It is too difficult for Hundred Fruit Farm to build its own moat in a highly homogeneous fruit retail market with almost no barriers to competition and barriers to entry. Whether the advantage of Baiguoyuan is in the upstream independent supply chain or the terminal product cost performance, scale advantage or the high-end brand positioning of the dream to build, there are no obvious characteristics.
On January 16 last year, Baiguo Yuan was listed on the Hong Kong Stock Exchange at an issue price of HK$5.6 per share, raising about HK$366 million from the market. According to the regulations of the Hong Kong Stock Exchange, the controlling shareholder can sell the shares after six months of listing, but cannot lose the controlling position; one year after the listing, all the shares can be circulated, and there is no restriction on the sale of the major shareholder.
On January 16, 2024, it was the day when the ban was completely lifted one year after the listing of Baiguoyuan, on the same day, Baiguoyuan's share price fell sharply, with a minimum drop of 34.83%, and as of the close of the day, Baiguoyuan's share price fell by 30.33%, and the stock price closed at HK$4.18 on the same day, and within one day, the market value of Baiguoyuan disappeared by HK$2.8 billion. As of January 21, the share price of Hundred Fruit Garden has fallen to HK$3.7.
Where is the core competitive advantage, the battle of Baiguoyuan is not easy to fight.
1. It's not that Baiguoyuan can't afford it, but roadside stalls are more cost-effective
In December 2001, Yu Huiyong, a native of Jiangxi, founded Baiguoyuan, which showed a lofty ambition that was different from the fruit retail stalls that can be seen everywhere in the streets and alleys, and wanted people all over the world to enjoy the good life brought by fruits. It took 22 years for Hundred Fruit Farm to go public in Hong Kong in January 2023.
Judging from the business data, Baiguoyuan has had a good time in recent years.
According to the 2022 annual report, Baiguoyuan is currently the largest fruit retail operator in China. In addition to selling fruits, its stores also sell dried fruits, juices and other fruit products. In 2022, its sales from fruits and other food products were 10.982 billion yuan, accounting for 97.1% of its total revenue.
In the first half of 2023, Baiguoyuan's revenue was 6.294 billion yuan, an increase of 6.42% year-on-year, and its net profit was 261 million yuan, an increase of 34.12% year-on-year. Although it has become the largest fruit retailer, the entire fruit wholesale and retail market in China is too fragmented. According to the prospectus of Baiguoyuan, in terms of fruit retail sales in 2021, Baiguoyuan's market share will only account for more than 1.0%.
The high degree of fragmentation of the market also proves the fierce competition and high homogeneity from another side. In the face of a highly fragmented long-tail market, Baiguoyuan has always wanted to establish its own differentiated advantages, and there seems to be only one way to choose such differentiation - that is, high-end.
For a long time, Hundred Fruit Farm has been labeled as a "high-priced fruit".
On January 5, Baiguo Yuan held the "Golden Decade Strategy Conference" and announced its plan for the next 10 years. Yu Huiyong, chairman of Baiguoyuan, announced that by 2032, Baiguoyuan will focus on the development of retail, To B, category business, and international market development.
Among them, the retail target is to exceed 10,000 stores, the terminal retail sales will exceed 50 billion yuan, and the proportion of signature fruits will be increased to 40%; In terms of categories, it will invest in more than 200 industrial chain companies and increase the number of its own fruit brands; in addition, Baiguoyuan will open its global franchise in a timely manner, so that the number of overseas stores will exceed 500, and strive to exceed 10 billion yuan in exports.
Baiguoyuan emphasized that it should upgrade from "delicious" in the past to "high-quality fruit experts and leaders". Use "experts" to distinguish integrated e-commerce and standard supermarkets, and use "leaders" to distinguish regional small chains.
From the perspective of strategic actions, on the one hand, Baiguoyuan should increase the self-construction and self-operation of the upstream supply chain system, and on the other hand, create more competitive categories and channels in the "high-end" positioning, including the so-called "signature fruit", "private label fruit" and so on. Under such positioning, Baiguoyuan also plans to develop diversified sales channels, including online, overseas markets and TO B-end.
The dream is beautiful, but the reality is probably cruel.
Regarding the brand value proposition in the next ten years, "experts" and "leaders" are just wishful thinking from Baiguoyuan's own perspective, and have not thought about the strategic foothold from the perspective of the market side. For the goal of market volume, Baiguoyuan wants to reach 10,000 stores and have a revenue of more than 100 billion, which is destined to be for mass consumption rather than "high-end luxury". If it is for ordinary consumers, from the perspective of the C-end, for high-frequency and low-value commodities such as fruits, the reason for choosing lies in "cost performance" and no matter what kind of "expert" or "leader" you are.
2. Is it a franchise harvester again?
As of June 30, 2023, Pagoda Group had a total of 5,958 stores, an increase of 308 stores from the end of 2022. Among them, there are 5,945 franchised stores, contributing about 4.732 billion yuan in sales, accounting for 99.5% of store sales. There are only 13 self-operated stores, and they are gradually decreasing.
The huge gap between the number of franchised stores and self-operated stores is also one of the concerns of investors about the future development risks of Baiguoyuan.
Pagoda itself wants to establish a high-end fruit retail brand, but franchisees are more concerned about the immediate benefits - how to recover the investment cost as quickly as possible. Therefore, the inconsistency of long-term and short-term interests between brand owners and franchisees has become a huge and irreconcilable contradiction. According to media reports, franchise store owners always have the impulse to sell substandard fruits. In recent years, Hundred Fruit Garden has often received complaints, and the author has also experienced many times that the high-priced fruits purchased in Hundred Fruit Garden are very untasty and very low cost performance.
Since Baiguoyuan opened to join in 2018, its revenue in 2019 has reached 8.976 billion yuan. By the end of 2022, the company's revenue will exceed 10 billion yuan and reach 11.31 billion yuan, of which franchise stores will contribute about 8.85 billion yuan.
According to media reports, in the latest franchise manual of Baiguoyuan, it is divided into two franchise models: A and B, of which the total investment cost of A franchise is 277,000-297,000 yuan. Among the expenses, the fixed expenses include 30,000 yuan for franchise fees, 15,000 yuan for third-party site selection and evaluation fees, 62,000 yuan for signboard equipment, 30,000 yuan for information equipment, 100,000/120,000 yuan for store decoration, and 10,000 yuan for working capital performance bonds and 30,000 yuan for commodity advance payments.
The B franchise model is 85,000 yuan, which is less than the cost of signboard equipment, information equipment and store decoration. Baiguoyuan insiders revealed, "Model B will only be given to old franchisees, and new franchisees will do the A franchise model first." ”
Hundred Fruit Garden will divide stores A and B by rent, employee salary and spending power, and collect franchise resource usage fees according to the franchise model. "If the monthly gross profit is less than 62,000, it will be charged 3 points, if it exceeds this gross profit, it almost means that the store does not lose money, and the excess part will be charged 9% online and 15% offline. ”
Judging from the franchise information disclosed by Baiguoyuan, the initial investment is about 300,000 yuan, of which more than half of the expenses - including the so-called signboard fee, information fee, security deposit, etc. are earned by Baiguoyuan Group, that is to say, the franchisee has not sold a penny, and must first pay more than 100,000 tribute to the group.
In addition, in the process of operation, Baiguoyuan Group will supply goods in a unified manner, and bad fruits, defective and unsalable will become a huge business risk for franchisees. Some franchisees said, "The natural and after-sales losses are borne by the franchisees themselves, and the normal 2-5 points, but the maximum here can be more than a dozen points." The price of the goods is almost equal to the retail price outside, and there is a penalty mechanism at every turn. ”
In order to expand the group's sales volume, the New Year's holiday will be to the terminal to press the goods, no matter the store is big or small, there will always be a floating supply on the basis of normal sales, after not selling, franchisees can only slowly reduce the price or transfer goods to other stores to sell.
3. Where is the core competitiveness of fruit chain retail?
According to the financial report, from 2019 to 2022, the gross profit margin of Baiguoyuan will be 9.8%, 9.1%, 11.2% and 11.6% respectively, and the net profit margin will be 2.8%, 0.5%, 2.2% and 2.7% respectively. According to the 2023 interim financial report, the gross profit margin of Baiguoyuan was 11.3%, a decrease of 0.2 percentage points from the same period last year, and the net profit margin increased to 4.0% by reducing costs and increasing efficiency.
Compared with Hongjiu Fruit, another listed company specializing in To B fruit distribution business, its gross profit margin and net profit margin in 2023 will be 15.37% and 9.4% respectively.
In other words, although consumers generally feel that Baiguoyuan is expensive, in fact, its gross profit margin is not the highest. This is enough to prove that the efficiency of Baiguoyuan needs to be further improved in its internal operation and management.
From 2001 to the present, Baiguoyuan focuses on "delicious", in order to be worthy of the potential cognition of "high-priced fruits", Baiguoyuan declares, "not delicious three no returns", that is, not delicious can be returned without small receipts, no physical objects, no reason based on the principle of trust. But in fact, such a service commitment is more formal than substantial. On the one hand, Baiguoyuan's own commitment to such a service will not be hyped, because the vast majority of them are franchise stores, and if there is a high rate of customers returning goods without reason, franchisees obviously cannot bear the risk cost. In addition, even if such a terms of service really exist, it is difficult for normal consumers to speak, or it is too troublesome to take the fruit that has been eaten to the store to return, after all, "good or bad" varies from person to person, and there is no clear standard.
The category of fruits, trying to open up the gap with many street stalls through high-end, is probably a false proposition. Between high-end and price, we need to find the best balance, high-end quality but the price should be appropriate, blindly high-end or blindly "high-priced" will only narrow the road, after all, no matter how high-end fruits are nothing more than durian cherries and the like, fragmented small fruit vendors can also be seen everywhere.
For Baiguoyuan, the shift in strategic thinking needs to be adjusted from "self-thinking" to "user thinking". It is not wishful thinking to plan its own positioning and brand appeal, but to pay attention to what the locked mainstream users need and care about, to create the ultimate cost performance, and to greatly reduce the cost while improving the quality of their own products, so as to build a relative competitive advantage, so that they can truly build their own strong moat.
On the other hand, due to the high degree of product homogeneity and the fact that there is almost no possibility of differentiation, the only action that can be implemented by Baiguo Yuan to ensure its product advantage with non-large-scale small vendors is to build its own supply chain upstream, after all, small fruit retailers do not have such capabilities and do not have such a market scale. From the perspective of practical cases, whether it is Chu Cheng or Joyvio's agricultural products, its own supply chain can not only ensure quality, but also build a product competitiveness system that no one else has.