In the mustard industry, Chongqing Fuling Zhacai Group Co.Ltd(002507) ( Chongqing Fuling Zhacai Group Co.Ltd(002507) , SZ) is a well deserved leader.
According to Euromonitor International data, as early as the end of 2008, Chongqing Fuling Zhacai Group Co.Ltd(002507) market share has reached 21.28%, and by the end of 2019, its market share has reached 36.41%.
However, Chongqing Fuling Zhacai Group Co.Ltd(002507) has also fallen into a bottleneck recently. Following the decline of the company’s net profit in 2019, the company increased its income without increasing its profit again in 2021.
This makes Chongqing Fuling Zhacai Group Co.Ltd(002507) face many questions: enterprise development meets the ceiling, profit growth depends on price increase
Anxious Chongqing Fuling Zhacai Group Co.Ltd(002507) wants to seek a breakthrough: vigorously carry out brand publicity, try to get close to young consumers, focus on the sinking of channels and try to expand product categories at the same time.
However, the effect of price increase on performance is getting smaller and smaller, and the development of multiple categories is not smooth. These are the problems that Chongqing Fuling Zhacai Group Co.Ltd(002507) currently needs to face.
2021 increase in income without increase in profit nearly 80% net profit dividend
Chongqing Fuling Zhacai Group Co.Ltd(002507) is mainly engaged in the development, production and sales of instant foods such as pickled mustard, radish, pickles, meals and other appetizers. Among them, mustard is the core product of the company, and the company is also the only listed company in the mustard industry.
The annual report of Chongqing Fuling Zhacai Group Co.Ltd(002507) 2021, known as “Mustard grass”, is not satisfactory: in 2021, the company realized an operating revenue of about 2.519 billion yuan, a year-on-year increase of 10.82%; The net profit and non net profit deducted were 742 million yuan and 694 million yuan respectively, with a year-on-year decrease of 4.52% and 8.49% respectively.
Picture source: Chongqing Fuling Zhacai Group Co.Ltd(002507) 2021 Annual Report
Why did the company increase revenue but not profit in 2021? On the morning of March 18, the reporter of “daily economic news” called Chongqing Fuling Zhacai Group Co.Ltd(002507) , and the staff replied that it was mainly due to the rise in the price of raw materials and the increase in the cost of the company’s brand.
“At the beginning of 2021, the purchase price of qingcaitou soared and the price of raw materials was abnormally high. The price fluctuation of bulk commodities in the middle of the year caused a sharp rise in the prices of packaging and auxiliary materials, and the consumer goods industry was under pressure on the production side” Chongqing Fuling Zhacai Group Co.Ltd(002507) annual report shows that affected by market supply and demand, the prices of the company’s main raw materials green vegetable head and pickled mustard semi-finished products increased by about 80% and 42% year-on-year respectively in 2021, resulting in a year-on-year increase of about 13% in the company’s main business cost in the reporting period.
According to the company, another reason for increasing revenue without increasing profit in 2021 is the increase of brand fees. According to the annual report of Chongqing Fuling Zhacai Group Co.Ltd(002507) 2021, the company established the Chongqing Branch of the group headquarters, integrated high-end management talents such as brand operation and digital transformation, carried out brand operation and consumer operation, and invested 255 million yuan in brand building throughout the year.
As the leader of pickled mustard industry, “Wujiang” brand of Chongqing Fuling Zhacai Group Co.Ltd(002507) has long been well-known in the market and industry. Why does the company still spend a lot of money on brand marketing?
With the growth of young consumers, Chongqing Fuling Zhacai Group Co.Ltd(002507) began to feel anxious about how to make the brand younger. “The aging of traditional brands has weakened the stickiness of the new generation of consumer groups,” Chongqing Fuling Zhacai Group Co.Ltd(002507) said bluntly in the annual report.
At the investor relations event in December last year, Chongqing Fuling Zhacai Group Co.Ltd(002507) also said that the company’s brand publicity measures in 2021 are mainly aimed at breaking consumers’ negative cognition and expanding brand awareness and reputation, and strive to solve the problems of brand aging, low-end and marginalization.
In fact, it’s not just that in 2021, the increase in revenue does not increase profits. Since 2017, the performance growth of Chongqing Fuling Zhacai Group Co.Ltd(002507) has slowed down: the growth rate of revenue has declined from 35.64% in 2017 to 10.82% in 2021, and the growth rate of net profit has also declined all the way from 61% in 2017, even showing negative growth in 2019 and 2021.
On the other hand, although the performance is not significant, Chongqing Fuling Zhacai Group Co.Ltd(002507) continues the tradition of generous dividends. According to its 2021 annual report, the company plans to distribute a cash dividend of RMB 3.5 (including tax) for every 10 shares to all shareholders based on the total share capital of 888 million, with a total dividend of RMB 311 million.
The editor noted that the dividend of Chongqing Fuling Zhacai Group Co.Ltd(002507) reached 577 million yuan in 2021, accounting for 77.76% of the net profit of the year, plus the dividend of 266 million yuan (including tax) in the previous semi annual report
It is worth mentioning that from the financial data, Chongqing Fuling Zhacai Group Co.Ltd(002507) is not bad money. At the end of 2021, its asset liability ratio was 7.51%, with total assets of 7.749 billion yuan, liabilities of 581 million yuan, monetary funds in the account of 3.086 billion yuan, and there were no short-term loans and long-term loans.
In addition, in 2021, Chongqing Fuling Zhacai Group Co.Ltd(002507) completed nearly 3.3 billion fixed increase fund-raising for the construction of green intelligent production base (phase I) and intelligent information system project of mustard. Specifically, it includes: 407000 tons of raw material cellar, raw material processing workshop and equipment, 200000 tons of mustard production workshop and equipment, park intelligent logistics center, digital intelligent factory platform, digital intelligent marketing platform, big data intelligent office platform, etc.
By the end of 2021, the balance of the above-mentioned fund-raising account still exceeds 3.2 billion yuan. In order to improve the use efficiency of funds, Chongqing Fuling Zhacai Group Co.Ltd(002507) recently announced that after the deliberation and approval of the board of directors, plans to invest some temporarily idle raised funds of no more than 3.2 billion yuan and idle self owned funds of no more than 3 billion yuan in financial products with high safety, good liquidity and guaranteed principal
Chongqing Fuling Zhacai Group Co.Ltd(002507) how can we break through this dilemma
in recent years, the price has been raised more than 10 times
In order to alleviate the pressure brought by factors such as rising raw material prices, Chongqing Fuling Zhacai Group Co.Ltd(002507) has raised prices many times in recent years.
According to the incomplete statistics of the reporter, since 2008, the price of Chongqing Fuling Zhacai Group Co.Ltd(002507) has been raised more than 10 times, and the latest price adjustment occurred in November last year. In the same month, Chongqing Fuling Zhacai Group Co.Ltd(002507) announced to adjust the ex factory prices of some products, and the increase range of each category was 3% – 19%.
How will the price increase affect the company’s product sales? On March 18, Chongqing Fuling Zhacai Group Co.Ltd(002507) staff replied that the price increase has not had a special impact (on sales) from the information we have learned so far.
The reporter of the daily economic news noted that in a single quarter, the company achieved a total operating revenue of 563 million yuan in the fourth quarter of 2021, with a year-on-year increase of 18.74%, which was significantly accelerated compared with the year-on-year increase in the second quarter and the third quarter.
From this point of view, the price increase in November 2021 has improved the company’s revenue in the fourth quarter. But is the future price increase a long-term plan for Chongqing Fuling Zhacai Group Co.Ltd(002507) improving performance?
It is worth mentioning that the recent Chongqing Fuling Zhacai Group Co.Ltd(002507) focused on channel sinking. The company said in its 2021 annual report, “during the reporting period, the company adhered to the high-quality strategy, insisted on thorough and sinking, continuously improved product quality and expanded channels to counties and townships.”
Compared with the first and second tier cities, county and township channels may be more sensitive to consumer prices. Will the company’s price increase affect its channel sinking plan? Some investors also have doubts about this.
At an investor relations event in mid December 2021, Chongqing Fuling Zhacai Group Co.Ltd(002507) replied that there is no inevitable connection between channel sinking and price increase. In the next step, the company will continue to strengthen channel control, continue to implement urban precision marketing mode, optimize pressure incentive mechanism, and fully mobilize the enthusiasm of sales team to carry out channel construction related work.
In an interview with the daily economic news on March 18, Zhu danpeng, an analyst of China’s food industry, analyzed that one of the important strategies for the development of Chongqing Fuling Zhacai Group Co.Ltd(002507) 2021 is the sinking of channels, that is, from the first and second tier cities to the fourth and fifth tier cities, including the sinking of service system, resources and management. Under this strategy, the company’s revenue has increased, but the increase of costs has also diluted its profits.
In the view of the current “ceiling “, Zhu danpeng has faced the “double ceiling of the company. Relying solely on channel sinking and price increase, the company is difficult to break this ceiling. In the future, the company needs to find a second growth curve.
However, Chongqing Fuling Zhacai Group Co.Ltd(002507) does not agree with the “ceiling”. The staff of the company said that they have noticed the relevant statements in the market, but in the view of the company, China’s pickles have a long history and are highly recognized by consumers, while mustard has the characteristics of being able to replace other pickles, and there is still room for development in the future.
diversification exploration is not going well
Chongqing Fuling Zhacai Group Co.Ltd(002507) need to find the second growth curve? Can you find your second growth curve?
In Zhu danpeng’s view, for Chongqing Fuling Zhacai Group Co.Ltd(002507) speaking, the breakthrough to get rid of the current dilemma lies in the development of multiple brands, categories and scenes.
Chongqing Fuling Zhacai Group Co.Ltd(002507) staff told reporters that the company had also discussed the “ceiling” and formulated a long-term development strategy based on it, that is, it not only relied on the single product of pickled mustard, but promoted the long-term development of the company through a multi category plan.
In fact, Chongqing Fuling Zhacai Group Co.Ltd(002507) has begun to diversify its layout, and has made great efforts in kimchi, radish and other products. Among them, radish is positioned as a large single product by the company, which is also the first test of the diversification of the company’s categories. However, in 2021, the company’s radish sales volume and output were 4600 tons, down 36% and 37% respectively from the previous year.
Why did the sales volume and output of radish products with high expectations decline sharply in 2021 Chongqing Fuling Zhacai Group Co.Ltd(002507) annual report said it was caused by “adjustment of sales policy during the year” Chongqing Fuling Zhacai Group Co.Ltd(002507) staff further explained that, for example, the company used to promote radish products on the shelf, but last year, the company focused more on brand publicity and paid less attention to it.
The above staff also said that the reason why the company vigorously promoted its brand in 2021 is also to better promote the development of multiple categories in the future. “Just focus on the category of pickled mustard first, and then diversify to develop other categories.”
As for the specific planning of Chongqing Fuling Zhacai Group Co.Ltd(002507) multi category development, the staff member said that the subsequent companies may try to develop sauces, such as bean paste.
The reporter noted that Chongqing Fuling Zhacai Group Co.Ltd(002507) had tried to expand into the field of sauce as early as 2018. In March of that year, the company announced that Chongqing Fuling Zhacai Group Co.Ltd(002507) plans to issue shares and pay cash to purchase 100% equity of Sichuan Xingxing and Sichuan weizhinong, with a total price of 236.5 million yuan, and raise no more than 135 million yuan of supporting funds. For the above acquisition, Chongqing Fuling Zhacai Group Co.Ltd(002507) once said: “the company will quickly complete the coverage of Sichuan seasonings such as bean paste from a single appetizer such as mustard and pickle”.
However, after a short time, the company announced the termination of the above acquisition. For the reasons for the termination, Chongqing Fuling Zhacai Group Co.Ltd(002507) said that the subject enterprise could not solve the problem of horizontal competition.
In the future, it remains to be seen whether Chongqing Fuling Zhacai Group Co.Ltd(002507) can solve the problem of single category and break through the current dilemma. According to the financial budget of Chongqing Fuling Zhacai Group Co.Ltd(002507) 2022, the operating revenue target of the company in 2022 is 289646 billion yuan, an increase of 15% year-on-year. In this regard, Chongqing Fuling Zhacai Group Co.Ltd(002507) staff said that this is based on the budget made by the company’s current operation. Whether it can be realized in the future may be affected by many factors and cannot be used as the performance guarantee of the company.
In fact, the Chongqing Fuling Zhacai Group Co.Ltd(002507) financial budget for 2021 once showed that the company’s operating revenue target in 2021 was 2.955 billion yuan, an increase of 30% over the previous year. However, the company actually realized a revenue of 2.519 billion yuan in 2021, with a year-on-year increase of 10.82%, which did not reach its budget level.
