Image credit: Visual China
Blue Whale News, September 3rd (Reporter Zhang Jinglun) In the first half of this year, Juewei Food Co., Ltd. (603517.SH), one of the "four giants of flavored snacks," once again faced the dilemma of "increased profits but not increased revenue", with revenue of 3.34 billion yuan, a year-on-year decrease of 9.73%; net profit was 0.296 billion yuan, a year-on-year increase of 22.2%.
In fact, looking at a longer period of time, Juewei Food Co., Ltd. has long encountered a growth bottleneck. After experiencing a splendid year in 2021, although Juewei Food Co., Ltd. has maintained revenue growth, net profit has shown an overall downward trend. From 2021 to 2023, Juewei Food Co., Ltd.'s revenue was 6.549 billion yuan, 6.623 billion yuan, and 7.261 billion yuan, while net profit during the same period was 0.981 billion yuan, 0.235 billion yuan, and 0.344 billion yuan, respectively.
The pressure of performance growth is also reflected in the decline of stock prices. In February 2021, Juewei Food Co., Ltd.'s stock price soared to over 100 yuan, and its market value exceeded 63 billion yuan. However, as of the close of September 2nd, Juewei Food Co., Ltd.'s market value was only 7.761 billion yuan, a decrease of nearly 90% from its highest stock price.
Undoubtedly, it is now the "darkest moment" for Juewei Food Co., Ltd. Although it is a giant in the flavored snack industry, the competition in the flavored snack market is becoming more and more intense. Can Juewei Food Co., Ltd. survive this "difficult autumn"?
Changing the expansion strategy
Public information shows that Juewei Food Co., Ltd. is a leading domestic manufacturer of flavored products, with revenue mainly coming from the sales of flavored snacks and the management of franchisees. Among them, the flavored duck neck product is the company's flagship product, and the company is also known as the "king of duck neck snacks" by the public.
Juewei Food Co., Ltd. stated in the financial report that the decline in revenue in the first half of the year was mainly due to the decrease in product sales. However, the shrinking store scale undoubtedly also had an impact on the revenue.
Juewei Food Co., Ltd. did not enter the cured meat track early, but it made significant achievements in store expansion to become the leading company in the cured meat industry. Since 2014, Juewei Food Co., Ltd. has rapidly expanded its store network through the 'franchise store' model. As of the end of 2022, Juewei Food Co., Ltd. had 15,076 stores in mainland China, about 4.4 times that of Zhou Hei Ya and 3.8 times that of Jiangxi Huangshanghuang Group Food. However, since last year, Juewei Food Co., Ltd. has gradually slowed down its pace of expansion through franchise. In 2023, the net increase in the number of new stores in mainland China was only 874. In the first half of this year, the number of mainland stores decreased by nearly 1,000 compared to the end of 2023.
It is worth mentioning that in 2023, Juewei Food Co., Ltd. firmly stated that it will maintain the expansion of stores, accelerate the pace of store openings, and open high-potential stores in first- and second-tier city centers. Over the past year, Juewei Food Co., Ltd. has shifted from a rapid expansion strategy to precision management. In its financial report, it stated, "With the transformation of macroeconomic demand and consumption environment, the company will prioritize improving per store revenue and ensuring the survival of franchisees, adjusting store models according to the actual situation in different markets, and overcoming difficulties together with franchisees."
Looking at the financial data, the past expansion did not bring Juewei Food Co., Ltd. higher returns. From 2019 to 2023, the net income attributable to the parent company of Juewei was 80.1 million yuan, 70.1 million yuan, 98.1 million yuan, 23.5 million yuan, and 34.4 million yuan respectively. Despite the increasing number of stores, the net profit level in the past two years is even lower than before the epidemic.
In addition to Juewei Food Co., Ltd., another listed company in the cured meat track is facing the same difficulties. The recent interim report released by Jiangxi Huangshanghuang Group Food showed that the company achieved a revenue of 1.06 billion yuan in the first half of the year, a decrease of 7.5% year-on-year, and a net profit attributable to the parent company of 61 million yuan, a decrease of 26.6% year-on-year. As of the end of June 2024, the company had 4,052 stores, a net decrease of 445 stores compared to the end of 2023.
In the financial report, Jiangxi Huangshanghuang Group Food also mentioned that although the company has always attached importance to store management, if the improvement in management level cannot keep up with the speed of store expansion, it may lead to some stores falling behind in management, or failing to strictly manage according to the company's system, resulting in unqualified product quality, and the inability of its business activities to match the company's management philosophy, thereby adversely affecting the company's brand image and business performance.
Zhao Danpeng, an industry analyst in the Chinese food industry, said, "The cured meat industry definitely needs to rely on store expansion to achieve scale, and to increase enterprise revenue and profits. However, blindly opening stores and the density, layout, size of the stores, as well as the level of store operation, distribution, establishment of service systems, and maintaining customer stickiness are all crucial. Therefore, for enterprises, continuously expanding the number of stores does not necessarily mean sustainable development. Overall, there is still development prospects for the cured meat industry in the future, but the current market competitive situation will pose higher demands and challenges for enterprises."
The industry as a whole is under pressure, and is the cured meat industry losing its appeal again?
From the financial report, the overall pressure on the braised food industry is due to the decrease in consumer demand.
"The 'braised food giants' may experience a situation of increased profits without increased revenue, or a double decline in revenue and net income, and the overall industry performance is not optimistic."
Juewei Food Co., Ltd. stated in the financial report that in the first half of 2024, the industry changes brought unprecedented operational pressure to the company.
Frost & Sullivan and the Red Meal Industry Research Institute also showed that the growth rate of the braised products industry has significantly slowed down, with a CAGR of 6.42% from 2018 to 2023, and a market size of approximately 318 billion yuan in 2023.
Although the revenue growth rate is under pressure, the decrease in costs has still given Juewei Food Co., Ltd. a sigh of relief. The financial report shows that the company's operating costs decreased by 17.95% year-on-year, and the gross margin also increased from 23.31% in the same period last year to 30.29%, mainly due to the decrease in raw material prices.
A person related to Juewei Food Co., Ltd. previously told Caixin reporters that the main factor affecting the company's product gross margin is the price of raw materials. Byproducts of ducks have fallen from the highest level of 28 yuan/kg last year to about 10 yuan/kg, which is lower than the historical average price. With an increase in duck seedling volume this year, it is expected that the price of duck byproducts will remain stable for a long time.
However, the current headache for Juewei Food Co., Ltd. is not just the company's performance. On the evening of August 15, Juewei Food Co., Ltd. announced that on August 15, 2024, it received a 'Notice of Filing' from the China Securities Regulatory Commission, stating that the company is suspected of illegal and irregular disclosure of information. According to relevant laws and regulations, on June 7, 2024, the China Securities Regulatory Commission decided to file a case against the company.
It is worth mentioning that Juewei Food Co., Ltd. is not the first time it has been 'named' due to information disclosure issues. In August 2023, the Shanghai Stock Exchange disclosed issues such as undisclosed joint investment by related parties, failure to disclose related parties and related transactions as required, and non-standard management of store operating funds, franchise fees, and management fees.