The 'New Three Kingdoms' pattern in meat products is collapsing.
I
The collapse of the Yurun empire began on March 23 when Zhu Yicai was taken away by the disciplinary inspection authorities for residential surveillance, and with it, Yurun's 'development model' that had been aggressively pursued for 10 years is now under severe test.
History repeats itself strikingly. On May 4, 1999, Gao Fenglai, chairman of Chundu Group, died of a sudden heart attack, less than two months after Chundu's shares were listed on the Shenzhen Stock Exchange and raised 400 million yuan. What followed was the exposure of the group's huge non-performing assets and massive financial black hole, and Chundu's subsequent development trajectory was like a parabola, quickly falling.
If Chundu dismantled the 'old Three Kingdoms' of the meat products industry, then Yurun's precarious situation means that the 'new Three Kingdoms' competitive landscape will soon be broken. Interestingly, both companies that pulled the short board of the bucket were destroyed by their own walls due to reasons such as business diversification, overly rapid scale expansion, weak sustained profitability, and broken capital chains.
With the collapse of the 'old Three Kingdoms', Shuanghui rose; with the collapse of the 'new Three Kingdoms', will Shuanghui still have the last laugh? Judging by the actual development status and momentum of the company, the answer seems certain.
This is very interesting. What does it mean to fight bloody battles and the strong become stronger? What does it mean to weather storms and see a rainbow? Looking closely, Shuanghui has indeed stepped on the 'corpses' of its competitors to get to where it is today.
Of course, we should not forget another important member of the 'new Three Kingdoms' - Jinluo. It still holds a strong position in the Chinese meat products market. However, to use a trendy phrase, 'The world is so big, I want to see it.' Whether Shuanghui, which has long pursued an internationalization strategy, still regards Jinluo as a major competitor is hard to say. One thing is clear: Shuanghui's goal is truly the 'far distance', while Jinluo is still following the old path.
The 'new Three Kingdoms' in our view has become a shadow of its former self. Yurun's collapse has made this fact clear to the outside world.
II
A small ham sausage is a barometer of the Chinese meat products market.
Based on the rise and fall of ham sausage brands, the industry divides the Chinese meat products market into three stages: market introduction stage, stage of many contenders, and stage of feudal lords vying for hegemony.
Market introduction stage (1986-1990): In 1986, Chundu Group introduced the first ligation production line in Chinese history, and from then on, Western-style meat products began their vigorous development in China. During this stage, the ham sausage market was in its development period, and Chundu's 'dancing ham sausage' resounded across the country, dominating the market.
Stage of many contenders (1990-1995): In the early 1990s, 'Shuanghui' and 'Zhengrong', also from Henan, saw the booming scene of 'Chundu' launching ham sausages and joined the ham sausage market one after another, forming a tripartite confrontation of 'Chundu', 'Shuanghui', and 'Zhengrong', with 'Henan sausages' dominating the national ham sausage market.
Stage of feudal lords vying for hegemony (1996-2013): 'Shuanghui' overtook its competitor 'Chundu' from behind. Nanjing's 'Yurun' used low-temperature meat products as a breakthrough and achieved a leading position in the low-temperature meat products market. Meanwhile, 'Jinluo', located in the Yimeng Mountain area of southern Shandong, with its refreshing advertising slogan 'Compare, taste, Jinluo ham sausage' and its positioning of high quality and low price, tore a bloody gap in the iron wall of 'Henan sausages' and maintained rapid growth that doubled year after year. By the end of 1998, after a new round of 'reshuffling' in the ham sausage market, a new pattern emerged with 'Jinluo' and 'Shuanghui' dominating the high-temperature market, and 'Yurun' and 'Shuanghui' monopolizing the low-temperature market.
At least by 2013, the feudal lords' struggle gradually waned. In May of that year, Shuanghui International Holdings acquired Smithfield, the world's largest meat products company, for $7.1 billion (approximately RMB 43.7 billion), 'the rooster crows and the world becomes bright', suddenly widening the gap with Yurun and Jinluo. By February 2014, Shuanghui International, together with Sigma, Mexico's largest meat supplier, bid for the Spanish meat products giant Campofrio, acquiring a 37% stake, further expanding Shuanghui's share in the three major markets of China, the United States, and Europe.
Competition in the Chinese meat products industry has always been extremely fierce. As of 2013, there were 1,507 meat products enterprises above designated size in the industry, with small enterprises accounting for more than 80%. With the expansion and development of enterprises above designated size, especially group companies, some small and medium-sized enterprises that have been merged or converted and have no advantages will be eliminated in the challenge.
Shuanghui, Yurun, and Jinluo have always firmly occupied the top three positions in the meat products processing industry. Now, Shuanghui is 'going out', Jinluo is 'holding the fort', and Yurun is 'stumbling'. Who will take on the role of industry integrator?
III
For large enterprises, whether the development strategy is correct is extremely important and critical.
Among the 'old Three Kingdoms', Shuanghui always concentrated superior resources to fight a war of annihilation, adhering to professional operation without wavering, resulting in steady progress and overtaking from behind. Chundu and Zhengrong, on the other hand, were hot-headed and diversified extensively into fields such as medicine and commerce, ultimately losing their main business and collapsing entirely. When it evolved into the 'new Three Kingdoms', each company noticed the importance of adopting an industry-focused strategy, ensuring that limited resources and energy were invested in one main business, relying on the development of the main business to drive related industries, and related industries in turn feeding back to support the main business in market competition. It should be said that they all deeply understood and learned from the lessons of the failure of Chundu and Zhengrong in the 'old Three Kingdoms'. However, the character of the entrepreneur is the character of the enterprise. The three companies' respective business vision, breadth of mind, strategies, and specific methods determined that although they took the 'same path', they ended up with 'different outcomes'.
Let's talk about Yurun first. Over the past 10 years, Yurun has been leveraging its brand and market advantages to expand aggressively in the upstream pig farming sector of meat products, planning to build Yurun agricultural and sideline products global procurement centers in 30 provincial capital cities, logistics and distribution centers in 300 prefecture-level cities, and planting and breeding production bases in 3,000 counties. However, in actual operation, the industry has continuously questioned the true purpose of this approach, denouncing it as a 'robbing the poor to give to the rich' development model: first exaggerating investment plans to apply for high government subsidies and supporting funds, using a small amount of investment to build new factories; then mortgaging the low-cost land assets obtained to banks for loans as working capital; and Yurun counted the free land and assets as profits, benefiting from issuing new shares through the listed company. Data shows that since Yurun Food was listed in 2005, over the 10 years, the cumulative government subsidies received in annual reports exceeded HK$4 billion, accounting for 46.38% of the total profits over the 10 years.
Such rapid expansion also brought a bad consequence: low resource utilization. The annual pig slaughtering capacity is about 35 million heads, but the actual annual slaughter volume is around 15 million heads, resulting in a large surplus of production capacity.
Unlike Yurun's land enclosure movement in the upstream industry, Jinluo pays more attention to the balanced development of the entire industry chain. Although its management style is somewhat conservative, it is generally steady and pragmatic, gradually expanding outward on the basis of consolidating existing market share. Its development strategy can be summarized as: fully leverage its basic industry advantages, extend the industry chain around the main processing business, and follow a steady development model based on agricultural industrialization, guided by product excellence and technological innovation, with 'resource-based start, chain extension, and circular development'.
Currently, its processing branches are mainly distributed in some provinces and cities such as Heilongjiang, Jilin, Inner Mongolia, Sichuan, and Hunan. Among them, pig resources in Shandong Province alone account for one-third of Jinluo's total resources. The entire industry chain covers breeding pig breeding, feed production, commercial pig breeding technical services, pig slaughtering, meat products processing, and other fields, with a high degree of intensification and standardization.
In history, Shuanghui also implemented mergers and reorganizations for survival and development, expanding upstream and downstream production scales, and implemented the 'six regional development strategies' centered on Beijing, Shanghai, Guangdong, Shenyang, Chengdu, and Luohe, ultimately achieving enterprise grouping and product branding. But unlike Yurun and Jinluo, which focus on the domestic market, Shuanghui bravely implemented internationalization after 2013, gathering meat products resources from around the world under its banner. This boldness, this approach of consolidating the foundation internally and expanding the market externally, immediately left other meat products enterprises far behind.
Of course, Shuanghui also implements a diversification strategy, but this is limited to related industries of meat products, such as pork, chicken, and mutton, and its industrial layout and capital operations all revolve around the main meat products business, never deviating for the sake of greed. If this is Shuanghui's development strategy, then it is also the righteous path that Wan Long's team has followed for many years.
IV
In the late period of the historical Three Kingdoms, Sima Zhao of Wei, in order to establish brilliant military achievements, ordered Deng Ai and Zhuge Xu to lead troops to attack Shu in 263 AD, directly attacking Fucheng and approaching Chengdu, finally forcing Liu Shan, who was content with a corner, to surrender. During this period, Sun Hao, the emperor of Wu, did not cultivate internal affairs and was extremely extravagant, leading to domestic chaos. Emperor Sima Yan of Jin sent Jia Chong and others to lead troops in six routes in 279 AD, approaching Jianye in 280 AD, and Sun Hao surrendered, Wu was destroyed, and the Western Jin successfully unified the world.
Comparing this real 'Three Kingdoms' with today's 'new Three Kingdoms' in the meat products industry is somewhat far-fetched, but the rise and fall, the ebb and flow, are somewhat similar: the internal strife of Wu in those days is like Yurun's self-destruction today; the conservative isolation of Shu is like Jinluo's hesitant steps today; the aggressive advance of Wei is like Shuanghui's cross-border acquisitions today...
Some may say that as a fully competitive industry, the meat products field can never develop into a situation where one company dominates the world. That's right, as the old saying goes, 'A single flower does not make spring; a hundred flowers bloom to fill the garden.' If Shuanghui develops smoothly, it can ultimately only occupy a limited market, not the entire market. But as another old saying goes, 'The strong become stronger, the weak become weaker.' As long as a large enterprise in a tripartite pattern shows a declining trend, it will inevitably be defeated by competitors.
The development history of international corporate giants has repeatedly shown that the most enduring and stable pattern in top-level competition among large leading enterprises is the 'twin stars' or 'duel of heroes', such as Coca-Cola and Pepsi, McDonald's and KFC, rather than 'tripod' or 'three sheep bringing prosperity', let alone 'winds from all directions' or 'eight immortals crossing the sea'. A leader is a leader; one is too lonely, at most two can be accommodated.
In the future, who will become the competitor of this behemoth Shuanghui? Will Jinluo make a move? Will Yurun turn the tide? At present, Shuanghui stands with its sword, facing a vast uncertainty.
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