Source: Shenk Xin Consumer (ID: xinshangye2016) Author: Huang Xiaojun What growth will Ligao Food achieve in the next 10 years? The start of 2022 was marked by daily price hike announcements. On January 4, China's first milk tea stock, Xiangpiaopiao, raised prices on some products; on January 5, Nissin Foods announced increases in the ex-factory prices of its main instant noodle products in mainland China; on January 7, new-style tea brand Sexy Tea raised prices on most products by 1 yuan. Amid these price increases, an announcement from a company called Ligao Food caught the attention of many market players. It announced adjustments to the ex-factory prices of some major frozen bakery products and baking raw materials, with increases ranging from 3% to 8%. The brands affected by this company's price hike are mostly well-known to ordinary consumers. For example, Ligao Food supplies egg tarts, toast, mochi, croissants, and donuts to brands such as Xifu Xibing, Wedome, Holiland, Bread Talk, Walmart/Sam's Club, Hema Fresh, Yonghui Superstores, Carrefour, China Resources Vanguard, and RT-Mart. In addition, chain restaurant brands such as Haidilao, Hola Kela, Hampton by Hilton, and La César Pizza are also its clients. Data shows that the top three players in China's frozen bakery market hold a combined market share (CR3) of only 18%, while Ligao Food alone accounts for 10.4%, exceeding the combined share of the second and third players. A report from financial services firm Junlin indicates that in the frozen bakery sector, where one player dominates and many others follow, Ligao Food leads, with potential for tenfold growth over the next decade. This is a true hidden champion. Prior to this, there was almost no comprehensive corporate report about it online. If not for the LOGO appearing in some stores in southern cities, few would know of its existence. The First Domestic Non-Dairy Cream to Conquer the Market In April 2021, Ligao Food went public via IPO. At that time, some financial media reviewed Ligao's key financial indicators. However, most defined the company's starting point as its founding in 2000. In fact, Ligao Food's story begins in the 1990s. Back then, China's cake and baking market was still in its infancy. The main feature was the dominance of margarine, and cake making was nothing more than artificial cream ice cream. In 1992, Rich Products, one of the largest family-owned frozen food manufacturers in the United States, entered China, began promoting the use of non-dairy cream for cakes, and became the leading non-dairy cream manufacturer in the Chinese market. Non-dairy cream is made primarily from vegetable oils. It contains unsaturated fatty acids, no cholesterol, and no lactose, making it healthier than animal cream and margarine. Unfortunately, at that time, all non-dairy cream was monopolized by overseas brands like Rich Products, keeping domestic cream prices far above the international average. By 1997, a man named Peng Yongcheng established Jinmin Food Industry Co., Ltd. in Zengcheng, Guangzhou, with a very narrow business scope: processing and manufacturing vegetable cream; wholesale and retail of the company's own products. According to a document on the China Trademark Network, in September 1998, Jinmin Food applied for the "Ligao" trademark through the Guangzhou Trademark Office. Coincidentally, the first domestically developed non-dairy cream was called Ligao brand non-dairy whipping cream. In 2000, the predecessor of Ligao Co., Ltd., Zengcheng Ligao Food Co., Ltd., was established with a registered capital of 500,000 yuan. Among the shareholders, Peng Yongcheng contributed 159,500 yuan, while Zhao Jian, the legal representative of the former Jinmin Food, and Bai Baokun, the actual controller of Jianlang Hardware (now with a market value of 50 billion yuan), invested 178,000 yuan and 162,500 yuan respectively as financial investors. After Ligao was established, its first innovative product was fruit paste. In 2001, they applied to register the "Jingjingliang" trademark, which later became the brand name for the fruit paste. A thorny issue at the time was that Ligao had launched two pioneering products in three years, and although the market recognized them, practical application was unsatisfactory. Consumers had never tried them before, and pastry chefs had never made them before. Ligao faced a massive market education effort. For example, after the launch of Jingjingliang fruit paste, Ligao organized some innovative activities for the market at that time to promote the product to end users. They produced albums like "Flower Language · Heartfelt Voice" and "Love Thoughts · Heartfelt Words," as well as a teaching VCD titled "Ligao 21st Century New Style Art Cake" for promotional purposes in the baking industry. During this period, Ligao also held over 100 product demonstration sessions, promoting the cake styles and production techniques of "Jingjingliang" fruit paste to bakeries of all sizes across the country. They even ran training classes for pastry chefs, teaching advanced piping techniques and the production of "Jingjingliang" fruit paste cakes for free. At the store level, Ligao also assisted bakeries in various cities with consumer promotions and tasting events for "Jingjingliang" fruit paste cakes. Two or three years later, Ligao's "Jingjingliang" fruit paste cakes sparked a consumption trend. In 2002, the company increased its registered capital and expanded its shareholder base. Peng Yongcheng's son, Peng Yuhui, who had served as a director at Jinmin Food, subscribed for 500,000 yuan, accounting for 10% of the shares; Peng Yongcheng's son-in-law, Zhao Songtao, subscribed for 225,000 yuan. It was not until 2008, after approval by Ligao's limited company shareholders' meeting, that Zhao Jian, Bai Baokun, and Peng Yongcheng transferred part of their shares in Ligao Limited to Peng Yuhui and Zhao Songtao at a price of 1 yuan per capital contribution. Gradually, the Peng family began to actually control Ligao Food. During this period, the company also launched products such as Double V chocolate and Xinxianni fruit fillings, which entered the baking raw materials market alongside Ligao brand non-dairy cream and Jingjingliang fruit paste. By 2010, Ligao Food was hailed by the China Food Industry Association as the most popular raw material brand in Chinese baking. This decade can be called Ligao Food's growth period, driven by product innovation. Merging Two Frozen Bakery Companies to Take the Lead Ligao Food truly entered the fast track of growth in 2014. Before 2014, Ligao Food mainly focused on baking raw materials. In 2013, the company's revenue primarily came from cream, accounting for nearly 80%. Clearly, over-reliance on a single product could not support a large food company in the long run. In August 2014, Ligao Food again increased its registered capital from 5 million yuan to 10 million yuan, citing the need for funds for new business development. That same month, news emerged that Ligao Food had acquired Guangzhou Aokun and Guangzhou Haodao. Guangzhou Aokun was a rising star in the baking industry. Within seven years of establishment, its output value grew to over 300 million yuan, earning it the reputation of "Aokun Speed" in the baking world. At the time, Aokun had a cold chain storage center unique in the industry, equipped with high-precision German imported equipment, covering 782 square meters, 12 meters high, with a storage capacity of 10,000 cubic meters and a throughput of 70,000 boxes. What's more, at that time, to facilitate storage and transportation, the baking industry generally made semi-finished products to extend the shelf life of bread, which were then finished into bread. This process required frozen dough technology. Frozen dough accounted for 40% of the bread industry in Europe and 70% in the United States, but less than 10% in China. Coincidentally, Aokun firmly grasped the frozen dough technology that was a blank in China. Through the acquisition of Guangzhou Aokun and Guangzhou Haodao, Ligao Food saved on brand building costs and R&D time in frozen bakery products, quickly completing its layout in the broader baking industry. From 2017 to 2019, the company's revenue from frozen bakery products continued to grow, reaching 358 million yuan, 550 million yuan, and 738 million yuan respectively. In 2020, Ligao Food's total revenue was 1.809 billion yuan, with frozen bakery products contributing 956 million yuan, accounting for 52.84%; meanwhile, cream, which had accounted for 80% of sales, fell to 20.48%. Multi-Channel Coverage Across 350 Cities Nationwide Ligao Food's business, when viewed at the terminal level, is actually a business with a large but scattered market, complex products, and low prices. The company's terminal applications are mostly baking shops scattered across the country, even in districts, counties, and towns. They are dispersed, have small order quantities, and require high delivery timeliness. Once the scale expands, it would be unrealistic for Ligao Food to promote one by one like it did with Jingjingliang fruit paste. Building a distribution team became the main approach. At the 3rd Guangzhou Baking Exhibition in 2011, Ligao made a name for itself. At that time, Ligao Food spent 2 million yuan to invite international cake masters and MBA professors to discuss cake development trends and how to improve store performance with industry elites. They also gave away nearly a thousand course vouchers worth 3,000 yuan for executive training classes, 1,000 yuan for store manager training classes, and 1,000 yuan for pastry chef technical classes. The approach was similar to the "Jingjingliang" fruit paste cake wave from years earlier. Moreover, Ligao's product promotion was no longer traditional display; instead, they hired models to combine food with body art painting and runway shows, releasing nearly a hundred new cake products and the latest applications of various materials. The "spectacle" usually seen at auto shows was now brought to the food industry, with graceful models and delicious-looking cakes. The huge visual impact attracted a large number of potential investors, leading to on-site contract signings with distributors totaling 5 million yuan. As of the first half of 2021, Ligao Food had over 1,800 distributors, and this was only the first tier. During sales, distributors leverage their existing sales networks to provide timely, small-batch, multiple deliveries to scattered merchant terminals. Ligao Food, on the other hand, builds a professional technical service team that regularly or on-demand visits terminal customers to provide professional technical guidance such as cake piping decoration and post-processing and application of frozen bakery products. According to the prospectus, in 2019, Ligao Food provided nearly 500,000 on-site customer services, held 8 "Super Store Manager Training Camps," and trained up to 500 people. It is worth emphasizing that Ligao's cooperation model with distributors gives it significant bargaining power. It uses a buyout sales model, meaning that after products are sold to distributors, control, main risks, and rewards are transferred to the distributors, who sell at their own discretion based on the company's suggested prices. Through this distributor cooperation model, Ligao Food has now expanded to more than 350 cities, with over 50,000 small terminal merchants. Leaving the scattered small bakeries to distributors, Ligao Food began seeking new opportunities in the large B-end. For customers with larger purchase amounts, such as supermarkets, large chain bakeries, and large chain restaurants, Ligao Food uses direct sales from headquarters, with unified delivery and management. Today, Walmart/Sam's Club, China Resources Vanguard, Carrefour, Yonghui Superstores, Haidilao, Hema Fresh, Xifu Xibing, and other large supermarkets, chain restaurants, and chain bakeries are all Ligao Food customers. In 2020, the company's direct sales channel revenue reached 392 million yuan, a year-on-year increase of 57.69%. In addition, Ligao Food started online retail business in 2017, and even set up a self-operated store in 2019. In 2020, its retail channel revenue reached 82.69 million yuan, with a three-year revenue growth rate of 61.84%. With all channels connected, Ligao began covering large terminals, small merchants, and even direct connections with consumers. Food Safety Remains the Highest Risk As the hidden champion in the frozen bakery industry, Ligao Food is seen as the value enterprise most likely to achieve tenfold growth in ten years. But in this process, food safety issues remain a Sword of Damocles hanging overhead. As early as 2017, one batch of Ligao Food's "Xinxianni" mango fruit filling (jam) (3kg/bucket, dated May 27, 2017) was found to have excessive sulfur dioxide (calculated as residual) by the Pudong New Area Market Supervision Administration. The following year, two batches of "Ligao" non-dairy cream and "Ligao" Huandai non-dairy cream were found to have excessive acid value (calculated as fat) by the Xiamen Market Supervision Administration. By 2019, a batch of Ligao brand orange fiber puree (jam) produced by Ligao Food's Foshan branch, in 1.6kg/can specifications, was again found unqualified by the Foshan Food and Drug Administration. In the prospectus later submitted by Ligao Food, under "Special Risk Warning," food safety risk was placed first. It stated: Although the company has established a strict food safety control system, due to the numerous production and operation links, there are situations where third-party cold chain logistics and warehousing services are used for transportation and storage. If the company or its customers are negligent, food safety issues may still occur, leading to media attention, consumer claims for compensation, or regulatory penalties, which could adversely affect the company's brand image and sales of related products. But we still believe in the airplane takeoff curve for consumer goods companies: when an airplane takes off, it needs to taxi a long distance on the runway, and only after reaching the inflection point does it lift off. The whole process is not achieved overnight. Red Bull took 8 years to grow sales from 0 to 1 billion yuan; then another 8 years to grow from 1 billion to 10 billion; but from 10 billion to 20 billion, it took only two years. What growth will Ligao Food achieve in the next 10 years? We will wait and see. -END-