---
title: "2016 Food Industry: 'Shedding', 'Falling', 'Losing'"
description: "As the industry continued its downturn, 'shedding', 'falling', 'losing', and 'crossing' became the four key words for the food industry in 2016. Giants like COFCO and Danone frequently divested loss-making businesses; companies like Meiwei 77 and Jingya Hotel failed to survive the industry winter due to poor operations; companies like Huangtai and Rio were trapped by their inability to keep pace with industry adjustments; and companies like Chuying Agro-pastoral and Biostime sought new profit growth through diversification."
author: "李栋 王叔坤"
publisher: "New Distribution"
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published: "2016-12-31"
language: "en"
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# 2016 Food Industry: 'Shedding', 'Falling', 'Losing'

> As the industry continued its downturn, 'shedding', 'falling', 'losing', and 'crossing' became the four key words for the food industry in 2016. Giants like COFCO and Danone frequently divested loss-making businesses; companies like Meiwei 77 and Jingya Hotel failed to survive the industry winter due to poor operations; companies like Huangtai and Rio were trapped by their inability to keep pace with industry adjustments; and companies like Chuying Agro-pastoral and Biostime sought new profit growth through diversification.

“Some resign and return to their hometowns, while others rush to the examination hall at night.” Amid the overall industry downturn, “shedding,” “falling,” “losing,” and “crossing” became the four key words for the food industry in 2016.

“Shedding” refers to giants like COFCO and Danone, which frequently divested loss-making businesses; “falling” refers to companies like Meiwei 77 and Jingya Hotel, which failed to survive the industry winter due to poor operations; “losing” refers to companies like Huangtai and Rio, which were trapped by their inability to keep pace with industry adjustments; “crossing” refers to companies like Chuying Agro-pastoral and Biostime, which sought new profit growth through diversification.

This week, the New Food weekly of Beijing News reviewed representative food companies in 2016 in terms of “shedding,” “falling,” and “losing,” analyzing the real reasons behind their situations, hoping that future players can avoid these pitfalls in the new year.

**2016 Food Industry: Shedding**

**Biggest Move: COFCO Switches from 'Buy, Buy, Buy' to 'Sell, Sell, Sell'**

During Ning Gaoning's tenure, COFCO initiated over 50 mergers and acquisitions. External acquisitions involved Xinjiang Tunhe, HuaRun Alcohol, Shenzhen Baoheng, Wugu Daochang, and Mengniu, among others, and it restructured and integrated COFCO's subsidiaries such as China Agri-Industries, COFCO Cereals & Oils, and China Grain Reserves Corporation, aiming to become an international grain trader with a global presence and a full industry chain.

Since Zhao Shuanglian took over, COFCO has launched a “slimming and fitness” plan, quickly shifting from “buy, buy, buy” to “sell, sell, sell,” successively divesting businesses such as Jinde Food, COFCO Jun Ding Winery, and Wugu Daochang.

In January 2016, Jinde Food, a chocolate brand that had been prominent in China for 25 years, was sold by its parent company China Foods (a listed subsidiary of COFCO) to COFCO's Huagao Properties for 611 million yuan. In December, Jinde Food was fully acquired by Fujian Haolinyin for 206 million yuan.

In April 2016, COFCO Jun Ding Winery Co., Ltd. and Shandong COFCO Jun Ding Wine Co., Ltd. listed a 55% stake in Jun Ding Winery for sale at a transfer price of only 1 yuan. However, financial data showed that the winery owed over 500 million yuan in total, and the winning bidder would need to bear 392 million yuan of its debt. In September, the second-largest shareholder, Longhua Group, announced it would take over the stake for 1 yuan while repaying a total of 300 million yuan in debt after discounts. Industry insiders believe that the fate of Jun Ding Winery, which was established 10 years ago and was once seen as COFCO's foray into the high-end domestic wine market after “Great Wall,” remains to be seen after the original second shareholder took over.

Compared with Jinde and Jun Ding, which found buyers, Wugu Daochang, also divested by COFCO, faces immense pressure. On November 25, 2016, COFCO listed Wugu Daochang's 100% equity and 53.67 million yuan in claims for sale. Financial data showed that Wugu Daochang's revenue in 2015 was approximately 126 million yuan, with a loss of 193 million yuan; total assets were 118 million yuan, but liabilities were as high as 927 million yuan, and it is still up for sale.

In fact, years of losses have turned these former star companies under COFCO into market outcasts. In addition to the overall industry downturn, COFCO's failure to effectively manage and operate the acquired assets is also a factor. According to China Foods management at an investor meeting, there are still some factories and joint ventures in beverages, kitchen foods, and alcoholic beverages that have not created value, and they will accelerate disposal. This means COFCO's “sell, sell, sell” plan will continue, and many brands bought at high prices remain uncertain.

**Most Strategic: Danone's Acquisitions and Divestitures Both Have Deep Meaning**

Multinational giants are also following the “big sale” trend. Since 2016, France's Danone has been streamlining its infant formula brands in China. In March, Danone announced it would stop selling Karicare Gold formula in China, focusing on its Aptamil and Nutrilon brands. In May, Danone officially sold all of its Dumex China equity to Yashili for approximately 1.12 billion yuan.

Analysts believe that in the context of increasingly fierce industry competition, Danone's early shedding of burdens is “also a good choice.” However, for Danone's sale of Robust, industry insiders hold different views.

On November 15, 2016, Danone confirmed to Beijing News reporters that, due to “adjusting business development strategy needs,” it would sell the Robust brand and six Robust factories to Yingtou Holdings.

As early as March 2000, Danone acquired 92% of Robust, becoming its largest shareholder. As one of the few “well-known trademarks” in the food industry, Robust was one of the fastest-growing beverage companies at the time, with a rich product line including Robust milk, AD calcium milk, and purified water. However, nearly 16 years after the acquisition, Robust did not grow stronger under Danone but instead shrank rapidly. Danone continuously divested Robust's business segments, and its remaining drinking water market share also declined.

Industry insiders question whether Danone deliberately marginalized Robust to protect its water brand “Yili,” ultimately leading to Robust's decline. However, while Robust declined, Yili did not develop either, which can be described as “losing both the wife and the soldiers.”

**Most Unforgiving: Uni-President Ends 11-Year Marriage with Jianlibao**

Jianlibao, known as “China's magic water,” had its 11-year marriage with Uni-President ended. On November 28, 2016, Uni-President announced it would sell 100% equity of Foshan Sanshui Jianlibao Trading Co., Ltd. to Guangdong Jianlibao Group Co., Ltd. According to reports, Uni-President could profit approximately 343 million yuan from the sale, with an investment appreciation of 2.5 times.

Analysts believe that besides the exclusive brand license granted by Jianlibao Group to Jianlibao Trading expiring in December this year, the fundamental reasons are the current sluggish beverage market, increased operational difficulty for Jianlibao, and reduced investment returns.

As the first domestic beverage with added alkaline electrolyte, Jianlibao was fully acquired by Uni-President in October 2005, which launched multiple brands such as “Jianlibao 1984,” “Sunshine Guopa,” and “Apple Cider”; it also registered over 70 trademarks, including “Duoyang Water,” “Hongcha Jun,” and “Miaopao,” but these did not leave a deep impression on the market, and the multi-brand strategy was not successful.

According to reports, Jianlibao's sales in 2015 were only about 1.5 billion yuan, a 10% decline from 2014. In fiscal years 2013-2015, Uni-President's revenue was 23.328 billion yuan, 22.488 billion yuan, and 22.101 billion yuan, respectively, showing a year-on-year decline.

Industry insiders believe that Uni-President's own poor performance, coupled with Jianlibao's lackluster performance, made Uni-President lose patience and eventually divest Jianlibao.

**Most Decisive: Selling Food Is Better Than Selling Houses, Evergrande Sells All at Once**

On September 28, 2016, Evergrande Group announced it would sell its grain and oil, dairy, and mineral water businesses to three buyers for 2.7 billion yuan, focusing on its main real estate business and other related businesses.

Interestingly, the final buyers of Evergrande's food segment were all “outsiders.” The mineral water business was acquired by Shenzhen Sanwei Dulin Automobile Sales Service Co., Ltd. and Lipu (Hong Kong) Limited for 1.8 billion yuan. The dairy business was acquired by Shenzhen Mingsheng Dulin Trading Co., Ltd. and Sunlight Property Management Limited for 300 million yuan. The grain and oil business was acquired by Shenzhen Lailailai Industrial Co., Ltd. for 600 million yuan.

The outside world generally believes this deal is quite cost-effective for Evergrande. Data shows that Evergrande is expected to gain 5.7 billion yuan from the sale. In non-real estate fields such as grain and oil, Evergrande had only invested a cumulative 6.42 billion yuan by 2014. In fact, Evergrande's poor performance in the food sector is evident from its financial data: its grain and oil, dairy, and mineral water businesses had audited net liabilities of about 3.3 billion yuan by the end of August 2016.

Ironically, in 2015, Evergrande claimed that its four major industries—grain and oil, dairy, mineral water, and health—would be listed separately in Hong Kong within three years, with Evergrande Spring Water alone aiming to achieve 30 billion yuan in sales within three years. But before these goals were achieved, Evergrande exited early and continued to focus on its real estate business, proving the industry joke: “Selling water is not as good as selling houses.”

**2016 Food Industry: Losing**

Since this year, with a new round of consumption upgrades, food companies have faced more intense market competition and challenges.

Affected by industry bandwagoning and high positioning, the leading cocktail brand Rio saw its performance plummet in the first three quarters of this year; in the general trend of listed liquor companies turning losses into profits, Huangtai Wine suffered losses due to shareholder infighting and lagging adjustments; dairy giant Mengniu, despite its own strong performance, was dragged down by subsidiary Yashili, recording its first loss forecast in eight years... Although the reasons and degrees of losses vary among these food companies, they cannot shake off the “loss” label.

**Fastest Loss: Rio's Cliff-Like Decline from Red-Hot to Fallen**

From explosive growth in early 2015 to falling from the “pedestal” in 2016, the once red-hot Rio premixed cocktail took less than a year to incur huge losses, making it the fastest “losing” food company this year.

Data shows that Rio's parent company, Baorun Group, had net profits of over 500 million yuan in 2015, but by the first three quarters of this year, losses exceeded 100 million yuan, a year-on-year decline of 114.90%, showing a “cliff-like” drop in performance.

At the end of 2014, premixed cocktails quickly became popular. Rio leveraged marketing, from product placements in popular TV dramas to sponsoring variety shows, and its “carpet bombing” advertising brought good sales results. At that time, some analysts even said the premixed cocktail industry would become another blue ocean in the food industry, with a market size exceeding 10 billion yuan.

In the midst of this boom, in 2015, Baorun Group acquired 100% equity of Shanghai Bacchus Wine Co., Ltd. for 4.945 billion yuan, and Rio premixed cocktails became its brand. At the same time, companies such as Wuliangye, Luzhou Laojiao, Gujing Gongjiu, and Heinong also launched premixed cocktail projects.

Unexpectedly, in 2016, Baorun Group suffered consecutive losses, and companies like Yanghe, Shanxi Fenjiu, and Luzhou Laojiao also suspended their premixed cocktail projects. Industry analysis suggests that the low technical content, low entry barriers, low costs, but high selling prices of premixed cocktails are the main reasons they failed to truly win over young consumers. Additionally, many companies rushed in, quickly leading to oversupply in the industry, and its glory days were over.

**Most Excusable Loss: China Agri-Industries Attributes Three Years of Losses to Macro Economy**

In the grain and oil processing industry, many small and medium-sized “oil sellers” struggle to survive under the shadow of international grain traders like Cargill, Wilmar International, and COFCO. However, since 2016, many grain and oil giants have “capsized,” with financial reports showing losses or declining revenues.

In August this year, COFCO's subsidiary China Agri-Industries Holdings Limited released its interim results, with revenue of HK$40.7 billion, up 4% year-on-year, but a net loss attributable to equity holders of HK$223 million, compared to a loss of HK$269 million in the same period last year.

China Agri-Industries has attributed its losses for three consecutive years to the slowdown in macroeconomic growth. In fact, the decline in performance across various segments also “took the blame.” For example, in the first half of 2016, due to volatile fluctuations in soybean, soybean meal, and other oilseed raw materials, the gross profit of China Agri-Industries' oilseed processing business decreased by 21.9% to HK$1.7625 billion; the biochemical and biofuel business saw revenue decrease by HK$5.6203 billion year-on-year due to widespread price declines in major products.

This also represents the sluggish status of the grain and oil processing industry in recent years. Affected by factors such as slowing domestic economic growth, sluggish market consumption, and frequent fluctuations in commodity raw material prices, many grain and oil processing enterprises have seen rising operating costs, insufficient capacity utilization, and high inventory pressure, with most experiencing declining profits and continuous losses.

Zhu Danpeng, a researcher at the China Food Business Research Institute, believes that China Agri-Industries' oilseed processing and rice and flour businesses have problems such as outdated business models and declining brand competitiveness. Especially in recent years, with the highly open competition in the grain and oil industry and the diversified brand strategies of other companies, China Agri-Industries' business model and sales team thinking have not kept up with the trends.

**Most Incomprehensible Loss: Huangtai Wine Still Mired in Quagmire Despite Recovery Trend**

Due to restrictions on high-end consumption and the “plasticizer” incident, the liquor industry once fell into a trough. After several years of “deep adjustment,” liquor companies have seen their performance recover since this year, with most listed companies turning profitable, but only Huangtai Wine remains mired in losses.

*ST Huangtai, which was subject to delisting risk warnings due to consecutive losses in 2013 and 2014, lost 108 million yuan in the first three quarters of this year, with net profit down 76 times year-on-year. For the reasons for the loss, *ST Huangtai cited three aspects: first, the company accrued expected liabilities, increasing non-operating expenses; second, the tomato products industry saw price declines due to export market impacts; third, the liquor sales market increased investment.

In addition, Huangtai Wine has been plagued by internal turmoil. Since this year, several senior executives have resigned, and the company was punished by the CSRC for suspected “financial fraud,” with shareholders engaging in multiple infighting incidents and even lawsuits. Huangtai Wine's path to “protecting its shell” is even more uncertain.

Industry analysis suggests that external failure to keep up with industry adjustments and internal shareholder infighting are the fundamental reasons for Huangtai's turmoil. China's liquor industry has entered a stage of fierce cutthroat competition, and relying solely on capital operations can no longer revitalize it. Huangtai focused too much on capital operations while ignoring channel sinking and market adjustments, leading to its current decline.

**Most Unjust Loss: Mengniu's First Loss Forecast Due to Subsidiaries and Associates**

After a series of reforms, dairy giant Mengniu has long been among the world's top 20 dairy companies. However, dragged down by subsidiary Yashili and associate Modern Farming, Mengniu even forecast its first loss in eight years, undoubtedly making it the most “unjust” losing food company this year.

On December 15, 2016, Mengniu Dairy issued a profit warning announcement, expecting a loss for the year. However, for Mengniu itself, its overall sales performance in 2016 exceeded expectations, and the growth rate in the second half was expected to be higher than in the first half. “The loss forecast is mainly due to the drag from Yashili's operations.” Both in the announcement and in responses, Mengniu revealed this main reason.

In June 2013, Mengniu acquired Yashili at a premium of over HK$12 billion. However, Yashili's performance has been sluggish. In 2015, Yashili's net profit was 118 million yuan, down 52.47% year-on-year; in the first half of this year, Yashili's net profit was about 15 million yuan, down 80.06% year-on-year.

As early as last year, Mengniu's revenue declined for the first time. At that time, industry insiders generally believed that Yashili's poor performance was dragging Mengniu down. In 2015, Mengniu's net profit was 2.367 billion yuan, of which Yashili contributed only 36 million yuan, down 70% from 2014.

On the other hand, Dumex China, which was merged into Yashili, also performed poorly. Previously, industry insiders predicted that Mengniu might leap to first place in domestic formula market share with its three brands Yashili, Dumex, and Junlebao, but Dumex China's net sales fell from 5.683 billion yuan in 2012 to 417 million yuan in 2015; its loss in 2015 was 839 million yuan, a decline of over 200% compared to 2012.

Mengniu stated that Yashili faces huge challenges of brand aging and channel transformation, and is currently completing channel transformation.

With Mengniu President Lu Minfang adjusting Mengniu's organizational structure and Zhang Ping becoming Yashili's new president, the effectiveness of Yashili's transformation and when Mengniu will no longer be dragged down by Yashili will depend on the performance of both companies next year.

**2016 Food Industry: Falling**

“I saw him build a tall building, I saw him entertain guests, I saw his building collapse.” In 2016, some food companies, after experiencing glory, sadly came to an end. Fresh e-commerce represented by Meiwei 77 collectively faced a wave of closures after burning through 7 billion yuan in venture capital; high-end catering represented by Jingya went to its end due to lack of innovation; Zhongyida, which accurately predicted the “pig cycle” but could not withstand the impact of low-priced imported pork, eventually collapsed due to expired pork in inventory...

Looking at these failed or failing food companies, all had operational problems, either lacking reform in the face of industry crises, relying solely on capital injection without sustainable profitability, or suffering from serious strategic errors in corporate management.

**Most Bizarre Fall: Zhongyida Accurately Predicted Pig Cycle, Hoarded Meat, but Broke Cash Flow**

2016 can be described as the strongest “pig cycle” in history, with pork prices rising rapidly, and almost all companies related to “pigs” made a fortune. However, Henan Luohe Zhongyida Food Co., Ltd. experienced a cash flow break due to accurately predicting this pig cycle, ultimately leading to its delisting from the secondary market and a warning from the CSRC, making it the most bizarre food company to fall.

In April this year, Zhongyida suspended production due to a cash flow break, retaining only 20 employees to maintain basic operations, but the management did not disclose this information to the public in a timely manner. Only after the lead sponsor Shenwan Hongyuan rushed to the site for investigation did Zhongyida issue a risk warning announcement in July.

Zhongyida was listed on the New Third Board for less than a year, mainly engaged in pig slaughtering and processing, with an annual slaughtering capacity of 1.5 million heads, mainly supplying pork raw materials to companies such as Sanquan Food and Jiale Food. In 2014 and 2015, Zhongyida operated relatively stably, with revenues of 463 million yuan and 362 million yuan, respectively, and net profits of 14.7668 million yuan and 12.015 million yuan, respectively.

As early as February 2015, the management accurately predicted this “pig cycle,” believing that pork prices would rise significantly in the future, so they borrowed money to hoard pork on a large scale. In early last year alone, Zhongyida borrowed 20 million yuan from Luohe City Development Investment Co., Ltd., and by the end of 2015, it had hoarded pork worth 104 million yuan.

At that time, the purchase price of pork was 12 yuan/kg, and by August 2015, the slaughter price had exceeded 18 yuan/kg, and by early 2016, it exceeded 21 yuan/kg. By this calculation, the price of hoarded pork rose by 75%, and the inventory could have yielded at least 78 million yuan in profit.

However, no matter how carefully they calculated, Zhongyida overlooked imported pork. The company's head previously told Beijing News reporters that after the Spring Festival in 2016, the situation changed dramatically, and major customers turned to cheaper imported pork. By the time management wanted to take remedial measures, it was too late. According to Zhongyida's announcement in July this year, more than 1,028 tons of pork had been in inventory for over a year, and 31.4% of the inventory had expired.

After suffering heavy losses, Zhongyida decided to import low-priced pork from the United States, Denmark, and other countries to meet large customers' demand for low-priced raw materials, and sought mergers and acquisitions with large listed companies, but it was too late. On November 1 this year, its lead sponsor Shenwan Hongyuan announced that Zhongyida had failed to disclose its 2016 semi-annual report and had been terminated from listing.

On November 7, the CSRC issued the “Decision on Implementing a Warning Letter Measure against Luohe Zhongyida Food Co., Ltd.” Since Zhongyida had stopped production at the end of April 2016 and failed to disclose this major event in a timely manner, the Henan Securities Regulatory Bureau decided to issue a warning letter and record it in the securities and futures integrity file.

**Most Money-Wasting Fall: Fresh E-commerce Collectively Cools Down After Crazy Spending**

After the capital frenzy in 2015, the fresh e-commerce industry faced a wave of collective closures in 2016.

In April 2016, well-known e-commerce Meiwei 77 posted a bankruptcy liquidation notice, stating that the company's operations had serious difficulties and it had no funds to pay all debts, including employee salaries and social security for March. If bankruptcy conditions were met, it would apply for bankruptcy according to law. After a month of investigation and evaluation, the intended buyer Jiabao E-commerce Co., Ltd. announced it would abandon the acquisition because some of Meiwei 77's assets could not be smoothly transferred, and finally redeemed 1.46 million yuan of Meiwei 77 prepaid cards for consumers at a 50% discount.

This was the first bankruptcy case in fresh e-commerce in 2016. It not only exposed Meiwei 77's own poor operations, senior executives' criticism of Amazon and Cheng Capital's shareholder infighting, and employees' accusations that executives set up private companies to cash out, but also revealed three major problems facing the entire fresh e-commerce industry: relying on capital to quickly establish heavy-asset facilities, using low-price subsidies to expand user scale, and using impressive numbers to boost next-round financing valuations. After the capital enthusiasm faded, fresh e-commerce lacking profitability faced the test of “dying from weaning.”

In July this year, Youth Caijun was exposed to owe employees salaries for up to 2 months and planned bankruptcy liquidation, with management trying to sell central factories, user data, and other businesses to recover funds. Currently, Youth Caijun's official website cannot be opened normally, and as of the time of reporting, the company's founder had not responded to remedial measures or subsequent operations.

In addition, some fresh e-commerce companies either reduced scale or frequently changed leadership. In March this year, Shunfeng Youxuan CEO Lian Zhijun, who had been in office for less than a year, resigned and joined Haier, marking the fourth leadership change in four years for Shunfeng Youxuan; in July, Tiantian Guoyuan announced the full closure of its offline stores, ending the exploration of the “front warehouse + store” business model; during the same period, Tuotu Gongshe CEO Du Fei announced his resignation, and its website also reduced supply categories and fully retreated to the Beijing market...

According to research by Hong Tao, dean of the China Food Safety E-commerce Research Institute and professor at Beijing Technology and Business University, around 2015, about 7 billion yuan in venture capital poured into fresh e-commerce, but the capital frenzy also brought irrationality to the industry, with companies using low-price subsidies as a competitive model to boost sales and better obtain next-round financing.

“The entire industry has seen a huge bubble driven by capital, but it has been unable to find a sustainable business model for self-profitability, inevitably leading to closure,” Hong Tao said.

**Most Conservative Fall: Jingya Limited by Traditional Thinking, Unable to Turn Around**

Compared with fresh e-commerce that “die after a brief fling,” high-end catering's performance in 2016 can only be described as “miserable and desolate.”

On December 1, 2016, the last store of high-end catering brand Jingya Hotel in Beijing was closed. Its group general manager Zhang Guijun admitted that due to traditional thinking limitations and lack of courage to change, Jingya, with 28 years of history, was on the verge of death.

Known as the “leader of Shandong cuisine,” Jingya was founded in 1988. As a benchmark in high-end catering, its per capita consumption once approached 2,000 yuan, and a single table often exceeded 20,000 yuan. At its peak, Jingya had 26 stores nationwide, 22 wholly-owned holding companies, operating across Shandong, Beijing, Liaoning, and Henan, with total assets exceeding 1.8 billion yuan in 2011.

As high-end catering cooled, Jingya's revenue plummeted. Its net profits in 2011 and 2012 were both over 100 million yuan, but in 2015 it lost 93.24 million yuan. During this period, Jingya made various attempts, such as developing a new brand “Me Doulao,” investing in “Tiantian Jianmian” subway food trucks, acquiring economy hot pot brands, subway catering companies, group meals, low-end Chinese restaurants, airport catering, etc., but failed to reverse the decline.

In fact, as early as 2014, Jingya had arrears in wages, and the closure of stores also led to disputes over membership card consumption. Zhang Guijun revealed that all traditional Jingya stores will be closed in the future, with only 1-2 boutique small stores retained in each region. At the same time, it will launch an internet family banquet project with the Xiaonanguo brand, intending to use property and personnel as equity contributions to pay off owed wages and honor membership card consumption.

In fact, since the high-end catering industry cooled in 2012, Xiang-E-Qing, South Beauty, and Jinbao have all suffered heavy losses. Wang Dongming, a strategic consultant for restaurant chains, said that the failure of many high-end catering transformations mainly stems from previous heavy-asset investments. Once profits decline, costs such as rent and labor continue to rise, making transformation difficult. With the rise of private clubs and high-end business dining, high-end catering consumption, which is mainly business-oriented, requires distinctive services and products.

Source: Beijing News

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