The snack industry has undergone profound changes.

“Investors Network” Xie Yingjie

With the aura of “the first stock in high-end snacks”, Liangpin Shop Co., Ltd. (hereinafter referred to as “Liangpin Shop”, 603719.SH) has continued to expand its stores in recent years with a perfect product supply chain and rich industry experience. However, under the influence of fierce competition in the industry, the company fell into a vicious cycle of stagnant growth in performance.

Despite vigorous cost reduction and efficiency, the company still hit a record low in net profit for nearly 6 years in 2023. At the same time, it is facing the dilemma of shareholders taking turns reducing their holdings and market value evaporating. On the evening of May 17, the company issued two consecutive holdings reduction announcements. The two major shareholders plan to reduce their holdings by no more than 24.06 million shares in total, accounting for about 6% of the company's total share capital.

The industry is fighting fiercely

The snack mass store model, which focuses on cost performance, has rapidly risen in just a few years. Emerging brands such as “Zhao Yiming Snacks” and “Very Busy Snacks” have won the favor of capital, reshaping the market pattern of China's casual snack industry. According to enterprise survey data, from 2021 to 2023, the number of snack stores nationwide increased from 2,500 to 25,000, an increase of 1000%.

As the industry enters the Red Sea phase of competition, Liangpin Store continues to expand its SKU layout in all categories, boosting revenue, and personally participating in the snack discount circuit.

All of the above increased operating pressure, and performance stagnated as a result.

From 2020 to 2022, Liangpin Store's revenue was 7.894 billion yuan, 9.324 billion yuan and 9.440 billion yuan respectively, with growth rates of 2.32%, 18.11% and 1.24%, respectively. Net profit to mother was 344 million yuan, 282 million yuan, and 335 million yuan respectively, with growth rates of 0.95%, -18.06%, and 19.16% respectively.

In November 2023, Chairman Yang Yinfen was appointed in danger and stated bluntly in an open letter: “Currently, what is facing us is not only a problem of living difficult, but a question of not being able to live.”

According to public information, Yang Yinfen is an entrepreneurial hero at Liangpin Store and has led the company to achieve revenue growth and online channel layout. In order to cope with the decline in revenue, Yang Yinfen led the company to drastically adjust prices: membership prices for more than 300 products sold in stores were reduced by an average of 22%, with a maximum drop of 45%.

As reflected in financial reports, Liangpin Store's operating costs in 2023 fell 14.97% year on year to 5.813 billion yuan, sales expenses fell 10.45% year on year to 1,573 billion yuan, management expenses fell 6.9% year on year to 447 million yuan, and R&D expenses fell 13.50% year on year to 43.73 million yuan.

Performance also declined. In 2023, the company's revenue fell 15% to 8.046 billion yuan, and net profit fell 14.76% to 1803 million yuan. Revenue for the first quarter of this year increased 2.79% year on year to 2,451 billion yuan, and net profit to mother decreased by 57.98% year on year to 62.4828 million yuan.

Behind the pressure on performance

Liangpin Store is representative of the last round of snack chain business. It entered the market with high-end snacks, developed offline channels, and actively embraced e-commerce and entered the capital market.

In order to break out from low-end snacks, Liangpin Store began marketing “high-end personalities” in 2018. The company upgraded its logo and changed its brand image to a simple “good” imprint, and offline stores have also begun to follow the bright and atmospheric “Apple style”, highlighting internationalization, youth, and high-end in terms of marketing.

Among the listed domestic casual snack companies, only Liangpin Store accounts for a uniform share of revenue from online and offline channels, and each of the two channels accounts for almost half of the revenue. In 2023, the company's revenue from e-commerce business was 3.167 billion yuan, down 32.58% year on year; it accounted for 39.83% of main business revenue, down 10.58 percentage points year on year.

Among the companies in the same industry, Three Squirrels (300783.SZ) and I miss you (002582.SZ) mainly generate online revenue, accounting for about 80% of online sales revenue; Laiyifen (603777.SH) and Qiaqia Food (002557.SZ) mainly generate revenue from offline stores, accounting for about 90% of offline revenue.

Online or offline performance growth issues will put pressure on the company's overall profit level. Financial reports show that the gross margin of Liangpin Store dropped from more than 30% in previous years to around 27%, which is at a medium to low level among similar companies. The gross margin for the first quarter of 2024 was 26.43%, down 6.3 percentage points from 2015, a record low since financial disclosure data were available.

In the secondary market, in 2021, 2022, and 2023, Liangpin Store's stock price fell for three consecutive years (annual line). The total decline for 3 years was more than 60%, and the cumulative decline from the beginning to date was about 30%.

The slump in stock prices is the result of a combination of factors: limited product competitiveness, lagging management decisions, and the more profound background is that the snack industry is rapidly changing — from consumption upgrades and rising brands, to consumption downgrades and widespread discounts, in just three years.

Significant shareholders' holdings reduced

When Yang Yinfen first took office, he said, “Liangpin, 17, is facing the toughest challenge since starting a business.” Currently, this challenge is still intensifying.

Liangpin Shop's concerns as an old brand are obvious. The biggest concern is that it lost its voice in the game with new channels and eventually became an OEM.

According to data from the China Business Industry Research Institute, offline channels still account for more than 85% of snack food distribution. Modern channels such as snack specialty stores and convenience stores continue to crowd out the market share of traditional small stores, while the growth of e-commerce platforms is gradually slowing down.

According to some agencies, Liangpin Store is still actively transforming and has achieved some results. SDIC Securities pointed out in its latest research report that current snack consumption trends are changing, product innovations are constantly emerging, and channels are becoming more diversified. The company is continuously exploring new category models, piloting fresh and short-term snacks, launching new seasonal limited products, improving quality and efficiency around various aspects of the internal supply chain and operation management, optimizing the store model, and achieving more refined operations. In the current environment where consumption is becoming more rational, companies that respond positively to market changes and adjust prices and operating models have more long-term growth, and Liangpin stores position themselves as “high-end snacks”, creating high-end quality from the raw materials side. The overall price range is wider, and the overall competitiveness of some products is expected to further improve after prices are reduced.

Investors are also concerned that under the OEM processing model, the cost and difficulty of quality control in Liangpin Stores has increased, thus causing product quality issues. The root of this is that the brand is highly dependent on foundries, lacks product development capabilities, and “treats the symptoms rather than the root causes” by reducing prices. In the first quarter of 2024, Liangpin Store's R&D expenses were less than 5 million yuan, a year-on-year decrease of 62%.

Notably, some shareholders are “voting with their feet.” On the evening of May 17, the company issued two consecutive holdings reduction announcements.

According to the announcement, two important shareholders, Ningbo Hanyi Venture Capital Partnership, and Dayong Co., Ltd., the controlling shareholder, and Dayong Co., Ltd., which holds more than 5% of the shares, plan to reduce their holdings in the company through centralized bidding or bulk transactions. Ningbo Hanyi and Dayong Limited each plan to reduce their holdings by no more than 1.03 million shares, with a total reduction ratio of no more than 6% of the company's total share capital. The auction trading holdings reduction period starts on June 11 and ends on September 10.

Prior to this announcement, Dayong Limited had already reduced its holdings twice. From May to the end of November last year, it reduced its holdings by a total of 17.04 million shares, reducing its holdings by 404 million yuan; from January to February this year, it once again reduced its holdings by 1.03 million shares, with a total amount exceeding 199 million yuan. After two holdings were reduced, Dayong's limited shareholding ratio was reduced from 30.3% to 23.05%. (Produced by Thinking Finance) ■