“Investors Network” Ge Fanmei

“People take food as heaven.” In China in particular, Chinese people have been deeply researching food since ancient times. Not only have they nurtured a wide variety of Chinese cuisines, but they have also spawned diverse and unique food brands.

Based on delicious cuisine+diner traffic, catering is also seen as a good business. “The restaurant has a very good cash flow. They open in the morning and collect money in the evening.” An executive of Ziyan Foods (603057.SH) once stated this in a public report.

However, the test of how to do a good job in this business has only really begun.

The beginning: the heritage of a 35-year old brand

In 1989, in Hangzhou, Zhejiang, Zong Qinghou started by pedaling a tricycle and earned a cent by selling soft drinks, ice pops, and stationery paper. Two years after establishing the “Hangzhou Baoling Children's Nutritional Food Factory”, it changed its name to “Hangzhou Wahaha Nutritional Food Factory” this year, starting the path of a Wahaha national beverage giant.

Also this year, in Xuzhou, Jiangsu, a couple from Leshan, Sichuan, came here to do business and discovered that the locals really liked duck, so they improved the Sichuan specialty snack “crispy duck” and sold it. It was very popular, and became a famous local snack.

This couple is Zhong Chunfa and his wife. The name of this cooked and braised food restaurant on the streets of Xuzhou, Jiangsu is “Zhong Ji Fried Duck”, and this is also the predecessor of Ziyan Foods.

In 1996, Zhong Huaijun, the second-generation head, quit his job as a teacher and took over the heavy responsibility of the family business “Zhong Ji”. As the saying goes, “A new official takes office for three fires.” The same goes for Zhong Huaijun. After taking office, he first changed the brand name to “Ziyan,” which means that Ziqi comes east and swallows return to their home.

In order to expand a wider market, Zhong Huaijun decided to leave Xuzhou, first entering Nanjing, known as the “Yadu”, in 1996, and then in 2000, he opened stores in cities such as Shanghai and Hangzhou.

At the same time, it is also continuously diversifying its product range, successively developing Sichuan halogen products such as Ziyan Baiwei Chicken and Husband and Wife Lungs, etc., to transform products from duck to various products such as chicken and beef. Among them, husband and wife lung tablets are clearly a hit; this single product alone will sell for over 900 million yuan in 2021.

Along with the industrialization of marinated foods, Ziyan Foods has also gradually moved away from small family workshop production and adopted a “central kitchen” based on standardized production processes and modern process control.

In 2016, Zhong Huaijun, who has been in charge of Ziyan Foods for 20 years, also carried out drastic reforms to the distribution model and adjusted the direct franchise model to a two-level sales network of “company-dealer-terminal franchise stores”. Under this transformation, the growth rate of the company's business scale accelerated markedly.

Under these circumstances, Ziyan Foods quickly opened all major communities and vegetable markets in East China, and “Ziyan Baiwei Chicken” gradually spread across the country with stalls of about 10 square meters. By the end of 2023, Ziyan Foods' franchise+ directly managed stores had surpassed 6205, most of which were located in East China.

In July 2020, Ziyan Foods submitted guidance and filing materials to the Shanghai Securities Regulatory Bureau to be listed on A-shares.

In 2022, Ziyan Foods successfully landed on A-shares, entered the capital market, became the “first stock of braised food”, and entered a new stage of development. At the same time, new challenges are coming one after another.

Relay: the challenge of succession for three generations

From being unnamed, to becoming the “No. 1 Braised Food Company” in China, Ziyan Foods has been in the spotlight after listing, and will also be tested more strictly by the market.

According to data, Ziyan Foods was listed in September 2022 at an issue price of 15.15 yuan/share, up more than 44% on the same day. The stock price rose to an all-time high of 33.82 yuan/share in October, but since then it has fluctuated and declined.

The former glory was too short. As of the end of April this year, Ziyan Foods' stock price was around 19 yuan/share, down nearly 40% from the historical peak. Currently, the total market value is 8,092 billion yuan, 23.74 times PE (TTM).

In the secondary market, Ziyan Foods are not bought by investors. The reason for this is closely related to its fundamental performance. In 2021 and 2022, Ziyan Foods' net profit to mother was 328 million yuan and 222 million yuan respectively, down 8.67% and 32.28% respectively; changing the rapid growth trend of net profit in previous years, such as 99.59% growth in 2020 and 45.03% in 2021.

In 2023, Ziyan Foods achieved operating revenue of 3.55 billion yuan, a year-on-year decrease of 1.46%; net profit of 332 million yuan, which has not recovered to a net profit scale of 359 million yuan in 2020.

Entering 2024, the decline in the company's revenue has not improved. The first quarter of 2024 achieved operating income of 695 million yuan, a year-on-year decrease of 8%; net profit of 53.964 million yuan, an increase of 20.87% over the previous year. The increase in net profit for the period was mainly due to the decline in raw materials and lower costs.

In terms of costs, Ziyan Foods continues to rise rapidly. From 2021 to 2023, Ziyan Food's sales expenses were 97.951 million yuan, 137 million yuan and 217 million yuan respectively, up 55.52%, 39.91% and 58.74% year on year, respectively; the first quarter of 2024 increased 5.80% year on year.

Revenue continues to decline, and expenses are high. It is also a problem that Ge Wu Chao, the current successor to Zhong Huaijun, needs to be solved urgently. In May 2023, Zhong Huaijun, 56, stepped down as chairman and chose the latter as the new head of Ziyan Foods between his son Zhong Qinchuan and son-in-law Ge Wu Chao.

According to data, Ge Wu Chao was born in September 1989 and has a bachelor's degree. He was the purchasing director, general manager, and director of Ziyan Foods. He currently holds two positions as chairman and general manager of the company.

As a typical family company, Ge Wu Chao is also one of the actual controllers of Ziyan Foods. Currently, the total shareholding ratio of the actual controller's family is as high as 77.21% and controls 79.55% of the company's voting rights.

In the past two years, Ziyan Foods paid large dividends. The total cumulative dividend for 2022 and 2023 (expected dividends) was 639 million yuan, and the total net profit for more than two years was 554 million yuan, of which more than 490 million yuan of dividends went into Zhong Huaijun's family's pockets.

In fact, after Ge Wu Chao took the helm of Ziyan Foods, he not only needed to pay attention to shareholder returns, but also urgently needed to think more about the company's sustainable development.

Choice: Which way to go?

From Zhong Ji's fried duck to Ziyan Baiwei Chicken, while Ziyan Foods is growing all the way forward, new competitors are constantly emerging on the racetrack.

With the successful launch of Ziyan Foods, Braised Foods has formed a pattern of competition with the Big Four: Huangshanghuang, Zhou Black Duck, Zhouwei Foods, and Ziyan Foods.

According to a research report by Sullivan and Toubao, the overall market size of marinated food in China is growing at a relatively rapid pace, from 149.82 billion yuan in 2018 to 234.95 billion yuan in 2022, with a compound annual growth rate of 11.9%. The market size is expected to reach 393.41 billion yuan in 2027, with a compound annual growth rate of 10.9%.

Competition in the industry is intensifying. Competitors are going against the water; if they don't advance, they retreat. After Ge Wu Chao took office, he set out to open up overseas markets. In May 2023, the company established an overseas division and trained the first batch of overseas market development personnel in business management, simulation, etc.

Meanwhile, in the domestic market, judging from consumer feedback, high prices, low volume, and food safety and quality are also becoming the focus of many consumers' complaints.

At the same time, the pace of expansion of Ziyan Foods has also slowed down, and none of the four major fund-raising projects that have been listed to raise capital have progressed. Earlier, Ziyan Foods stated in its listing prospectus that since 2019, its production capacity has been at full capacity and plans to raise about 565 million yuan for projects such as Ningguo Food Production Base Phase II, Rongchang Food Production Base Phase II, warehousing base construction projects, and R&D and testing center construction projects.

According to the 2023 annual report, Ziyan Foods extended the date for the above projects to reach their intended use status until 2026. Currently, the investment progress of the four major listed fund-raising projects mentioned above is zero, and none of them have yet begun.

Currently, Ziyan Foods is also expanding its second growth curve. The company's acquisition in 2022 has surpassed 100; in 2023, the company continued to invest in gourmet food brands such as Laohan Fried Chicken and Beijing Crispy; in November 2023, Ziyan Innovation Research Institute was completed in Lianyungang, Jiangsu, with founder Zhong Huaijun as director to build a first-class modern food research center in China; on April 25, 2024, the company announced its subsidiary brand Yan Xiaoer's grilled chicken project.

An everlasting foundation is the pursuit of all companies. Ziyan Food's diverse layout and where it is headed in the future tests the wisdom and choices of Ge Wu Chao, the successor for three generations. (Produced by Thinking Finance) ■