But there are also examples of companies that have gone the other way around. Nongfushanquan, a company that is usually quite good at storytelling in product marketing, had been telling the story of "planning to go public on the A-share market" for 10 years, but ended up kicking the ball to the Hong Kong stock market, and showed the image of a low-key and honest traditional industry company in the prospectus.
Traditional industries out of the "white horse stocks", is the A-share market in recent years, one of the important phenomenon, and the people's lives are closely related to the food and beverage category, especially so. Look at the stock price of record high Maotai, and then look at the soy sauce to make 350 billion yuan market value of Haitian taste industry, Nongfushanquan steady growth in income, high gross profit margins, high dividend rate of the look, indeed, and they have a few similarities.
But Nongfushanquan's business is just a "water seller", and in the past it would have been more modest to call itself just a "mover of nature". Hong Kong stock market, there have been the same water sales company - "Tibet water resources" ("5100 Tibet glacier mineral water" parent company) - by short sellers sniper. -The company was sniped by short sellers, who called its financial data "unbelievable". After the disclosure of Nongfushanquan's prospectus, there were those who wanted to read between the lines and claimed they saw Nongfushanquan as an aggressive company on the edge of a cliff rather than a solid industry leader.
So what did the "water seller" say in the prospectus?
"Other drinking water"
If you don't have a lot of resources or a lot of money, and you have a sudden desire to do some business in the beverage industry, selling pure water might be a good first step.
Throwing away the concept of "baby water", "cool white" and other brand packaging out of the Chinese market sales of packaged drinking water, the actual can be simply divided into drinking natural mineral water, drinking water and other types of drinking water three categories. Among them, "drinking water" of the raw water, from the public **** water supply system (that is, tap water), the preparation process is simple, so the cost is very low, which is also wahaha, master kang, ice dew and other common one to two dollars of bottled water source. For brands such as Master Kong and Coca-Cola, these water products are launched to help their other products expand channels or increase channel stickiness, and are not profitable in themselves.
If brands like Baisi Mountain and Kunlun Mountain start with "drinking natural mineral water", it means entering a high-end market that spans water sources, packaging and storytelling. Correspondingly high profit margins may help companies achieve some profitability, but at the same time to face the siege of Evian, VOSS and other international brands.
Is there a "middle way" with lower costs and appropriate gross margins? Nongfushanquan is focusing on "other types of drinking water" this broad category under the "drinking natural water" and "drinking natural spring water" of the two water resources. They are usually not part of the public **** water supply system of surface water and groundwater system, containing some minerals and trace elements, is a very cost-effective product raw materials.
It is also because of these basic characteristics of natural water sources and mineral content, one of the most important product stories in the early days of Nongfushanquan centered on the concepts, standards, and nutritional values of "natural water" and "pure water". Since then, Nongfushanquan with Wahaha, Lepai's, China Resources Yibao and other brands in several large and small "water war", and gradually hit the popularity and market space.
Selling water is not a cost-free business. Nongfushanquan cost of sales structure, excluding PET plastic bottle expenses, raw materials (including water fees and fruit juice, sugar and other raw materials) has increased slightly year by year, but relative to the proportion of revenue is gradually declining. The process of finding a water source is much like mining, with a bidding fee for mining rights, an annual mining plan, and a resource fee based on usage. Once a water source is developed and put into production, there is a "water fee" for the developer. Analyzing the drinking water business data of "Tibet Water Resources" and A-share listed company "Jilin Forestry" (parent company of regional mineral water brand "Quanyangquan"), we can see that the gross profit of selling mineral water is generally 45% to 55%. The gross profit margin on mineral water sales is generally around 45% to 55%; for Nongfushanquan, which also sells natural water, this figure can further rise to around 60%.
The next problem for water companies that want to break through geographical constraints and take their business nationwide is the number of water sources and the size of their production capacity.
The bottled water industry has a "500-kilometer transportation radius" empirical law, that is to say, the terminal market of bottled water should not be too long a distance from the water source, otherwise the net profit will be consumed by logistics, sales and other costs. Nongfushanquan disclosed in the prospectus 10 gradually developed water source location, production and capacity data. As seen from its layout timeline, the 500-kilometer radius of these water sources gradually covers the vast majority of China's regional market for consumption of bottled water, with a stronger overlay coverage of the two key markets of East China and South China.
Except for Zhejiang Qiandao Lake and Guangdong Wanlv Lake, the capacity utilization rate of most of Nongfushanquan's water sources is less than 50%, which is not high compared with many highly loaded food and beverage companies. But six of the 10 water sources in the past three years, the production growth rate has always been higher than the capacity growth rate, indicating that the company is in accordance with the regional sales situation in the adjustment of production capacity.
Of course, it's also the prerogative of head "water sellers" like Nongfushanquan to take advantage of partnerships with "water suppliers" to share costs and risks.
Invisible "waterman"
Before starting to sell water, Nongfushanquan's family Zhong did a period of time Wahaha in Hainan and Guangxi's general agent. During the period, he will be in Hainan, low-priced Wahaha oral liquid to get outside the agency area of Guangdong high-priced sales, this "collateral" behavior so that he ultimately lost the qualification of the agent.
Now, the clock operated by Nongfushanquan is very strict control of the dealer system. The prospectus disclosed that Nongfushanquan covered more than 2.37 million terminal retail outlets nationwide by the end of 2019, accounting for about 11 percent of all retail outlets in China. Between Nongfushanquan and these retail outlets, the flow and sale of products relies on more than 4,000 first-tier distributors who work closely with Nongfushanquan, as well as logistics partners. They are the key invisible "waterman" in the water selling chain.
Nongfusanquan itself needs to undertake the transportation process from the factory to the first-level distributors, railroads and highways are the most common mode of output. Around the "500 kilometers transportation radius" law generated by the logistics costs, is the most worthwhile part of strict control, otherwise the product may be transported to the halfway on the already in the loss of money.
Nongfushanquan's factories are close to the water source, and basically with the railroad or highway network. In the Changbaishan region, because of the early layout, it was once still the only domestic water seller with a dedicated rail line. Changchun Spring Railway Logistics Group's local branch has long provided "door-to-station" specification freight services for this large customer.
Toward the end of 2018, Nongfushanquan's factory in the Changbaishan Mountain region tried to switch to direct road shipments for short-distance distributors, reducing the supply of rail transportation by more than 50 percent. In order to retain customers, the local railroad logistics company developed a "rail-automobile combined transport" logistics turnkey service program, increased the "station to the door" back-end distribution services, and the use of volume price bundling, which has re-enhanced the use of railroad freight Nongfushanquan rate.
Railway logistics service providers, the new three board listed company "Angang Logistics", mainly serving the Changbai Mountain region to develop drinking water resources of the major well-known water plant, Nongfushanquan has been among the top five customers in the list of related revenue to Angang Logistics, the small company's overall revenue contribution of 40%.
Relying on close cooperation with these invisible water deliverers, Nongfushanquan's spending on logistics and warehousing has continued to decline as a percentage of the company's total revenue over the past three years, to 10.5 percent in 2019, with expenses amounting to 2.526 billion yuan, according to the prospectus.
The involvement of distributors and other partners is also helping Nongfushanquan*** bear marketing costs.
Since 2016, Nongfushanquan has followed the example of global FMCG group Yizhi International and pushed forward the reform of the "big distributor" system by region, giving up the control of small distributors of the "husband and wife store" type, and not only decentralizing all the sales targets to the first-level distributors to complete, but also the sales staff of the manufacturer. The company's sales staff will also be included in the dealer's staffing, and will be paid by the dealers.
Nongfu Spring "decentralization" on the one hand, and on the other hand, to its dealer network output called "Nongfu Cooperative Partner System" (Nongfu Cooperative Partner System, referred to as NCP) digital system, in order to strictly manage the sales and marketing of the company's products. Digital system, for the strict management of sales staff on another "insurance". The front-line sales staff of the distributor system are equipped with this NCP system, which is responsible for transmitting daily data such as terminal store displays, sales equipment, promotional expenses, and inventory turnover directly to the brand's headquarters. Therefore, the distributors are actually just the executors of Nongfusanquan in the logistics and sales links.
The prospectus shows that 2017 was the peak of the termination of contracts between Nongfushanquan and its dealers, and more than 30% of the dealers who cooperated with Nongfushanquan at the beginning of that year chose to terminate their contracts in that year.
In early 2020, Nongfusanquan also shortened the shelf life of its entire line of beverage products by three to 12 months to improve the speed of product distribution. Distributors' normal sales cycles basically cover the new shelf-life requirements, but the inventory that needs to be expedited by distributors has grown quite a bit more since then.
For dealers, Nongfushanquan adopts the "payment before delivery" trading method, so from its "customer advances", as well as "trade receivables" this two Changes in financial indicators can be a glimpse of the cooperative relationship between dealers and Nongfushanquan. In the past three years, Nongfushanquan's "customer advances" were far more than the company's net profit, indicating that it has plenty of cash on hand; but in 2019, the proportion of customer advances to revenue declined by more than 1%, and the proportion of trade receivables relative to revenue rose slightly, partly reflecting the dealer's willingness to pick up Nongfushanquan's goods. declined.
This may have something to do with the fact that Nongfushanquan has come up with a lot of "new products" over the years that aren't exactly in demand.
Big business in a small market
China's bottled water industry has basically followed the expectations of practitioners about the market outlook - Euromonitor statistics show that in the Chinese market, where "cool white water" is still the mainstay of the nation's drinking water, the size of bottled water sales has risen from 1.5 percent in 2013 to 1.7 percent in 2011, and the number of bottled water sales has increased from 2.5 percent in 2011 to 2.5 percent in 2012. The sales scale of bottled water has grown from 106.92 billion yuan in 2013 to 183.09 billion yuan in 2018, with a compound annual growth rate of 11.8%, which is indeed a high growth rate.
In the entire "soft drinks" market, there is no other piece of business as certain as bottled water. Carbonated beverages, tea drinks, juice drinks, functional beverages not only in the market size than bottled water is much smaller, and in their respective verticals have experienced more than one round of brand warfare. Even if there are brands that have established some market concentration after the fight, consumers are always curious about the new innovative brands that come to market.
Taking juice as an example, the 2019 China Shopper Report released by Bain Consulting shows that between 2016 and 2018, the top 20 brands in the juice segment contributed -6% to category-wide sales growth, while smaller, newer brands contributed 7%. Juice is also one of the few categories among the 26 FMCG categories listed in this report to show this phenomenon.
Nongfusanquan has also appeared on retail shelves as an "innovator" in the juice, functional and tea beverage niches.
Farmer's Orchard, launched in 2003, was the first "mixed fruit and vegetable juice" product to appear in the Chinese market, although the idea was quite similar to that of Japanese fruit and vegetable juice giant Kagome.
When Nongfusanquan launched its functional drink "Scream" in 2004, the domestic perception of such products was still strong with the purposeful Red Bull and a number of regional hot brands -- Suntory and Gatorade.
The sugar-free selling point of "Oriental Leaf" was launched in 2011, China's tea drinks market is still in the unified iced tea, Master Kong green tea as the representative of the significant "sugar-containing period", until around 2018, sugar-free gradually become the mainstream flavor of the tea drinks market. the mainstream flavor of the tea beverage market.
From Nongfu Orchard's early commercials to the "screaming" bottle design to the labeling innovations of Oriental Leaf ...... Nongfu Mountain Spring's storytelling ability is more fully demonstrated in the new products it pushes around these small markets.
Nonetheless, Nongfushanquan still can't get out of the tussle with other brands in various market segments. The good news is that it is able to capitalize on the advantages of being a big company -- it can use its continued investment and deep channel capabilities to give new products more time to iterate before the market grows sufficiently, while looking for opportunities upstream in the industry chain.
In addition to drinking water, Nongfushanquan is focusing on another major business - juice field, Nongfu Orchard's initial products focus on "fruit and vegetable mix", a high proportion of vegetables, and the market acceptance of this is not high. The juice market has always been strongly tied to the concept of health, with upstream to downstream sales dominated by fresh fruit. However, in the past, finished fruit juice can only choose between gross margin and taste, and larger brands tend to choose the former - either to reduce the concentration of fruit juice in the beverage, or for high-concentration fruit juice products to adopt the "concentration reduction", which can reduce the cost of the The former - either by reducing the concentration of juice in beverages, or by using "concentrate reduction" for higher-concentration products, which reduces costs.
Nongfushanquan's pure fruit juice product line "17.5" was launched at the end of 2015, the beginning of the industry's highest standards, the largest investment in the NFC (Not From Concentrate, non-concentration reduction) model, the farm, production line all self-management. NFC was originally only a pure fruit juice products in a smaller market: by the freshness period and cold chain transportation costs, pricing can only be matched to the top of the consumption ability of a very high customer, so the overall scale has been small, moderate growth. But Nongfusanquan's "17.5" just happens to emphasize room temperature and affordable pricing, which, while technically controversial, directly breaks the NFC market's previously ironclad rules.
In fact, Nongfushanquan has never been entangled in the "only NFC" thing. Its layout of juice drinks throughout the high, medium and low concentration of each product line, thus driving its accumulation in product development and upstream supply chain. The prospectus disclosed that Nongfushanquan took advantage of the falling prices of imported fruits in 2018 to strategically stockpile a considerable amount of NFC juice raw materials, which nearly doubled the value of the company's inventory in this category.
In mid-2019, the 16-year-old "Farmer's Orchard" product line was suddenly renovated from fruit and vegetable juice to a more clearly juice-led, which utilized the company's raw material stockpile to increase the concentration of juice to 50%. Along with this round of new products on the market, Nongfushanquan its slight price increase, while giving discounts to the end of the sales concessions, and ultimately to promote the juice drinks category that year, revenue growth of 24.6%.