Edit | Wang Shanshan
This article was published in the June 2020 issue of China Business News.
On July 3 1, in official website, the CSRC issued an announcement, approving Nongfu Spring Co., Ltd. to issue no more than 1.38 billion foreign-funded shares listed overseas, each with a par value of 0. 1 yuan, all of which are ordinary shares. After the completion of this issuance, the company can be listed on the main board of Hong Kong Stock Exchange.
Like some successful people, the narrative enthusiasm of enterprises often reaches a small climax before and after listing. Some stories, such as many products, seem to lack logic but cannot be subverted; Some, like Rui Xing, proved that the price of adding oil and vinegar was too high afterwards; Other stories were debunked at the moment of export, such as WeWork, which failed to go public, and its market value dream plummeted from 1000 billion dollars to 2.9 billion dollars.
But there are also examples of doing the opposite. Nongfu Spring, a company that always tells stories at the product marketing level, told the story of "planning the listing of A shares" in 10. As a result, it kicked the ball to the Hong Kong stock market and showed a low-key and honest image of a traditional industry company in the prospectus.
The emergence of "white horse stocks" in traditional industries is one of the important phenomena in the A-share market in recent years, especially the food and beverage closely related to the lives of ordinary people. Look at Maotai, whose stock price has hit record highs, and then look at Haitian Ye Wei, which has a market value of 350 billion with soy sauce. The steady growth of Nongfu Spring's income, high gross profit margin and high dividend rate are indeed similar to them.
However, Nongfu Spring is only a "water seller". In the past, it was more modest to call yourself just a "porter of nature". In the Hong Kong stock market, a company that also sells water-"Tibet Water Resources" (the parent company of "5 100 Tibet Glacier Mineral Water") was attacked by short sellers, calling its financial data "unbelievable". After the prospectus of Nongfu Spring was disclosed, some people hoped to find a flaw between the lines, and claimed that Nongfu Spring they saw was a radical company on the edge of a cliff, not a steady industry leader.
So what did the "water seller" say in the prospectus?
"Other kinds of drinking water"
If you don't have any resources or much money and want to do some business in the beverage industry, selling pure water may be a good first step.
Aside from the concepts of brand packaging such as "baby water" and "cold boiled water", packaged drinking water sold in China can actually be simply divided into three categories: drinking natural mineral water, drinking pure water and other types of drinking water. The raw water of "drinking pure water" comes from the public water supply system (tap water), and the preparation process is simple, so the cost is very low, which is also the common source of one or two yuan of bottled water from Wahaha, Master Kong and Lu Bing. For brands such as Master Kong and Coca-Cola, these aquatic products are launched to help other products expand channels or increase channel stickiness, and they do not make money.
If you start with "drinking natural mineral water" like brands such as Baisui Mountain and Kunlun Mountain, it means entering a high-end market that fights for water, packaging and stories. The corresponding high profit rate may help enterprises achieve certain profits, but at the same time, they have to face the siege of international brands such as Evian and VOSS.
Is there a "middle route" with lower cost and appropriate gross profit? Under the category of "other kinds of drinking water", Nongfu Spring focuses on two kinds of water resources: "drinking natural water" and "drinking natural spring water". They are usually surface water and groundwater systems that do not belong to public water supply systems, and contain some minerals and trace elements, so they are cost-effective raw materials for products.
It is precisely because of the basic characteristics of natural water source and mineral composition that one of the most important product stories in Nongfu Spring's early days revolves around the concepts, standards and nutritional values of "natural water" and "pure water". Since then, Nongfu Spring has gradually gained popularity and market space in several "water wars" with Wahaha, Robust and China Resources Ipoh.
Selling water is not an unprofitable business. In the sales cost structure of Nongfu Spring, the expenses excluding PET plastic bottles and raw materials (including water resources, fruit juice, sugar and other raw materials) have increased slightly year by year, but the proportion of revenue has gradually decreased. The process of finding water is very similar to mining. The mining right needs to be paid by auction, and the annual mining plan and resource fee should be paid according to the usage. Once a water source is developed and put into production, it will generate the developer's "water fee". By analyzing the drinking water business data of "Tibet Water Resources" and A-share listed company "Jilin Forest Industry" (the parent company of regional mineral water brand "Quanyangquan"), we can know that the gross profit space for selling mineral water is generally around 45% to 55%; For Nongfu Spring, which also sells natural water, this figure can further rise to about 60%.
This water selling company wants to break through geographical restrictions and make its business nationwide. The next problem to be solved is the quantity of water sources and the scale of production capacity.
The bottled water industry has a rule of thumb of "500 km transportation radius", that is, the distance between the terminal market of bottled water and the water source should not be too long, otherwise the net profit will be consumed by logistics, sales and other expenses. Nongfu Spring disclosed 65,438+00 gradually developed water source location, output and capacity data in the prospectus. It can be seen from the layout timeline that the radius of 500 kilometers of these water sources gradually covers most of the regional markets of bottled water consumption in China, especially the two key markets in East China and South China.
Except Qiandao Lake in Zhejiang and Lvwan Lake in Guangdong, the capacity utilization rate of most water sources in Nongfu Spring is less than 50%, which is not high compared with many catering enterprises with high load operation. However, the output growth rate of six 10 water sources in the past three years has always been higher than the capacity growth rate, indicating that the company is adjusting its capacity according to the regional sales situation.
Of course, it is also the privilege of the head "water seller" to be good at sharing costs and risks by using the cooperative relationship with the "water supplier" like Nongfu Spring.
Invisible "water bearer"
Before starting a business to sell water, Zhong, manager of Nongfu Spring, worked as the general agent of Wahaha in Hainan and Guangxi for some time. During this period, he took Wahaha Oral Liquid, which was sold at a low price in Hainan, to Guangdong and sold it at a high price outside the agency area. This kind of "cross-selling" behavior finally made him lose his agency qualification.
Now, Nongfu Spring operated by Zhong is extremely strict with the dealer system. According to the prospectus, by the end of 20 19, Nongfu Spring had covered more than 2.37 million terminal retail outlets nationwide, accounting for about 1 1% of the national retail outlets. Between Nongfu Spring and these retail outlets, the circulation and sales of products depend on more than 4,000 first-class distributors and logistics partners working closely with Nongfu Spring. They are the key invisible "water delivery people" in the water selling chain.
Nongfu Spring itself has to undertake the transportation process from the factory to the first-class dealer, and railways and highways are the most common export methods. The logistics cost generated by the rule of "500 km transportation radius" is the most worthy of strict control, otherwise the product may lose money halfway.
The factories in Nongfu Spring are very close to the water source, and are basically connected to the railway or highway network. In Changbai Mountain area, because of its early layout, it was once the only water selling company with special railway lines in China. The local branch of Changchun Chuntie Logistics Group has long provided "door-to-door" freight service for this big customer.
At the end of 20 18, the factory in Changbai Mountain area of Nongfu Spring tried to switch to direct road transportation for short-distance dealers, which reduced the supply of railway transportation by more than 50% at once. In order to retain customers, the local railway logistics company developed the logistics general contracting service scheme of "combined transport of railway and steam", increased the back-end delivery service of "station to door", and adopted the bundling of quantity and price, which re-promoted the utilization rate of railway freight in Nongfu Spring.
"An Guang Logistics", a railway logistics service provider and a New Third Board listed company, mainly serves the well-known waterworks in Changbai Mountain area to develop drinking water resources. Nongfu Spring has been in the list of its top five customers, and the relevant income contributes about 40% to the overall income of An Guang Logistics.
Relying on the close cooperation with these invisible water merchants, the prospectus shows that the proportion of logistics and warehousing expenditure of Nongfu Spring in the company's total revenue has been declining in the past three years, and the proportion in 20 19 years was 10.5%, with an expenditure of 2.526 billion yuan.
The involvement of dealers and other partners is also helping Nongfu Spring bear the marketing costs.
Since 20 16, Nongfu Spring has followed the example of Ziyi International, a global fast-moving consumer goods group, and promoted the reform of the "big distributor" system in different regions, giving up the control over the small distributors of "mom-and-pop shops", not only delegating all sales targets to the first-class distributors, but also bringing the sales staff of manufacturers into the establishment of distributors, and the distributors will pay their salaries.
At the same time of decentralization, Nongfu Spring also exported a set of digital system named "Farmer Partner System" (NCP for short) to its dealer network, which provided another "insurance" for the strict management of sales staff. The front-line sales staff of the dealer system should be equipped with this NCP system, which is responsible for directly transmitting daily data such as the display situation, sales equipment, promotion expenses and inventory turnover rate of terminal stores to the brand headquarters. Therefore, the dealer is actually only the executor of Nongfu Spring in logistics and sales.
According to the prospectus, 20 17 is the peak period for Nongfu Spring to cancel its contract with its dealers. More than 30% of the dealers who cooperated with Nongfu Spring at the beginning of that year chose to know about the contract.
At the beginning of 2020, in order to improve the circulation speed of products, Nongfu Spring also shortened the shelf life of all beverage products by 3 to 12 months. The normal sales cycle of dealers can basically cover the new shelf life requirements, but the inventory that needs urgent treatment by dealers has increased a lot since then.
For dealers, Nongfu Spring adopts the trading mode of "payment first, then receipt", so we can get a glimpse of the cooperative relationship between dealers and Nongfu Spring from the changes of two financial indicators: "customer advance payment" and "trade accounts receivable". Nongfu Spring's "customer advance payment" in recent three years far exceeds the company's net profit scale, indicating that its book cash is abundant; However, in 20 19, the proportion of customers' advance payment to revenue decreased by more than 1%, and the proportion of trade accounts receivable to revenue increased slightly, partly reflecting the decline of dealers' willingness to take goods from Nongfu Spring.
This may be related to the large number of "new products" that Nongfu Spring has produced in recent years.
Large enterprises in small markets
The bottled water industry in China basically follows the expectation of the practitioners on the market prospect. According to the statistics of Euromonitor Consulting, in the China market, where "Liangbaikai" is still the mainstream of national drinking water, the sales scale of bottled water has increased from 20 18 years to 2 10692 billion yuan, with a compound annual growth rate.
In the whole "soft drink" market, no other business is as certain as bottled water. Carbonated drinks, tea drinks, juice drinks and functional drinks are not only much smaller in market scale than bottled water, but also have experienced more than one round of brand scuffle in their respective vertical fields. Even though some brands have established a certain degree of market concentration after being killed, consumers are always curious about those newly listed innovative brands.
Taking fruit juice as an example, the China Shoppers Report 20 19 released by Bain Consulting shows that during the period from 20 16 to 20 18, the top 20 brands in the fruit juice field contributed -6% to the sales growth of all categories, while the contribution rates of small brands and new brands were 7%. Fruit juice is also one of the few categories among the 26 fast-moving consumer goods listed in this report.
Nongfu Spring also appears on the shelves of retail channels as an "innovator" in niche markets such as juice drinks, functional drinks and tea drinks.
The launch of "Farmer Orchard" in 2003 was the first time that "mixed fruit and vegetable juice" products appeared in China market, although this idea had the shadow of Japanese fruit and vegetable juice giant Ge Wei.
When Nongfu Spring launched the functional drink "Scream" in 2004, the domestic awareness of such products was still purposeful Red Bull and some regional hot-selling brands-Suntory and Gatorade.
20 1 1 When the "Leaves of the East" with sugar-free as its selling point was launched, the tea beverage market in China was still in a significant "sugar-containing period" represented by Uniqueiced Black Tea and Master Kong Green Tea, and sugar-free gradually became the mainstream taste in the tea beverage market until about 20 18.
From the advertisements of the early farmer's orchard to the "screaming" bottle design, and then to the label innovation of oriental leaves ... Nongfu Spring's storytelling ability is more fully demonstrated in the process of pushing new products around these small markets.
Despite this, Nongfu Spring still can't get rid of the struggle with other brands in various market segments. Fortunately, it can take advantage of being a big company-before the market fully grows, it can give new products more time to iterate and find opportunities in the upstream of the industrial chain with continuous investment and deep channel skills.
In the field of fruit juice, another major business that Nongfu Spring focuses on besides drinking water, the original products of Nongfu Orchard are mainly "mixed fruits and vegetables", with a high proportion of vegetables and low market acceptance. The fruit juice market has always been strongly bound by the concept of health, and the sales from upstream to downstream are mainly in the form of fresh fruit. In the past, finished fruit juice products could only choose between gross profit margin and taste for a long time. Larger brands often choose the former-either reducing the concentration of juice in drinks or adopting the technology of "concentration reduction" for high-concentration juice products to reduce costs.
Nongfu Spring pure juice product line "17.5" was launched at the end of 20 15. From the very beginning, we chose the NFC(Not from Not from concentre) model with the highest standard and the largest investment in the industry, and all the farms and production lines were self-operated. NFC originally belonged to a small market of pure fruit juice products: affected by the shelf life and cold chain transportation cost, the pricing can only match the top customers with high consumption capacity, so the overall scale has been small and the growth is moderate. Nongfu Spring's "17.5" only emphasizes normal temperature and parity. Although there is technical controversy, it directly breaks the iron law of the NFC market in the past.
In fact, Nongfu Spring has never been obsessed with "only doing NFC". Its layout of juice drinks runs through high, medium and low concentration product lines, thus driving its accumulation in product research and development and upstream supply chain. According to the prospectus, Nongfu Spring strategically hoarded a considerable amount of NFC juice raw materials in 20 18, which nearly doubled the inventory value of this category.
In the middle of 20 19, the product line of "farmer's orchard" with a history of 16 was suddenly renovated, from fruit and vegetable juice to clearer juice. It is by using the company's raw material reserves that the juice concentration is increased to 50%. With the launch of this round of new products, Nongfu Spring slightly raised the price and gave preferential treatment to the sellers, which finally promoted the revenue growth of fruit juice and beverage category by 24.6% in that year.
Compared with the previous "super-forward-looking layout", Nongfu Spring has been meticulous and patient in its iterative operation of the juice market for several years, which has helped it gain good market acceptance.
Of course, this kind of water test has a certain price-after strengthening the pure juice business, the gross profit margin of Nongfu Spring juice drinks has dropped rapidly, and it is difficult to digest the suddenly reserved inventory in 20 18. Only in the non-main market, sales volume and brand power are the primary promotion goals, so you don't need to worry too much about profit margin. After these preconditions are met, such an attempt is meaningful.
Before Nongfu Spring formally handed the form to HKEx, the only way to spy on the company's performance data was through Wan Tai Bio, which was listed on the A-share Science and Technology Innovation Board earlier. Biology and Nongfu Spring belong to the "Yangshengtang" founded by Zhong, but one is the main business of making a fortune and the other is a high-risk frontier investment.
Nongfu Spring also disclosed some transactions with its parent company in its prospectus. For example, it bought all the shares in the vending machine business from Jianbaotang at a price of nearly 6,543.8 billion yuan. After the installation of listed companies, vending machines, as a product integrating sales channels and brand advertisements, are likely to become the next round of terminal retail facilities of Nongfu Spring, just like the previous freezers.
At the same time, Nongfu Spring also spun off some marginal businesses from listed companies, including a Northeast Agricultural Company with a consideration of only 1 yuan, which is one of the few new category attempts of Nongfu Spring that failed to tell the story of "from the place of origin to the consumer".
Following the listing of Wan Tai Bio and Nongfu Spring, the image of Yangshengtang as a "big health holding company" has been initially established. Once the values of these two companies are recognized in the open market, it will be a great success for the Health Care Hall. As for the controversial health care products such as Duoer and Guibie Pills, it is worth mentioning that they are not listed.
After all, at present, the market is most concerned about what Nongfu Spring, a "water seller", said, and it looks like an honest man.
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