gift market and increase sales.

With high-quality signature fruits, Baiguoyuan has won a number of consumers. However, according to Ren Jun, in addition to the quality of fruit, supply stability is also important. If the quality is unstable, the second one is sold to customers, it will affect word of mouth, which in turn will affect repurchases.

(In the article, Ren Jun and Lao Ma are all pseudonyms)