"Shancheng Bangbang" counterattacked the "Fruit King", why did he fall off the altar now?
Author: Mak Zhiqing Editor: Lu Xinyi
出品：零售商业财经 ID：Retail-Finance
The former "fruit king" Hong Jiu Fruit is in an eventful autumn.
On the operational side, Hongjiu Fruit was rumored to have large-scale layoffs and shrink the market; On the capital market side, the 2023 annual report will be "difficult to deliver", the stock will be suspended, and the market value will fall from more than 60 billion last year to 2.8 billion Hong Kong dollars today, evaporating by more than 95%. On the capital side, the founder Deng Hongjiu has repeatedly pledged loans this year, and as of June 20, the total number of pledged shares accounted for about 11.26% of the company's total issued shares.
A wave of unsettled waves has risen again and again, and Hongjiu fruit has lost the scenery of the "first fruit stock" in the past. Affected by the company's market value, Deng Hongjiu also withdrew from the Hurun Report.
Nowadays, the various crises of Hongjiu Fruit have released a signal to the outside world: Hongjiu Fruit is not operating smoothly, and its financial situation may have major problems.
In fact, Hongjiu Fruit has not just broken out of the capital chain crisis. First, the characteristics of fresh fruit retail require high requirements for the company's cash reserves, which may lead to difficulties in capital turnover once there are operational problems. Second, subject to the layout of the "end-to-end" model, Hongjiu Fruit's prepayment and accounts receivable have been at a high level for a long time, resulting in a growth trend in revenue on the surface, but in fact, the more goods are sold, and the funds are difficult to return. According to the 2023 Q2 financial report, Hongjiu Fruit's total revenue was 8.537 billion yuan, a year-on-year increase of 19.37%, but the net profit was only 803 million, a year-on-year decrease of 6.51%.
On the whole, the detonation of the long-buried capital chain "landmine" is directly related to the loss of the core competitiveness of Hongjiu Fruit.
Previously, with the support of "durian dividends" and market financing, Hongjiu Fruit maintained the stability of the capital chain and achieved rapid expansion of scale, but it has always "made a fuss" about durian and B-end business, and failed to develop the C-end business with greater profit space and longer lifeline in time. Although Hongjiu Fruit has realized the importance of C-end business in the future, it has missed the development opportunity of the times, and it is even more difficult to "compare" with Baiguoyuan. As a result, many of the problems it has buried have also ushered in a "domino" effect.
Innovation is a shackle
Success is also "end-to-end", failure is also "end-to-end", and the innovation of the past has become a constraint on the capital chain of Hongjiu Fruit.
According to the news revealed by the industry media, Hongjiu Fruit is taking a series of measures to reduce the scale: the wholesale centers, sorting centers and branches in Guangzhou, Wuhan, Xi'an and other cities have been shut down, leaving only the Chongqing headquarters, and the wholesale center of the Chongqing headquarters has also been transferred to others to operate. In addition, Hongjiu Fruit Branch is also suspected of dismissing employees in disguise. As of June 29, there has been no official response to this.
The shrinkage of Hongjiu Fruit's market may be related to the current business difficulties.
On the one hand, on April 4, 2023, Hongjiu Fruit signed an agreement with the subscribers Guizhou Zhongken and Hunan Zhongken, etc., and the subscribers conditionally agreed to subscribe, and Hongjiu Fruit conditionally agreed to issue no more than about 30,487,800 domestic unlisted ordinary shares. However, recent media reports have announced that Hongjiu Fruit has announced the termination of the plan to issue domestic shares.
In addition to the failure to introduce state-owned assets, KPMG, the audit company of Hongjiu Fruits, was aware of the significant financial problems of Hongjiu Fruits. As of the end of December 2023, Hongjiu Fruit's unaudited consolidated financial statement showed that as of the end of last year, the balance of prepayment paid by the company to these suppliers was approximately 3.13 billion yuan.
In addition, as of the end of the first half of last year, Hongjiu Fruit's borrowings from banks had reached 2.776 billion yuan, with a leverage ratio of about 27.6%. This year, Hong Jiu took out loans and financing through equity pledges, further increasing the debt burden.
It can be seen that the word "lack of money" has been written on Hong Jiu Fruit's face, and the reason behind it points to the unique "end-to-end" model.
"End-to-end" was once an innovative move that Deng Hongjiu was proud of, and he once said at Hongjiu Fruit's 2022 annual results conference that the end-to-end business model is the most effective business model that it has spent 36 years precipitating.
Under the guidance of this model, Hongjiu Fruit directly connects with the upstream fruit origin, and through standardized processing, superimposes a nationwide sales network and digital supply chain control, and finally delivers the fresh fruit to the national retail terminal.
By reducing the intermediate links of fruit distribution, this model not only effectively solves the core pain points of high traditional fruit retail distribution costs, large loss rate (in 2021, the loss rate of Hongjiu fruit is only 1.3%, while the industry average loss rate is 1%-5%), and it is difficult to fully digitize, but also forces the fruit distribution link to continue to shrink the chain to reduce costs and increase efficiency.
Source: Hongjiu Fruit official website
But the "end-to-end" business model also has drawbacks.
Upstream, fruit growers often ship to Hongjiu fruit only after receiving payment. Downstream, wholesalers and retailers are accustomed to picking up goods on credit, with a billing period of up to three weeks, and some customers, such as regional terminal wholesalers and small supermarkets, will have an extended payment cycle when they encounter difficulties in their daily operations.
In order to maintain a stable supply of fruits, Hongjiu Fruit needs to pay the orchard in advance for the order. However, after the company has invested a lot of costs, it takes a long time for the funds to be returned, resulting in a bigger and bigger business, and less and less money in hand.
According to the data, from 2019 to 2022, Hongjiu Fruit's operating cash flow continued to be negative, with -450 million yuan, -804 million yuan, -982 million yuan, and -1.823 billion yuan respectively. It can be seen that the capital chain of Hongjiu Fruit can be called "roasted on the fire".
Hongjiu Fruit is obviously also aware of the tight capital chain caused by the mismatch of funds, and then has to borrow to get by, in order to change the status quo, it aims at the C-end business where the return of funds is more timely.
In 2023, Hongjiu Fruit will begin to appear frequently online, increase live broadcast efforts, and "brush face" on social media to attract traffic to its official flagship store. In offline channels, Hongjiu Fruit held activities such as the "2023 Durian Freedom Festival" and other exhibitions and sales promotions and picking experiences in many cities to strengthen consumers' brand awareness.
Embracing the C-end has brought a significant boost to the performance of Hongjiu Fruit, and even alleviated the cash flow dilemma of Hongjiu Fruit in the short term.
According to the financial report, in H1 2023, the sales revenue of emerging retailers increased by 40% year-on-year, and the operating cash flow finally turned positive for the first time in the financial report for the first three quarters of 2023, at 26.9 million yuan.
Source: Hongjiu Fruit official website
However, the C-end business is not a "panacea", and it requires high marketing costs and long-term investment. Even Baiguoyuan, which is deeply involved in the C-end field, once said: Selling fruits is "bowing down and picking up steel hammers".
In the first half of 2023, Hongjiu's marketing expenses for the C-end layout have reached 121 million yuan, a year-on-year increase of 22.34%. This makes it difficult for Hongjiu Fruit, which is already tight on cash flow, to break through with the C-end.
More importantly, the development of Hongjiu Fruit's C-end business has missed the golden opportunity.
With the expansion of the scale of the B-end business, the investment of resources required to maintain its operation is increasing day by day. On the premise of not damaging the stable operation of the B-end business, the existing supply chain and sales channels should be transformed to meet the development needs of the C-end market, and the difficulty and risk have increased exponentially. What's more, the competition in the C-end fruit market is more intense, and it is difficult for the "belated" Hongjiu fruit to fight a "turnaround battle".
Core resources and key businesses are an important part of the business model, and Hongjiu Fruit's fortune has stopped here. The long-term reliance on To B distribution of core products, the failure to enhance the negotiation power of upstream and downstream customers and the timely development of new business on the C-end is the root cause of Hongjiu's cash flow pressure.
But Hongjiu Fruit has been operating under pressure for many years and has been successfully listed, why did it suddenly explode this year?
The core advantage is no more
The "Durian King" also fell
When it became more and more difficult to sell high-priced imported fruits, durian became the fuse of the crisis of Hongjiu Fruit's capital chain.
As China's largest durian distributor, in 2022, Hongjiu Fruit sold 25 million durians, known as "for every 10 durians eaten by Chinese, one comes from Hongjiu".
With durian alone, Hongjiu Fruit has achieved sales of nearly 4 billion yuan and maintained a gross profit margin of up to 24.5%. Relying on the growing wholesale business, on September 5, 2022, Hongjiu Fruit was successfully listed and became the "No. 1 Fruit Stock in China".
Source: Hong Jiu Fruit
But at present, the durian story of Hongjiu Fruit seems to be untold.
On the one hand, the durian market has been declining this year, and the monitoring data of the Jiangnan wholesale market in May this year showed that the price of imported durian (Thailand/Vietnam) was 37.94 yuan/kg, compared with 53.09 yuan/kg in the same period last year. In June, the price fell to 20.05 yuan/kg. The reduction of terminal prices will further erode the already small profit margins of Hongjiu Fruits.
At the same time, high-end fruits imported from abroad in the past now have domestic substitutes. According to the forecast of the Hainan Academy of Agricultural Sciences, the output of domestic durian will exceed 250 tons this year. Some domestic fruit categories can also be better in terms of quality-price ratio, and the selection principle of Hongjiu Fruit "looking all over the world, only here" also "does not make sense".
On the other hand, what makes Hongjiu Fruit more passive is the increasing number of competitors.
At present, most of the durian in the mainland depends on imports, and the complicated transportation links make durian synonymous with expensive fruits, so the quality and price of durian have become a proof of the channel advantages and bargaining power of all parties. Whoever can meet consumers' demand for low-cost and high-quality durian will be able to win the trust and favor of consumers.
As a result, whether it is e-commerce group buying or chain supermarkets, a series of "durian price wars" have been launched around durian, a scarce and popular fruit item.
On platforms such as Meituan and Douyin, the Golden Pillow durian sold by Single Fruit is basically 25 yuan per catty. In the harvest season, the lowest price of durian can fall to about 10 yuan per catty, and netizens are calling "durian freedom" just around the corner.
Source: Meituan, Douyin
Hema and Sam are also making efforts in the quality-price ratio of durian. Taking Hema as an example, thanks to the strength of the supply chain, its durian is of high quality, but the price is only 24 yuan per catty, which can be described as a "quality-price ratio".
When durian becomes a battleground for soldiers, the "durian king" can only be forced to give way.
In order to win this durian price war and cope with the impact of cross-border competitors, from a longitudinal point of view, Hongjiu Fruit's durian has continued to reduce in price, and the profit margin has continued to shrink. But from a horizontal point of view, Hongjiu Fruit's durian does not have outstanding advantages compared with other competitors. On its official flagship store, the price of durian per catty is around 30 yuan, which is about the same as the price of durian sold by Freshippo.
Source: Hongjiu Fruit flagship store on the left, Hema on the right
The durian market, which was once dominated by Hongjiu Fruit, has now been turned into a stock market by cross-border competitors, with all parties competing to lower prices and improve product quality in order to compete for market share.
Hong Jiu, who started with durian, lost his "trump card", and his non-core products could not take on the heavy responsibility.
In the first half of 2023, Hongjiu Fruit's non-core fruit revenue increased by 17.52% year-on-year, slightly worse than the year-on-year growth of 21.28% of core fruits, and the core single product revenue was 4.266 billion yuan and the non-core fruit revenue was 4.272 billion yuan, which were equally proportional.
When the sales of imported high-end fruits are limited and the development of non-core products is not mature enough, Hongjiu Fruits needs to further explore new growth points and seek a path of sustainable development.
In an embarrassing situation, he urgently needs to save himself
There is a saying in the fruit world: "South Baiguo, North Xianfeng, West Hongjiu". Although in the process of the capital market, Hongjiu Fruit is half a position ahead of Baiguoyuan and Xianfeng Fruit to be listed first. However, from the perspective of consumer perception, Hongjiu fruit is slightly inferior.
Source: Internet
Hongjiu Fruit is good at focusing on fruit categories, focusing on six major fruit products: durian, mangosteen, longan, dragon fruit, cherry, and grape, forming a fruit product portfolio covering more than 100 origins and 49 fruit categories from around the world.
According to the prospectus data, in H1 from 2019 to 2021, the sales of the six core fruit products were 15.6, 39.4 and 3.44 billion yuan respectively, accounting for 74.9%/68.3%/63.4% of the revenue respectively. It can be seen that Hongjiu Fruit is competitive with the scarcity of fruits.
But Baiguo Yuan tells the story of the brand, and has China's largest community-based, store-warehouse integrated fruit retail network. Expand the number of stores offline through franchises, and provide instant delivery services online through mobile apps, e-commerce platforms, takeaway platforms, etc. At the same time, Baiguoyuan has also created a quantitative standard of "four degrees, one taste and one safety" of fruits, which solves the problem of difficult standardization of fruit chains and provides consumers with a better consumption experience.
There is no superiority or disadvantage in the business model, Hongjiu Fruit and Baiguoyuan have made a world in their respective fields.
Hongjiu Fruit is currently the largest supplier of some fruit verticals in China. From 2020 to 2022, the year-on-year growth rate of Hongjiu Fruit's revenue will be 177.72%, 78.13%, and 46.7% respectively; Gross profit margins were 16.6%, 15.7% and 17.1%, respectively.
Baiguoyuan has developed channel brands and category brands at the same time, so as to promote the scale expansion of terminal stores, and has become the largest fruit retailer in China. From 2020 to 2022, the year-on-year growth rate of Baiguoyuan's revenue will be -1.4%, 16.2%, and 9.9% respectively; Gross profit margins were 9.1%, 11.2% and 11.6%, respectively.
It can be seen that the profitability of Hongjiu Fruit is still higher than that of Baiguoyuan, but after many years of precipitation in different development trajectories, Hongjiu Fruit, which now wants to develop C-end business, will find that its brand power is far from that of Baiguoyuan.
Taking the brand voice of Hongjiu Fruit and Baiguoyuan on Douyin as an example, Baiguoyuan has more than 250w fans, while the highest number of fans of Hongjiu Fruit series accounts is only a fraction of the former.
Source: Douyin
In addition to the difficulty of building brand power on the C-end and "wrestling wrists" with Baiguoyuan, Hongjiu Fruits, which does not have brand power, is facing the situation that it cannot beat the husband and wife store. The latter's small store operation model is more humane, with a high repurchase rate and strong stickiness. In the operation system of chain fruit brands, the voice of stores is relatively low, and it is difficult to communicate and adjust prices with consumers.
In addition, there are a large number of husband and wife stores, and it is a big problem for chain fruit brands to highlight their own brand characteristics and break the encirclement of the scale effect of husband and wife fruit stores.
Hongjiu Fruit, which was originally lacking in brand power, has now lost its core product power under the impact of cross-border competitors and is mired in cash flow difficulties, resulting in the company can only shrink its scale, borrow to survive, and keep the capital chain unbroken.
However, loans are not a long-term solution, and the development of C-end business will take time. If Hongjiu Fruit wants to achieve steady and long-term success, it must deeply reflect on the current business model and actively explore a more stable and effective way to operate.
"Retail Business Finance" believes that the current contraction of Hongjiu Fruit is necessary to save itself, and eliminate ineffective expenses to alleviate the pressure on cash flow. However, what they should have more is "risk awareness" to increase the anti-risk ability of their own business and cash flow. Move away from "end-to-end" and look for a business model that is better for cash flow.
The fruit is sweet, the business is bitter. In the face of the current crisis, how should Hong Jiu, the "elephant", turn around, and where will it go in the future?