2024 is a crucial turning point for the Pagoda Group. On August 22, during its mid-term performance exchange meeting in 2024, Pagoda (02411) announced its strategic transformation in a complex consumer environment to consolidate its leading position in the industry. Looking ahead to the second half of the year, Pagoda will implement the "high-quality and cost-effective strategy", focusing on providing a rich and differentiated range of products and services, with an emphasis on cost-effective mental building.

Despite the pressure on the consumer economy, Pagoda does not relax its pursuit of high-quality products and always selects premium fruits from around the world for consumers. Of course, Pagoda also creates the maximum value for consumers within a reasonable range, enabling more consumers to enjoy premium fruits in a cost-effective way through cost optimization, category structure optimization, and other means.

Under the new strategy, Pagoda plans to comprehensively upgrade supply chain, quality control, service, category structure, and pricing system to enhance market competitiveness and customer experience. The strategic focus includes: 1) Seizing the mainstream market by broadening the price range and enriching SKU to drive market expansion; 2) Strengthening differentiation of series products to enhance product competitiveness. The integration of the entire fruit industry chain enables the company to provide products in all price ranges and categories, and seize potential incremental market opportunities, including ToB business and international market expansion.

Upholding high quality and enhancing the consumer experience.

China is the world's largest producer and consumer of fruits. With a layout of over 800 direct procurement bases in 26 countries around the world, Pagoda has become an important channel for the introduction of high-quality fruits to the Chinese market, with nearly half of the fruits in Pagoda's stores being imported. In recent years, emerging fruits such as durian and blueberries have rapidly become popular single products in the Chinese fruit market, meeting the demands of consumers for unique nutritional value and taste.

In 2023, China imported fruits worth US$7.056 billion (about CNY 51.1 billion) from Thailand, an increase of 11.9% compared to the previous year. Among them, durian accounted for 40% of the total imports. Thailand is expected to export about 1 million tons of durian this year, with a total value of about THB 130 billion (about CNY 25.4 billion), most of which will be exported to China. In its spring signature fruit launch event in April this year, Pagoda jointly launched the "Thai Qing Ni Wang Durian" as an exclusive signature product with the Thailand Ministry of Agriculture. In addition, from May 8th to 14th, Pagoda jointly held the Thailand Fruit Festival with the Thailand Department of Agriculture and the Thai Embassy in China, promoting the quality standards of Thai fruits and boosting sales through over 6,000 domestic stores.

On August 25th, the first batch of fresh durians from Malaysia completed customs clearance at Zhengzhou International Airport in China. Pagoda took the lead in cooperating with the high-quality durian supply chain in Malaysia to conduct direct procurement in Pahang and Johor, the core production areas of Musang King durians in Malaysia. Among the first batch of Malaysian durians, the proportion purchased by Pagoda reached 23%, covering more than ten varieties including D24 Sultan King, D197 Musang King, D200 Black Thorn, D101 Red Flesh Durian, D13 Zhu Que, and D160 Bamboo Foot. The company strictly controls the entire process from cultivation, picking to delivery of these durians, aiming to provide Chinese consumers with higher-quality durian products and use selected durians to create a high-end series for the "Da Ba" brand. Liang Kai Xiang, the General Manager of Well Known Fruit (M) Sdn Bhd said, "Only 20% of the high-quality durians we select from the source can become the 'Da Ba' brand durians of Pagoda."

Recently, fresh Peachy Blue, imported by air from the USA, has been gradually shelved in Baiguoyuan stores, marking the official start of the 2024 American blueberry season. According to Baiguoyuan, the first batch of Peachy Blue has shown excellent performance, with excellent crispness and a rich peachy aroma.

Baiguoyuan strictly controls various aspects of the shape, soluble solids, single fruit diameter, and safety of Peachy Blue, ensuring consistent quality. Baiguoyuan has a high requirement for the sweetness of Peachy Blue, and the sweetness of each blueberry must reach 14 degrees or above, while the ratio of fruits with a sweetness of 12-14 degrees is strictly controlled within 8%. In addition, only blueberries with a single fruit diameter between 16-18mm will be carefully selected and shelved. These strict standards ensure that each blueberry not only showcases a full blueberry flavor but also has a distinct peach fragrance with no grainy texture.

As Baiguoyuan's "signature fruit," Peachy Blue has passed the company's rigorous screening under the "four degrees, one flavor, one safety" fruit grading system. Due to the short supply period of Peachy Blue, which is only 6 weeks, and limited production, Baiguoyuan will further expand the import scale this year to provide more consumers with this uniquely flavored fresh blueberry within the best tasting period. Consumers can enjoy this globally selected premium blueberry for free in stores in 12 cities such as Shanghai, Shenzhen, Guangzhou, Chengdu, and Chongqing.

Comprehensively improving the quality of product and service, enhancing the value perception of high quality and price ratio by users.

Under the new strategy, Baiguoyuan is working to enhance the quality of product and service in order to strengthen users' perception of high quality and price ratio. The company will pay attention to every link from sourcing to stores, ensuring that the freshness and taste of fruits meet higher standards while being reasonably priced.

Strengthening freshness management and quality control standards.

Baiguoyuan will focus on improving freshness management from sourcing to stores. In terms of the supply chain at the source, the company will improve cold storage planning, promote pre-packaging projects, implement temperature standards, and strengthen inventory management to maintain fruit freshness. The company will also optimize data support through system empowerment to enhance freshness management. At the store end, Baiguoyuan will optimize temperature control systems, dynamic management, and closed-loop management to further improve operational efficiency.

Enhancing the store service experience.

Baiguoyuan is not just a fruit retail channel, but also establishes a close relationship with customers through high-quality personalized services. As ready-to-eat fresh products, customers have diverse needs for washing, cutting, and selecting fruits. Baiguoyuan will continuously improve the quality of basic services. The company will optimize the incentive mechanism to encourage franchisees to improve service granularity and improve the service standards for online and offline no-return policies. In addition, the company will conduct systematic consumer research to deeply understand the true needs of customers and continuously optimize existing product selection, pricing, display, and promotional strategies.

Grasping the mainstream demand and setting reasonable prices.

Optimizing the category structure and setting reasonable prices are important strategies for Baiguoyuan. Baiguoyuan uses its signature fruits as a brand-building tool, actively enriches price ranges, creates more cost-effective traffic products to meet the needs of different consumer groups, and adjusts product combinations based on regional differences. Baiguoyuan also uses a scientific pricing system to systematically price all items, helping franchisees set competitively priced items in the market.

Baiguoyuan has deeply integrated various links of the fruit industry chain, covering the entire 1 trillion+ fruit market from upstream planting and category brand development to downstream ToC and ToB channel brands. The company's extensive supplier network enables it to provide products in all price ranges and a wide variety of categories. In the long run, with steady sales growth, upstream costs are expected to decrease, expense ratios will improve, and economies of scale for individual items will also increase. The company will also integrate supply chain resources to further reduce suppliers' overall costs.

Although the full recovery of consumer demand and the manifestation of the effects of strategic implementation will take time, Baiguoyuan is still firmly advancing its long-term plan. It is expected that these forward-looking strategic layouts will significantly enhance brand effectiveness and operational efficiency in the future. Industry observers point out that Baiguoyuan's series of measures not only enhance product market competitiveness but also broaden its customer base and improve product conversion rates. This is not only an innovative upgrade to the traditional retail model, but also a comprehensive renewal of the entire value chain of the fruit industry.

Penetrate core scenes and capture new demands.

Facing the transformation trend of the traditional gift market, consumers are increasingly focusing on health and wellness while also demanding decency and quality in gifts. Baiguoyuan closely follows consumers' dual requirements for health and quality and introduces the 'Healthy Fruit Gift' series to meet market demands in a new way. Based on strict product selection standards, Baiguoyuan selects high-quality and exotic fruits to launch a diverse range of gift boxes.

With the Mid-Autumn Festival approaching, Baiguoyuan has specially launched a limited edition collaboration gift box with a former Dior designer. This series not only combines design with international fashion trends but also embodies the pursuit of health and taste in fruit selection, becoming a highlight in the high-end gift market. At the same time, Baiguoyuan provides gift combinations in all price ranges to meet the needs of different consumers, from high-end customization to affordable options, ensuring that every customer can find a gift that fits their budget and requirements.

New breakthrough: The "ToB + Going Global" strategy is showing initial success.

Facing intense market competition and volatile macro environment, Baiguoyuan has demonstrated resilience. While consolidating the C-end market, the company is also seeking new business breakthroughs. According to the latest financial report, the revenue of the ToB business sector jumped from 548 million yuan in the previous fiscal year to 713 million yuan, a 30% year-on-year growth, mainly benefiting from the channel expansion of high-quality AB-grade fruits.

Since April this year, Baiguoyuan has actively embraced the new retail trend, establishing cooperation with front warehouse e-commerce platforms, and becoming a core supplier of multiple key product categories. At the same time, the company leverages the synergies within its ecosystem to provide high-quality fruits to large-scale membership stores, deepening market penetration.

In terms of global layout, Baiguoyuan continues to strengthen its global supply chain advantage, signing long-term cooperation agreements with fruit industry giants in Thailand and New Zealand to enhance international market competitiveness. In terms of "selling globally", the company's ToB wholesale export business has added products such as pears and blueberries, enriching the product matrix. During the reporting period, overseas export business achieved a 29% annual year-on-year growth, with the Indonesian market performing particularly well, with a growth rate exceeding 80%.

Market observers point out that China's fruit retail industry faces three major growth opportunities: stable growth in the C-end market, quality improvement and efficiency enhancement in the ToB market, and expansion in overseas markets. Baiguoyuan's long-term strategy will revolve around these three growth opportunities, aiming to leverage strategic transformation and industry opportunities to achieve new growth heights, significantly improve company performance and valuation, and further demonstrate long-term value.