Lei Jun once said that the more successful the company, the easier it is to do things.
Strong demand is a hard condition for the company to maintain growth.
More typically, it is the chronic disease track represented by Pien Tze Huang, Tong Ren Tang, Dong'e Ejiao, etc., where the stability of strong demand is superimposed on the expectation of rising prices, resulting in stronger certainty of growth.
In the consumer industry, if you want to say that there is strong demand, you can't do without the four faucets, namely Kweichow Moutai, Nongfu Spring, Arowana and Haitian Flavor, these four faucets are extremely simple things.
Among them, to say that the strongest demand side is Arowana, grain, oil, rice and noodles are absolute high-frequency necessities, and Arowana has a strong market share advantage.
At the same time, Arowana is almost the deepest vertical in the industrial chain, and almost eats every place in the industrial chain. For example, the soybeans and wheat purchased by the company are processed into edible oil and flour to complete the first step of product layout; The soybean meal and wheat bran produced in the middle can be processed into feed to complete the second step of product layout; The by-products such as soap feet and fatty acids produced by oil extraction can also produce daily chemical products to form the third step of product layout.
From the perspective of Arowana's revenue structure, the company is mainly divided into three parts, of which in 2023, the kitchen food will achieve revenue of 147.6 billion, accounting for 58.7% of the revenue, and the total revenue of feed and oil business will be 102.2 billion, accounting for 40.7% of the revenue.
At the same time, the company's customers cover Wal-Mart, RT-Mart, Taoli Bread, Nestle, Wen's shares, New Hope, Zhengda and other absolute subdivision leaders.
At the same time, under the weakening of the consumer side in the past two years, the rigid demand characteristics of grain, oil, rice and noodles have been further highlighted, and the scarcity of Arowana should have been highlighted.
But the actual data is diametrically opposite, Arowana's revenue is far ahead of Kweichow Moutai, Nongfu Spring, etc., but the net profit is the least of the four, and the company's net profit has continued to decline sharply since 2021.
The company's market value has also shrunk by more than 80% since 2021, and more than 240 institutions have withdrawn in the first quarter of 2024.
This situation is obviously inconsistent with the logic of strong demand.
Why, is this happening to Arowana?
Arowana seems to have perfect logic, but it has three core variables in the industry;
First, the demand side is fiercely competitive.
Although the grain, oil, rice and flour industry in which Arowana is located, although it is a strong demand, there is basically no difference in the product side, such as flour is flour that cannot make new tricks.
The product can not make a difference, which leads to the demand side is not sticky, the price is the focus of consumer attention, which leads to very fierce competition in the industry, especially in the past two years Luhua, Fulinmen, COFCO and other industry leaders, the advantage of Arowana has been greatly reduced.
According to the data, the company's operating income growth has continued to decline since 2021, and it will enter negative growth in 2023, and its revenue in the first quarter of 2024 will decline by 6.17% year-on-year, which is far lower than the good time in 2021.
Second, the cost side is difficult to control.
In recent years, the overall gross profit margin of Arowana has been lower than 10%, while the gross profit margin of Moutai is as high as 90% and the risk resistance is stronger, even if the gross profit margin of Haitian Flavor Industry is 40%, such as Pien Tze Huang and Tong Ren Tang, which are not low.
In addition, because the upstream raw materials wheat and soybeans are bulk crops, Arowana does not have the ability to control the upstream at all, and once the cost side changes, the profit side will be greatly eroded.
For example, soybean prices have continued to rise since 2020, and the rising cost of raw materials has brought great pressure to Arowana.
The data shows that the already extremely low gross profit margin of Arowana has continued to decline since 2021 and will decline to an extremely low value of 4.83% in 2023; The net profit margin has dropped from 1.98% in 2021 to 1.11% in 2023, and profitability has decreased significantly.
It can be seen how much pressure there is on the cost side.
In order to cope with the pressure on the cost side, Arowana has also adopted two methods;
One is hedging through futures. Because soybeans, corn, etc. are commodities, in order to hedge against price fluctuations, futures hedging is an effective way.
However, it is better not to do it than to do it, and the company's hedging business will lose 3.55 billion in 2020, 840 million in 2021, and 244 million in 2022. This path seems to be not working.
One is to continue to expand and reduce costs through scale.
From the financial report data, we can clearly see that Arowana has continued to expand in recent years, and the construction projects have continued to rise since 2021 to 11 billion in the first quarter of 2024.
But the reality is that this has not seen a significant increase in gross profit margin, but has decreased. And it also brought about two deteriorations in the data.
On the one hand, it has led to the rise of the company's asset-liability ratio, which has climbed from 51% in 2020 to 60% in 2023, and the quick ratio, which represents Chang Neng's ability, is only 0.78 in 2023, which shows that the debt pressure has been highlighted.
On the one hand, the deterioration of operating capacity, the company's continuous expansion not only did not see the advantage of large-scale cost reduction, but the total asset turnover rate is declining, especially the decline in the turnover rate of fixed assets, and the asset utilization efficiency has decreased.
Third, the price side cannot be autonomous.
Arowana not only has the cost of upstream raw materials uncontrollable, but it is also difficult to set prices independently.
For example, since 2020, the price of soybeans has risen by more than 70%, but the price increase of Arowana-related products is only about 10%, and the cost pressure can only be digested by itself.
Therefore, Arowana seems to be on the track of strong demand and strong logic, but the industry attributes lead to the fact that the upstream and downstream of the company have no right to speak, and the products cannot be differentiated, and the competition is fierce.
This situation is still ongoing. The company recently made it clear that dealers and terminal stores are not willing to stock up.
This trend can be clearly seen from the contract liabilities, the contract liabilities represent the willingness of the downstream to take the goods, and the contract liabilities of Arowana have dropped sharply from 4.7 billion yuan in 2021 to 1.4 billion yuan in the first quarter of 2024, which shows that the willingness of the downstream to take the goods has been greatly reduced, and it is very cautious.
So, where does Arowana want to break the game?
If Arowana wants to return to growth, it must have differentiated products and have the ability to pay premiums in the upstream and downstream.
At present, the focus is on prefabricated dishes and central kitchens, because prefabricated dishes are still a huge market, and the market size is expected to reach 800 billion by 2025, with a compound annual growth rate of more than 25%, and the central kitchen is also a trillion-scale volume.
In this piece, Arowana is exerting its strength.
However, pre-made dishes and central kitchens are still in a state of fierce competition, and even giants like Arowana are difficult to move. This is like Wantai Bio's nine-valent HPV, when the product really comes out, the industry has already been competitive and mature.
So, there is not much time left for Arowana.