Is fruit retailing still a good business?
According to the "Fruit New Food Consumption Trend Report" released by iResearch in March this year, 54.9% of the respondents eat fruit once a day or more, and only 0.1% of the respondents have not eaten fruit for more than two weeks.
With high purchase frequency and large user base, my country's fresh fruit retail market has already reached a trillion-dollar scale.
In the fruit industry, there has always been a saying of "Nanbaiguo, Beixianfeng, Xihongjiu".
In May this year, Pagoda submitted its prospectus documents on the Hong Kong Stock Exchange.
The Red Star Capital Bureau noticed that the other two companies (Hongjiu Fruit and Xianfeng Fruit) have already embarked on the road of IPO.
It’s just that the road to listing of the three fruit giants is not smooth. In June 2020, after completing the shareholding system reform, Baiguoyuan submitted approval materials to the China Securities Regulatory Commission to prepare for the listing of Hong Kong stocks, but until the issuance approval failed, Baiguoyuan did not submit the prospectus. This time, when Baiguoyuan was sprinting for IPO, it was exposed to food safety issues, which caused widespread discussion among netizens.
Xianfeng Fruit officially launched its A-share listing plan in December 2019, but terminated its listing guidance in January 2021.
Hongjiuguopin signed a listing guidance agreement with Dongxing Securities in 2019, and plans to go to the A-share market for IPO; in September 2021, the company terminated the A-share listing guidance; in October 2021, Hongjiuguopin submitted the form to the Hong Kong Stock Exchange.
Although these companies are collectively cold on the road of embracing capital, the competition pattern of "Three Kingdoms Killing" in the industry has also been formed.
Who can become the "first share of fruit"?
What is the current status of the fruit industry?
(1)
Different "plays" of selling fruit
In fact, although my country's fresh fruit retail market is huge, the market is relatively fragmented and the industry concentration is not high.
The three companies, Baiguoyuan, Hongjiu Fruit, and Xianfeng Fruit, seem to be in the business of selling fruit, but their positioning and business model are completely different.
Baiguoyuan: Local O2O Model
Founded in 2001, Baiguoyuan is a fruit industry chain enterprise integrating fruit production, trade and retail.
Baiguoyuan belongs to the local O2O (Online To Offline) model: online and offline integrated layout, can provide consumers with fresh fruit takeaway services through self-operated APP and third-party O2O platforms.
According to the prospectus, Baiguoyuan’s revenue from 2019 to 2021 will be 8.976 billion yuan, 8.854 billion yuan and 10.289 billion yuan respectively.
Judging from the store situation, Baiguoyuan mainly adopts the franchise model, and currently has a large number of stores across the country.
As of April 20, 2022, Pagoda has 5,336 franchised stores, while only 15 self-operated stores.
For Baiguoyuan, which mainly follows the franchise model, the advantages and disadvantages are also very obvious.
In terms of advantages, first of all, the franchise model can help companies achieve rapid expansion of light assets and quickly occupy more markets; secondly, in the hands of franchisees who continue to join, companies can also obtain huge revenue.
The disadvantage of the franchise model is also very significant - the management of franchisees is difficult, which will easily lead to product quality control and service level difficult to control, causing damage to the company's reputation.
Hong Jiu Fruit: End-to-End Model
Hongjiu Fruit was established in 2002. The company's positioning is to focus on the operation of the whole industry chain of high-end imported fruits and domestic fruits.
The business model of Hongjiu Fruit is an end-to-end model, which is directly harvested from the place of origin, processed and sorted by its own factory, and sold directly to customers all over the country.
The main customer channels include terminal wholesalers, supermarkets, and emerging retailers.
According to the prospectus of Hongjiu Fruit, from 2019 to 2021, the operating income of Hongjiu Fruit will be 2.077 billion yuan, 5.771 billion yuan and 10.28 billion yuan respectively, with a compound annual growth rate of 122.44%.
Different fruits have different contributions to Hongjiu Fruit's revenue. At present, the company's revenue mainly focuses on the six major fruits of durian, mangosteen, longan, pitaya, cherries and grapes.
Among them, durian achieved revenue of 473 million yuan, 2.107 billion yuan, and 3.481 billion yuan from 2019 to 2021, accounting for 22.8%, 36.5%, and 33.9% of total revenue.
Because of this, Hongjiu Fruit also has the title of "Durian King" in the market.
It is worth mentioning that for Hongjiu Fruit, this overseas purchasing model will make the fruit more vulnerable to various uncertainties such as extreme weather, natural disasters, transportation and epidemics.
Fresh Fruits: B2B Model
Founded in 1997, Xianfeng Fruit is positioned as a global enterprise integrating new retail, smart cold chain logistics and supply chain B2B platform.
At present, Xianfeng Fruit owns five fruit brands: Xianfeng Fruit, A K Orchard, Fruit Wharf, Xianguo Wharf and Yangguopu.
According to the official website of Xianfeng Fruit, Xianfeng Fruit currently has more than 2,000 stores nationwide, mainly radiating Jiangsu, Zhejiang, Shanghai, Anhui, Yuchuan and other provinces and cities, and has 19 modern cold chain storage centers with a total of 100,000 cubic meters.
According to public data, in 2019, Xianfeng Fruit’s revenue reached 5.6 billion yuan.
It provides after-dinner fruits for large catering enterprises and large unit canteens, and the to B business that supplies more than 30,000 community stores (mom and pop shops) has contributed more than 1 billion yuan in sales.
(2)
Selling fruit is a hard business after all
No matter how different the business models of the three companies are, in the final analysis, they are all about "selling fruit", so in the end, they are inseparable from the product characteristics of fruit.
Low profit margins for companies
First of all, fruit is a non-standardized product, and the planting and retailing ends are relatively scattered.
The value chain from orchards to retailers can be divided into multiple procedures such as picking, sorting, packaging, preservation, storage, and transportation, resulting in a lengthy industrial chain involving many intermediaries.
Secondly, the loss rate of fruit is high.
Once picked, most fruits are extremely fragile and prone to spoilage.
Long-distance transportation and failure to sell in time will reduce the quality of the fruit, or even fail to sell, resulting in direct losses.
According to public data, the fruit rate of domestic fruits is only 50%-60%, and the loss in circulation reaches 30%.
To deal with these two major problems, players need to open up the upstream and downstream industry chains of the market to make this business controllable.
However, the construction of the supply chain will inevitably bring high costs, and the profit margins of enterprises will also be challenged.
Therefore, selling fruit is after all a hard business in a race against time, and this is also reflected in the company's financial report data.
According to the prospectus of Baiguoyuan, from 2019 to 2021, the comprehensive gross profit margin of Baiguoyuan is 9.8%, 9.1% and 11.2%; the net profit rate is 2.8%, 0.5% and 2.2% respectively.
During the reporting period, Pagoda achieved net profits of RMB 248 million, RMB 45.658 million and RMB 226 million respectively.
That is to say, in 2021, Baiguoyuan will generate more than 10 billion yuan in revenue, but the final net profit will only be 226 million yuan.
Procurement costs remain high
The drag on corporate profits is mainly due to the high procurement costs.
According to the prospectus of Baiguoyuan, from 2019 to 2021, the cost of sales of Baiguoyuan accounted for 90.2%, 90.9% and 88.8% of total revenue respectively, of which the cost of inventory sales (mainly fruit purchase costs) accounted for 96.2% of the cost of sales. %, 95.2% and 95.3%.
According to the prospectus of Hong Jiu Fruit, from 2019 to 2021, the sales cost of Hong Jiu Fruit accounted for 81.1%, 83.4% and 84.3% of the total revenue.
In addition, from 2019 to 2021, the average selling prices of Hongjiu’s four major distribution channels all showed a downward trend.
The average selling price of terminal wholesalers has dropped from RMB 14.1 to RMB 10.0, the average selling price of emerging retailers has dropped from RMB 17.7 to RMB 9.4, that of supermarket customers has dropped from RMB 13.6 to RMB 11.4, and that of direct sales has dropped from RMB 17.5 to RMB 12.2 Yuan.
In general, although the fruit industry market is huge, the industry concentration is not high.
Even Pagoda, the first distributor, and Hongjiu Fruit, the second distributor, only account for 1.1% and 1% of the market respectively; as of the end of 2021, the market share of the top five market players in China is only 3.2%.
Even the powerhouses who have fought in the fruit market for many years are difficult to change the market pattern.
They are more in the face of the huge market, earning their own "hard money".
(3)
Industry emerges "barbarians"
The fruit business is not as good as imagined, but the characteristics of high-frequency consumption have also made Internet giants eye this cake.
Foreign trouble: Internet giants "sell fruit"
At the beginning of 2020, after the outbreak of the black swan of the epidemic, a community group buying war also kicked off. Alibaba (09988.HK), JD.com (09618.HK), Pinduoduo (PDD.US), Meituan (03690.HK) ) and other Internet giants have joined in.
Meituan CEO Wang Xing even let go of his harsh words and must win the battle of community group buying.
The reason why Internet giants want to fight the community group buying war is mainly to use high-frequency consumption such as fresh food to cultivate user habits, and then use high-frequency and low-frequency strategies to allow consumers to touch more profitable but relatively low-frequency products. .
The advantages of Internet giants in "selling fruits" are also very obvious. First of all, they have strong logistics advantages and supply chain systems; secondly, they have a large user base, and user conversion is relatively easy; finally, in terms of funds, these Internet giants also have advantages. With their financial strength, they can force players out of the game through huge subsidies in the early stage.
According to Frost & Sullivan data, the online penetration rate of fresh food in China has increased from 2.9% in 2016 to 12.9% in 2021, and will further increase to 22.4% in 2026.
The community group buying war is undoubtedly a huge competitive pressure for players like Baiguoyuan who mainly attack offline fruit stores. It may have become inevitable that the "cake" will be divided.
Internal concerns: brand loyalty, food safety
In addition to "foreign problems", it is also difficult to cultivate consumers' brand loyalty due to the difficulty of standardizing fruits, and food safety issues have also become an extremely sensitive red line issue for enterprises.
In May of this year, Pagoda had to make an apology for cutting the spoiled fruit. Pagoda had to apologize, but the damage to the company's image was irreparable.
Hongjiu Fruit and Xianfeng Fruit have also been punished by market supervision departments or complained by consumers for food safety-related issues.
Behind the "fruit first share" debate, it is undeniable that if a company can successfully go public, on the one hand, it can grab more attention in a market with low concentration; on the other hand, it can also supplement cash flow through financing. Better expansion, to seize the dominant market position.
Even if it is successfully listed, whether it can give a satisfactory answer to the capital market, and whether it can withstand more pressure and stricter supervision, the challenges for enterprises will not be small.
The competition of "Fruit First Share" is a multi-dimensional competition such as enterprise revenue scale, business model, and product quality control.
For the fruit giants who frequently encounter cold in the capital market, perhaps their "advantage" is still not convincing enough.
Is fruit retailing a good business?
The answer may already be forthcoming.
Chengdu Business Daily-Red Star News reporter Yu Yao and Liu Mi