---
title: "Chengde Lulu's Main Business Hits Ceiling, Revenue and Net Profit Both Decline"
description: "Chengde Lulu's financial report attributes the sudden performance decline to decreased product sales. In February 2017, rumors circulated that insufficient almond procurement led to production line shutdowns, but the company denied this, stating almond purchases were normal with ample reserves. Industry insiders confirmed regional stockouts in Q1, with experts suggesting possible strategic adjustments rather than raw material issues."
author: "孙吉正"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-05-07"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/0eXVKHbGWPvKvwawKhpwvA"
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---

# Chengde Lulu's Main Business Hits Ceiling, Revenue and Net Profit Both Decline

> Chengde Lulu's financial report attributes the sudden performance decline to decreased product sales. In February 2017, rumors circulated that insufficient almond procurement led to production line shutdowns, but the company denied this, stating almond purchases were normal with ample reserves. Industry insiders confirmed regional stockouts in Q1, with experts suggesting possible strategic adjustments rather than raw material issues.

For the sudden decline in performance, Chengde Lulu's financial report cited decreased product sales as the reason. In February 2017, market rumors suggested that insufficient almond procurement caused some production lines to halt, but Chengde Lulu quickly issued a statement denying this, saying almond purchases were normal and reserves sufficient.

An industry insider told reporters that Chengde Lulu did experience stockouts in some regions during the first quarter. FMCG marketing expert Lu Shengzhen believes that almond milk is a mass-market FMCG product, and attributing stockouts and production halts during peak marketing periods to raw material issues is unreliable; it is more likely due to technical strategic adjustments or irresistible factors. When contacted, Chengde Lulu's board office said announcements should be the primary source of information.

**Main Business Hits Ceiling**

According to Lulu's historical financial reports, unlike other beverages in the industry, Chengde Lulu's almond beverage sales peak in the first and fourth quarters, driven by traditional holidays like National Day and Spring Festival, with these two quarters accounting for over 70% of annual revenue.

According to online claims, around the Spring Festival, some regions experienced stockouts of Chengde Lulu almond milk, sparking rumors such as "the company couldn't procure enough almonds" leading to "one-third of production lines being halted."

An industry insider from Hebei confirmed to reporters that since late 2016, Chengde Lulu experienced stockouts, directly due to periodic production halts, though the specific reasons were unknown.

Reviewing Chengde Lulu's recent announcements, compared to the same period last year, actual procurement amounts for almonds and walnuts in 2017 decreased. From January 1 to March 9, 2016, actual transactions for almonds and walnuts totaled 19.24 million yuan. From January 1 to April 26, 2017, actual transactions were 17.96 million yuan. Additionally, procurement of packaging containers also declined, from 22.44 million yuan in 2016 to 18.74 million yuan in 2017.

China Food Industry Commentator Zhu Danpeng told reporters that Chengde Lulu's various measures and phenomena indicate that in 2016, Lulu's sell-through may not have been ideal, with high inventory pressure during the off-season. Around the 2017 Spring Festival, there was a possibility of halting production to alleviate inventory pressure, which would affect Q1 2017 sales and reduce raw material procurement, potentially leading to stockouts during the peak season and an awkward production-driven sales model.

Lu Shengzhen believes that in the first half of 2017, China's main almond markets in Inner Mongolia, Jilin, Liaoning, Hebei, Shanxi, and Shaanxi had ample inventory, with stable and slightly weak prices. Therefore, Chengde Lulu should not have raw material issues. Almond milk is a mass consumer product, and quarterly market demand estimates should be close to actual conditions. Stockouts and supply tensions do not align with the characteristics of a mass protein beverage product.

Since 2015, Chengde Lulu's overall performance has not significantly changed, remaining at the same level. However, in 2016, the company planned to expand capacity, first expanding Zhengzhou Lulu's capacity and then upgrading and renovating Beijing Lulu.

In 2015 and 2016, Chengde Lulu's approved transaction amounts for almonds and walnuts were 240 million yuan, but in 2017, this was reduced to 150 million yuan for the first time. The reporter noted that in 2016, almond milk inventory increased by 144.81% year-on-year. Lulu explained that the inventory increase was for Spring Festival stocking, but did not disclose whether it was related to the production halt and renovation at Beijing Lulu.

Lu Shengzhen believes that Chengde Lulu's consumption peak is mainly during winter's Spring Festival and National Day gift-giving seasons. The company should be well aware of these regular patterns and have sufficient production lead time. However, attributing the sudden surge in inventory to Spring Festival marketing reserves may involve some technical rhetoric.

The sudden stockouts during the sales peak could also indicate that Chengde Lulu is in an adjustment period. Zhu Danpeng believes that the potential growth space in the plant protein market is inevitable, but the past volume-driven, barbaric growth model is no longer suitable for the new market environment. The industry's growth model is transitioning from external expansion to internal refinement. To achieve breakthroughs in plant protein beverages, companies need to enhance their brand, positioning, and channels. Pure production increases and high-cost marketing will not sustain long-term growth.

**Crossing into Dairy Market Remains to Be Seen**

In fact, compared to other plant-based beverages, Chengde Lulu is not content with just the almond milk niche and intends to enter multiple beverage categories and markets. According to public data, Chengde Lulu holds over 90% market share in the almond milk category, almost dominating it.

However, the decline of plant protein beverages in the domestic beverage market is an indisputable fact. According to Euromonitor data, since 2015, plant protein beverage growth has slowed and declined. Chengde Lulu has not achieved counter-trend growth, and since 2015, its performance growth has shown weakness.

Euromonitor Market Research Manager Du Jiaqi told reporters that the overall shrinkage of the domestic plant protein beverage market is mainly due to aging product images, such as peanut milk and walnut milk, with manufacturers investing less in marketing. The industry also faces direct competition from other dairy products or beverages, leading to declining sales in recent years.

Although North China is Chengde Lulu's home market, it faces severe challenges. Yangyuan Zhihui, also in Hebei, with growth rates far exceeding the industry average, quickly surpassed Chengde Lulu's market share with "Six Walnuts," becoming the "leader" in plant protein beverages. In 2015, Yangyuan Zhihui's revenue exceeded 9 billion yuan, while Chengde Lulu's was 2.7 billion yuan. In 2016, Chengde Lulu's share of the plant protein market was 7%, with a gradual downward trend.

Although Chengde Lulu has also targeted and entered the walnut milk market, its financial reports have never disclosed walnut milk performance separately, always merging it with almond milk.

The stagnation in the plant protein market has led Chengde Lulu to shift its focus from plant protein to animal protein beverages, i.e., dairy products. Since August 2016, Chengde Lulu first revealed its capital increase in Shenzhen Feiyingbao Network Technology Co., Ltd., whose main business is the market operation of New Zealand infant formula brand Feiyingbao in China, with qualifications for operating New Zealand-branded infant food. Chengde Lulu stated that this move may lay the foundation for a large-scale entry into the infant dairy market when the time is ripe.

Public data shows that the invested company's main business is the market operation of New Zealand infant formula brand Feiyingbao in China. In 2016, the company's sales revenue was 4.1548 million yuan, with a net loss of 2.7606 million yuan. In the domestic formula milk powder market, it is a typical small brand in terms of scale.

Dairy analyst Song Liang told reporters that infant formula is different from FMCG products. Currently, Chengde Lulu lacks the capability to operate infant formula. Infant formula channels differ significantly from FMCG, and relying solely on existing supermarket channels will make it difficult to expand the market. There may be significant obstacles in channel promotion in the future. Beverage companies entering infant formula is not unprecedented; as early as 2010, Wahaha entered infant formula but did not achieve the expected results and quickly faded in the industry.

Regarding this move, Zhu Danpeng believes that although the infant market is a large enough pie, for Chengde Lulu, which has never been involved in infant products, entering this field is particularly difficult and may be limited to investments. "The infant market is quite different from ordinary dairy beverages, and Chengde Lulu's sudden interest in the infant market raises questions about its ability to operate in this market."

The marketing expert above believes that Chengde Lulu's continued capacity expansion in some regions despite underperforming main business may also be to lay a capacity foundation for diversified development, ensuring the main business is unaffected while testing other beverage areas. However, compared to its main business, developing fermented milk beverages might be its move into the dairy industry.

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