You can buy a bag for 50 cents or a dollar. Spicy food is a childhood memory of many people. We are also used to its relatively fixed price, but the price of this popular food has recently announced an increase.
As the top stream in the spicy strip industry, Weilong delicious Global Holdings Co., Ltd. (hereinafter referred to as Weilong delicious) attributed the rise in the price of raw materials to the rise in the price of raw materials.
The reporter of the daily economic news noted that the prices of the main raw materials of Weilong delicacy, including soybean oil and flour, have increased one after another recently, especially soybean oil. Since this year, the price of soybean oil 2209 contract has increased by more than 30%, and in the past two years, it has increased by more than 100%.
Weilong delicacy passed the listing hearing of the Hong Kong Stock Exchange as early as November last year. In the past few months, there has been no new progress in its listing. What is the impact of the rise in the price of raw materials on Weilong delicacy, and Weilong delicacy’s promotion to the “first share of spicy food” adds another barrier?
Soybean oil contract price increases by more than 100% in two years
Spicy strip head enterprises announced price increases. Recently, this topic rushed to microblog hot search.
According to the online price adjustment notice of Weilong delicious, due to the continuous rise of raw materials, the company decided to adjust the ex factory price and recommended retail price of some products accordingly, and will implement the new price from April 18, 2022.
In this regard, on April 19, the reporter of “daily economic news” called Weilong delicious customer service as a consumer. The staff confirmed that the company did issue a price increase notice recently.
It’s not just Weilong delicacy that raises the price. In April 15th, another famous brand named spicy prince in hot strip industry also announced the price increase through official WeChat official account. Among them, the price of 110g spicy Prince increased from 6 yuan / bag to 7 yuan / bag, and the price of 550G boxed spicy Prince increased from 24.9 yuan / box to 29.9 yuan / box. According to this calculation, the above products will increase by about 16% – 20%, and the new price will be implemented from May 1.
For the reason for the price rise, Weilong delicious customer service staff said that it was because of the rise in the price of raw materials. According to the prospectus of Weilong delicious after the hearing, the company’s main raw materials include soybean oil, flour and konjak, as well as cumin, pepper, pepper and other seasonings and other auxiliary materials. In addition, the company also purchases and uses a large number of packaging materials, including cartons and bags.
Taking soybean oil, one of the most important raw materials of Weilong delicacy, as an example, according to Northeast Securities Co.Ltd(000686) Research Report, the average price of soybean oil increased from 5.7 yuan / kg to 6.7 yuan / kg from 2018 to 2020. According to the annual report of Zhongjing Food Co.Ltd(300908) 2021, affected by the changes in the international market, the purchase price of soybean oil in 2021 increased by 43.41% over the same period of last year.
On the futures market, as of April 24, 2022, the quotation of soybean oil 2209 contract was 11306 yuan / ton, an increase of more than 30% this year; Over the past two years, it has increased by more than 100%.
Although the specific materials may not be exactly the same, many raw materials are roughly the same. For example, flour, pepper, Chinese prickly ash, packaging materials and other raw materials are important raw materials for spicy Prince and Weilong delicacy, and the prices of these raw materials have also increased by different ranges recently. According to the official WeChat public official account of spicy Prince’s spicy hot strip, as of the end of March, the flour, pepper and pepper packaging materials increased by 13%, 20% and 10% respectively, compared with the average level in 2021.
The gross profit margin fell for the first time in the first half of 2021
Weilong delicacy is experienced in price increase, which has also brought the increase of gross profit margin to the company.
Weilong delicious products include seasoned flour products (i.e. spicy strips), vegetable products, bean products and other products. Among them, the revenue of seasoned flour products in 2020 was 2.69 billion yuan, accounting for 65.3% of the company’s overall revenue, which can be called the company’s main product.
From 2018 to 2020, the average selling price of Weilong delicious seasoned flour products per kilogram was 13.9 yuan, 14.3 yuan and 15 yuan respectively, and the price increased year by year. In this case, the gross profit margin of Weilong delicious food in the same period was 34.7%, 37.1% and 38% respectively, increasing year by year.
However, by the first half of 2021, the gross profit margin of Weilong delicious seasoned flour products decreased to 35.3%, down 2.6 percentage points from 37.9% in the first half of 2020. The company explained that the purchase cost of soybean oil increased mainly due to the increase of global Shenzhen Agricultural Products Group Co.Ltd(000061) price. Related to it, the company’s gross profit margin also decreased to 36.9%, down 1.1 percentage points compared with the whole year of 2020.
How did the market react to the price increase and whether it can reverse the decline of the company’s gross profit margin? The reporter of “daily economic news” saw on the hot search topic of relevant microblog that some netizens left a message saying, “can I afford spicy strips if it goes on like this?”. But many netizens also expressed their understanding that “the rise is not too much” and “the increase in money is OK, and the quality is good”.
Zhu danpeng, an analyst of China’s food industry, told the daily economic news that the prices of raw materials and logistics in the spicy strip industry are rising. If the enterprise does not raise the price of its products, it may lower the grade of raw materials in a disguised form, which is not a good thing for consumers.
In Zhu danpeng’s view, the original price base of spicy strips is not high. It is a just needed category for people who like spicy strips, so the market should not respond to the price increase this time. Zhu danpeng also said that compared with other leisure snack segments, spicy strips have a good gross profit margin, and enterprises should be able to absorb the increase of soybean oil.
Of course, there are different views in the market. Economist song Qinghui said in an interview with reporters that as a niche product, the target group of spicy bar products is generally more sensitive to prices. It is expected that this wave of price rise of spicy bar may be difficult for consumers to accept.
Song Qinghui believes that, to a certain extent, although the price increase is conducive to alleviating the cost pressure of enterprises, the practice of digesting the cost pressure through the price increase is not a long-term plan. This move may lose a large number of price sensitive consumers, and the product sales may be affected. In the long run, it is unfavorable to the growth of the company. “Fundamentally speaking, the company should actively respond by optimizing operation management, reducing costs and increasing efficiency, expanding channel resources and other ways, and can not rise at once.”.
Weilong delicious’s prospectus after the hearing showed that most of the company’s main raw materials (such as soybean oil and flour) belong to bulk commodities. For these bulk commodities, the company will coordinate procurement requirements and conduct centralized procurement to make better use of the company’s scale advantage.
However, Weilong delicacy also said that commodity prices usually fluctuate with the market. According to industry practice, the company is generally unable to immediately pass on the price increase of raw materials to customers. Therefore, any sharp rise in the price of raw materials may have an adverse impact on the profitability and operating performance of the company. Moreover, if the price is raised, the company can not completely pass on the increase of raw materials to customers. In addition, price increases may adversely affect the company’s demand.
Can spicy strips support a valuation of 60 billion?
In the prospectus after the hearing of Weilong delicious, frost Sullivan was quoted as saying that in 2020, the company was the largest participant in spicy snack food in China, with a market share of 5.7%, which was 3.8 times that of the second largest participant in terms of retail sales. From the perspective of China’s leisure food industry, the company accounts for 1.2% of the overall market share.
As a leading enterprise in the spicy strip industry, Weilong delicacy is favored by capital. According to the prospectus after the hearing of Weilong delicious, 10 investors such as Hillhouse and Tencent subscribed for 147 million shares of Weilong delicious, paid a consideration of $659 million and exchanged 7.02% equity of Weilong. According to this estimate, Weilong’s valuation is US $9.387 billion (about 60 billion yuan).
Can Weilong delicacy with capital blessing be successfully promoted to the “first share of spicy article”? The company passed the hearing of the Hong Kong Stock Exchange in November last year, but there has been no new progress in the listing of the company in the past few months.
Affected by the impact of the epidemic, the conflict between Russia and Ukraine and the expectation of the Federal Reserve to shrink the table, the Hong Kong stock market has fluctuated downward this year; In addition, since last year, new shares of Hong Kong stocks have broken down frequently, and some of the secondary new shares listed last year have also fallen below the issue price recently.
Song Qinghui analyzed that the reason why Weilong delicious has not been listed at present may be waiting for the market environment to improve, or there may be some objective factors affecting the listing. This wave of rising raw material prices may affect its future performance growth level, and may also affect its listing process to some extent.
Song Qinghui also believes that Weilong’s valuation of 60 billion yuan is too high. According to his analysis, China’s snack food market is relatively scattered, and Weilong delicious only accounts for 1.2% of the overall market share. Estimated according to the lower P / E ratio of the leisure and snack industry, Weilong delicious is valued at about 20 times P / E ratio, with a market value of about 20 billion yuan.
It is worth mentioning that not only the rise in raw material prices, Weilong delicious, which is in the critical period of listing, is also facing doubts and challenges. In March this year, the company apologized on Weibo because of the “vulgar marketing” incident; In addition, Weilong delicious, which focuses on spicy products, also faces external concerns about the health, quality and safety of its products.
Song Qinghui said that the biggest challenge faced by Weilong delicious on the market is its single product, and a single product may bring huge risks to it. In the future, once there are major quality problems in the main product of spicy strips, it will be almost disastrous for Weilong delicious.
Zhu danpeng also said that the main problem of Weilong delicious is that the proportion of spicy products is too high, and there is a high risk of single product. In the future, Weilong delicacy needs to carry out the “five plus” strategic layout, that is, the layout of multiple brands, categories, scenes, channels and consumer groups, so as to reduce the overall business risk.
On matters related to the price increase of products and the listing of the company, the reporter of the daily economic news recently called Weilong delicious and sent an interview outline to the company, but as of the press release, no reply has been received.
