Written by H.H
Editor|Yang Yong
Source | Produced by hydrogen consumption
ID | HQingXiaoFei
Following the successful listing on October 12, 2023, October Paddy, which is mainly engaged in agricultural products, handed over its first semi-annual report.
According to the financial report, the revenue of October Paddy in the first half of the year was 2.62 billion, a year-on-year increase of 17.7%; The adjusted net profit was 149 million, a year-on-year increase of 30.6%, and it finally made a comeback after many years of continuous losses.
Source: October Paddy Fields Financial Report
Just a closer look at the financial report, it is not difficult to find that the revenue of rice products, the main business of October Paddy Field, fell slightly year-on-year in the first half of the year, but the cereals, beans and other products with corn as the core achieved rapid growth in the first half of the year, with a revenue of 726 million, a year-on-year increase of 151.9%.
In fact, from the beginning, in order to avoid head-on confrontation with offline grain and oil giants such as Arowana and Fulinmen, October Paddy, which started selling rice, seized the development opportunity of the e-commerce platform and chose to focus on online and build popularity through various online celebrity marketing.
The actual performance is indeed impressive, especially in the past few years, the revenue of October paddy fields has grown rapidly, with a compound annual growth rate of nearly 40%. It's just that with the gradual disappearance of the dividends of the e-commerce platform, coupled with the backlash brought by its own positioning as an Internet celebrity brand, October Paddy has never been able to get out of the loss dilemma.
Until the first half of this year, October paddy fields seized the consumption trend of healthy and light food and returned to the profit channel. So, with a single piece of corn, can October Paddy Fields replicate the growth miracle that once appeared on e-commerce platforms?
A bag of rice, worth 20 billion?
In October, Paddy delivered double-digit growth in revenue and net profit in the first half of the year, which was subdivided into different business segments, but the actual performance was very different.
According to the financial report, in the first half of the year, the revenue of rice products, which was the most relied on by rice fields in October, was 1.707 billion, down 1.9% from 1.739 billion in the same period last year. In this regard, the official explanation of October Paddy was mainly affected by the rising cost of rice raw materials, and the company's income declined after adjusting the price of rice products and the corresponding combination.
Although the revenue of rice products is not optimistic, thanks to the active expansion of new products in October, the revenue of its cereals, beans and other products was 726 million, a year-on-year increase of 151.9%. In particular, corn and other light food series, which are highly sought after by young consumer groups, achieved large-scale revenue growth in the first half of this year.
Compared with the rice and cereals business, the dry goods and other products of October paddy fields are relatively marginal, with revenue of 187 million yuan in the first half of the year, down 6.2% year-on-year.
Source: October Paddy Fields Financial Report
According to public information, the predecessor of October Rice Field was actually a mom-and-pop shop, and the founders Wang Bing and Zhao Wenjun had been engaged in grain processing trade in the early days, and Shenyang Xinchang was officially established in 2005.
As we all know, most of the offline channels of rice, especially the wholesale industry, are waiting for retailers to buy, and the efficiency and profits are not high. What's more, there are many traditional offline channel giants, and it is conceivable that it is difficult for small stores to stand out from the encirclement.
Around 2010, with the rapid development of domestic Internet e-commerce platforms, Wang Bing realized the opportunity behind it and began to move rice products, which are mainly sold offline, online. In October 2011, the brand of Paddy Field was officially established, and the first stop was to cooperate with JD.com, and then successively settled in Tmall, Suning, Hema and other channels, setting off a sales boom on major e-commerce platforms.
On the one hand, October Paddy has carried out brand promotion through a variety of marketing methods to seize the minds of consumers online; On the other hand, in order to continue to expand its brand influence, October Inpada has cooperated with more than 4,000 KOLs and KOCs, building itself into a thorough Internet celebrity brand.
At the same time, the two major brands launched by the company, "October Rice Field" and "Firewood Compound", are aimed at the mass market and the high-end market respectively, focusing on small packages of 5 kg, 10 kg and up to 25 kg, which are popular with young consumer groups.
Source: October Paddy Field's official Weibo
Boosted by multiple factors, the growth rate of paddy fields in October was quite amazing. According to the data disclosed in the previous prospectus, the revenue of October paddy fields in 2020~2022 will be 2.327 billion, 3.598 billion yuan and 4.533 billion respectively, with a compound annual growth rate of 39.57%, of which the proportion of e-commerce platforms in total revenue is generally about 60%. In 2023, the growth rate will decline slightly, with revenue of 4.867 billion.
According to the official description of October Paddy, 2019~2022 has been the largest company in the domestic prepackaged Northeast rice retail market in terms of revenue for 4 consecutive years.
The strong development trend has attracted a number of well-known investment institutions, including Sequoia China and CMC Capital, and the valuation was as high as 14.5 billion.
On October 12, 2023, October Rice Field, a new brand that started as a mom-and-pop shop, successfully landed on the Hong Kong Stock Exchange and sold a bag of rice with a market value of more than 20 billion.
It is difficult to escape the fate of "Internet celebrity brand".
There have been countless cases in the past that influencer marketing is actually a "double-edged sword". It is true that the rise of October Rice Fields is inseparable from this business strategy, but at the same time, it has also caused itself to be counterattacked.
In fact, due to its over-reliance on e-commerce channels, October Paddy has been mired in problems such as increasing income but not increasing profits, serious losses, and over-reliance on a single category. The data shows that although the overall revenue growth rate in 2020~2022 is considerable, it is only in the continuous loss channel in October during the same period, with net losses of 14 million, 173 million and 564 million respectively, and a cumulative loss of 723 million in three years.
In 2023, the loss margin will be narrowed, with revenue of 4.867 billion and net profit loss of 65 million.
At the same time, October Paddy has in-depth cooperation with leading e-commerce platforms such as JD.com and Tmall, and the contribution of online channels to its total revenue is generally between 70%~80%. It's just that as the marketing dividends of e-commerce platforms gradually fade and the cost of customer acquisition rises, it is difficult for Internet celebrity brands such as October Rice Field to escape fate.
To this end, one of the core coping strategies of October Rice Field is to increase marketing. In the first half of 2024 alone, the sales and distribution expenses of October paddy fields reached 239 million yuan, which is higher than that of the whole of 2021, and the upward trend is quite obvious.
Source: October Paddy Fields Financial Report
Seeing that the performance of the core business segment in online channels is becoming more and more weak, October Rice Field also wants to seize a part of the share offline, but this Internet celebrity brand that has risen with the help of e-commerce platforms has extremely limited offline influence. Taking the first half of 2024 as an example, October Paddy's online channel revenue, including e-commerce platforms and online self-operated stores, accounted for 67.8%, supermarket channels accounted for 15%, direct customers 12.3%, and the distribution network was as low as 4.9%.
Another negative effect of aggressive marketing on food companies is the issue of food safety. On the Black Cat complaint platform, we searched for "October rice field" as the keyword, and we could see more than 250 complaints, most of which focused on product deterioration and mold, and no one solved after-sales problems.
Source: Black Cat Complaint Platform
Interestingly, even though the rice field was mired in losses in October on the eve of listing, it was not "soft" in terms of dividends.
In October 2020, Paddy Field received a dividend of 50 million yuan, all of which was obtained by the founder Wang Bing and his wife, and in 2022, a dividend of 200 million yuan was distributed before submitting the prospectus, and Wang Bing and his wife received another 140 million yuan in dividends based on the 70% equity ratio. Even because of the lack of funds on the books, part of the 151 million yuan obtained by the company through financing in 2022 was used to offset shareholder dividends.
In the first half of this year, the sales of corn and other cereal products soared.
Will corn be the next growth pole?
Objectively speaking, rice is still the core product of October Paddy. The data shows that the proportion of rice product revenue in the total revenue of rice fields in October 2020~2023 has remained at about 80% for a long time, and although this proportion has decreased in the first half of this year, it is still as high as 65.2%.
All along, October Paddy has also hoped to hit the mid-to-high-end market with pre-packaged high-quality rice. According to Frost & Sullivan data, the mainland prepackaged rice market has maintained a steady growth rate in the past few years, with the market size increasing from 107.4 billion in 2018 to 129.2 billion in 2022, with a compound annual growth rate of 4.7%, and this scale is expected to grow to 164.1 billion by 2027.
Although the market prospect is still there, the relatively single category of October Rice Field, combined with the revenue of its own rice products, has gradually hit the ceiling, and it is still necessary to actively look for the next growth curve.
With the rise of concepts such as "ready-to-eat" and "healthy", in recent years, countless migrant workers have gradually changed their breakfast choices from steamed buns, eggs, and bread to corn, sweet potatoes, etc., and October Rice Field is also aiming at this track.
As a result, in October, Paddy broke the category restrictions and turned corn into a light food and snack product, jumping from a staple food on the table to the FMCG market. The price of the yellow waxy corn online platform launched by it is 29.9 yuan per pack, with 8 sticks per pack, and each corn only costs 3~4 yuan. The independent vacuum packaging is easy to carry, and it can be eaten with a slight heat, which can be said to be quite friendly to migrant workers.
Source: October Paddy Field's official Weibo
At present, October Paddy has launched more than 30 corn products, striving to meet the diverse needs of different consumer groups. In addition, it includes a variety of specifications including corn kernels.
Understanding the core needs of consumers is only one thing, and a stable supply chain is also very important, otherwise even if it is portable and cost-effective, it will be difficult to obtain continuous repurchase from consumers if the quality is not up to standard.
To this end, October Paddy has spent hundreds of millions of yuan on infrastructure construction, including factories, cold storage and logistics. It is claimed that corn only takes 6 hours from the field to the production workshop, and then goes through more than 20 processes such as acceptance, trimming, and high-temperature sterilization to retain the original taste of corn to the greatest extent.
In order to achieve a continuous supply of high-quality raw materials, October Paddy Field is deeply cultivated in high-quality agricultural production areas such as Northeast China and Inner Mongolia. As of June 30, 2024, October Paddy has built production bases in five core grain producing areas in China, including Shenyang Xinmin, Wuchang, Songyuan and other regions.
Thanks to the deep cultivation of the corn track, data shows that as of the end of May this year, the corn sales on the Douyin platform alone have reached nearly 1 billion yuan, and the rice fields in October account for almost half of the country, with sales exceeding 9.12 million orders.
At the same time, the sales of fresh corn in mainland China are also increasing year by year, reaching 272.12 billion in 2023, a year-on-year increase of 4.83%. However, as competitors continue to increase their weight, the track is becoming increasingly crowded. As of July this year, there were 1,685 enterprises related to the cultivation of sweet corn in mainland China and 463 enterprises of waxy corn.
Taking 47° north latitude as an example, it also focuses on locking freshness three hours after picking, offline advertisements can be seen everywhere, and the cumulative number of comments on the Jingdong platform exceeds 500,000. In addition, it also includes brands such as Nongkeyu, No. 1 member store, Tianqin Liliangjing, Huatian Hebang, etc., all of which are trying to take away a bigger cake.
Source: 47° North Latitude official Weibo
From this point of view, although the growth rate of the coarse grain business represented by corn in the first half of the year is considerable, it will take time to further test how much it can provide to the moat of the October rice field.