Over the past many years, many food companies have likely faced an interrogation in the style of Yi Lijing: "Dali has also started making xx, are you afraid?" You are afraid. But what can you do about it? Nothing.

Dali, known for its imitation strategy, has successfully launched seven sub-brands since 2002: Daliyuan (imitating Orion), Capico (imitating Pringles), Haochidian (imitating Mondelez), Heqizheng (imitating Wong Lo Kat), Lehu (imitating Red Bull), Doudou (imitating Vitasoy), and Meibeichen (imitating Toly). It can be said that it never kills an unknown name, making many food and beverage companies tremble at the news.

However, Dali, which has been winning battles all the way, has also fallen into obvious difficulties in recent years. From 2017 to 2019, its revenue growth rates were 10.99%, 5.41%, and 2.48%, respectively, and its net profit growth rates were 9.47%, 8.26%, and 3.31%, declining year by year. In the past three years, while Hong Kong consumer stocks have been popular, its market value has remained stagnant at around HK$65 billion.

The reason is that the deterioration of the industry competitive landscape and the weakening of its own channel advantages have led to a clear divergence between its new and old products. Although Capico, Lehu, and Doudou are still growing, Daliyuan and Heqizheng have fallen into decline, dragging down overall growth.

The bigger problem is that Dali, accustomed to a "copycat" approach, seems to have made "counterfeiting" its core competitiveness. This has completely lost its innovative gene and gradually become eager for quick success.

This has also led to the fact that although it owns seven brands and holds billions in cash, it ultimately appears flabby, not strong.

-01- The "King of Counterfeits" Falls from Grace

Dali Foods was founded in 1989 by Xu Shihui from Fujian. Looking at its development over more than 30 years, it can be roughly divided into two stages.

In the first decade or so, Dali mainly made biscuits. At that time, materials were relatively scarce, and biscuits were one of the few leisure foods for the Chinese people, generally sold in bulk with uneven quality.

Relying on industrial production and being the first to introduce independent packaging, Dali gradually gained a foothold and opened up markets in Fujian, Sichuan, and other places. But overall, Dali's development during this period was lukewarm.

The turning point came after entering the new century.

At that time, Orion, one of South Korea's four major food groups, had already entered China and launched a new product called "pie." This soft and delicious sandwich cake made the Chinese people, who had eaten hard biscuits for many years, feel fresh. However, despite good reviews, due to the high price, not many people could actually afford it.

Xu Shihui, who had been immersed in the food field for many years, seized this opportunity. In 2002, Dali launched Daliyuan Egg Yolk Pie, an imitation of Orion Pie. Relying on a price half that of competitors, a barrage of advertising, and the channel advantages built over the years, Daliyuan Egg Yolk Pie quickly rose, even surpassing the original Orion Pie.

This was Dali's first blockbuster product and also allowed it to find a shortcut to wealth.

In 2003, seeing that potato chips were selling well, Dali repeated the trick, imitating Pringles and Lay's, and launched Capico; in 2004, Dali imitated Mondelez and launched Haochidian; in 2007, Dali entered the beverage field, imitating Wong Lo Kat, and launched Heqizheng; in 2013, Dali imitated Red Bull and launched Lehu; in 2017, Dali imitated Vitasoy and launched Doudou; in 2018, Dali returned to the food field, imitating Toly and launching Meibeichen.

Looking back, Dali often selects categories that are large enough and have been validated, then quickly imitates and follows, launching corresponding "copycat" products, relying on lower prices and strong channels to quickly distribute and grab market share. This trick of "the mantis stalks the cicada, unaware of the oriole behind" (with Dali as the oriole) has caused many food and beverage companies to complain.

From the results, even with incomplete statistics, in the past 20 years, Dali has produced seven fruits on this vine. These seven brands, although rarely achieving first place in their categories, have basically squeezed into the top three.

Benefiting from this, Dali also developed rapidly. In 2012, revenue exceeded 10 billion yuan, with net profit of 693 million yuan. In 2015, Dali went public in Hong Kong, with revenue of 16.909 billion yuan and net profit of 2.912 billion yuan that year. During this period, the compound annual growth rates of revenue and net profit were as high as 16% and 61.37%, respectively.

At its peak, Dali's market value once approached HK$100 billion, making Xu Shihui firmly the richest person in Fujian. But in recent years, Dali has clearly fallen into trouble.

Starting in 2016, its performance growth slowed significantly. By 2019, revenue and net profit had only grown to 21.415 billion yuan and 3.841 billion yuan, respectively. From 2015 to 2019, the compound annual growth rates were only 6.08% and 7.17%, respectively, a world of difference from the rapid development of previous years.

In the past three years, against the backdrop of generally rising food and beverage stocks, its market value has also remained stagnant at around HK$65 billion.

How did this food and beverage giant, which has been winning battles all the way, fall into such a situation?

-02- The New Plate Can No Longer Drive the Old Plate

From 2012 to 2015, Dali grew rapidly because all categories were growing.

For example, pastry products represented by Daliyuan increased from 4.216 billion yuan to 6.325 billion yuan; potato-based puffed foods represented by Capico increased from 1.115 billion yuan to 1.782 billion yuan; biscuit products represented by Haochidian increased from 988 million yuan to 1.412 billion yuan; herbal tea products represented by Heqizheng increased from 2.046 billion yuan to 2.551 billion yuan; functional beverage products represented by Lehu increased from 394 million yuan (2013) to 1.419 billion yuan.

Behind the general rise, there are two reasons.

First, the market competition pattern was relatively good. After reform and opening up, China's economy developed rapidly, and consumer demand also exploded. For a long time, supply did not keep up with demand. In other words, for a long time, it was a seller's market with supply falling short of demand, with few big fish in a big pond.

Second, Dali's own network advantages were obvious. On the production side, Dali established 36 food and beverage production bases in 18 provinces across the country; on the sales side, it controlled over 2 million terminal outlets through more than 5,000 distributors, covering almost all county-level markets nationwide. This strong network advantage was the key to its late-mover success.

In recent years, the reason for Dali's declining growth rate is that some categories have been dragging down the overall performance.

Specifically, from 2015 to 2018, although potato-based puffed foods represented by Capico and functional beverages represented by Lehu continued to grow, with revenue reaching 2.536 billion yuan and 3.079 billion yuan respectively by 2018, the revenue of plant protein beverages also resumed growth in 2017 due to the launch of Doudou.

But starting in 2016, pastry products represented by Daliyuan nearly stagnated, with revenue slightly declining to 6.247 billion yuan by 2018; biscuit products represented by Haochidian were not much better, with revenue only slightly increasing to 1.639 billion yuan by 2018; herbal tea products represented by Heqizheng began to shrink in 2017, falling to 2.336 billion yuan by 2018; revenue from other beverages had significantly declined to only 931 million yuan.

In 2019, Dali changed its disclosure caliber. Only the family consumption segment, composed of Doudou and Meibeichen, achieved growth, while the leisure food segment (Daliyuan, Capico, Haochidian) and the ready-to-drink beverage segment (Lehu, Heqizheng, and other beverages) both saw slight declines.

Clearly, the new plate, which is still growing but relatively small, can no longer drive the old plate, which is in decline and relatively large.

The reasons behind this are the deterioration of the industry competitive landscape and the weakening of Dali's own channel advantages.

At the industry level, over time, the supply-demand situation has reversed. There are more and more competitors, the seller's market has become a buyer's market, and the cycle and scale of individual products have generally shrunk.

In fact, 2016 was an obvious watershed. Not only Dali fell into trouble, but also old beverage companies such as Chengde Lulu, Yangyuan ZhiPin, and Huiyuan Juice generally began to experience sustained decline from that year, while "new waves" such as Heytea and Genki Forest generally began to emerge from that year.

At the channel level, Dali's advantage is mainly reflected in its huge distributor network. In 2014, revenue from distributors accounted for over 97% of its total revenue. But in recent years, traditional channels represented by distributors have been declining, while channels such as e-commerce, large supermarkets, and even convenience stores have become increasingly important. This has gradually narrowed Dali's moat.

-03- Dali Has No Dream

Deterioration of the competitive landscape and weakening of channel advantages are the direct reasons for Dali's difficulties. But this is not the crux of the problem.

In 2018, Pan Luan pointed out in the article "Tencent Has No Dream" that Tencent was gradually losing its internal product and innovation capabilities, becoming a company without a dream. Because it is also good at late-mover advantage, Dali has also been called "Tencent in the food industry."

If Tencent has temporarily lost innovation, then Dali has probably truly lost innovation. After 2020, people found that almost every hill in the big entertainment field had Tencent's flag planted, and its dominance in the gaming field has only increased; even in the short video field, which has been criticized, more and more people recognize its value due to the emergence of WeChat Channels.

But Dali, on the other hand, is deeply mired in a quagmire without a dream and cannot extricate itself.

Repeated imitation successes have made Dali regard "counterfeiting" as its core competitiveness. Of course, this is not shameful in itself, as mutual learning is the norm in consumer goods competition. But throughout history, no company has been able to achieve longevity through this. Coca-Cola in the US stock market, Yili in the A-share market, and Nongfu Spring in the Hong Kong stock market have all achieved their current success by innovating and leading a certain category.

More importantly, today's China may be the most radical consumer goods market in the world; the current main consumer force, the post-90s/post-95s, may be the most unpredictable generation. All these make innovation crucial.

There is a saying in the consumer industry: all consumer goods are worth doing again. Food and beverages are no exception. Just look at how many new brand "dark horses" emerged in 2020: Genki Forest, Saturday, Wangbaobao, Laxin Shuo, Zihaiguo...

According to Tmall data, during the 2020 Double 11, 16 new brands exceeded 100 million yuan in transaction value, and 360 new brands won the NO.1 in their subcategories, compared to only 11 in 2019. No wonder people say that 2020 had no new stories on the internet, only new brands.

Even Perfect Diary founder Chen Yuwen lamented: "There are too many new brands this year (2020). This is not an accidental event; there must be a logic behind it."

If we talk about logic, rising income, mature supply chains, new consumer demands, spiritual needs, and new marketing platforms have jointly promoted the wave of new brands.

But in the final analysis, it is innovation.

These new brands either want to be innovators in mature categories or aim to be definers of new categories, all inseparable from innovation, whether in packaging, shape, taste, touch, smell, or concept and service.

Categories trigger trends, brands gradually decline. Wu Xiaobo said in his New Year's speech: "What we see in the consumer goods market today is that experience is greater than necessity, appearance is greater than function, word-of-mouth is greater than brand promotion. When these happen, traditional consumer goods companies that have established their brand value in the past two or three decades completely lose their way."

Don't misunderstand; this does not mean that new brands will definitely succeed. But it is certain that the copycat and follow route no longer works, and Dali must face this.

-04- How to Go from Flabby to Strong

It would be wrong to say Dali has no dream.

As early as the 2019 performance conference, Xu, the richest man, set a goal for Dali to achieve four 100-billion-yuan brands by 2025: Daliyuan, Lehu, Doudou, and Meibeichen. It should be noted that in 2019, the combined scale of Doudou and Meibeichen was only 2.66 billion yuan. Moreover, this is an era where big single products are constantly shrinking.

However, Dali's vision is becoming the straw that breaks the camel's back for distributors.

Dali used to be a typical company friendly to distributors. To allow distributors to market more flexibly, Dali would proactively lower ex-factory prices. Now, Dali is pushing inventory to the extreme. As early as the beginning of 2019, some distributors complained to the media that their warehouses were piled up with Doudou products, all of which were near expiration; Meibeichen that couldn't be sold also faced returns from many terminal outlets.

This of course shows that a stronger Dali has gained more say. But everything has two sides. Gree in 2015 and Yanghe in recent years are typical examples of companies falling into deep adjustment due to channel overstocking.

Clearly, compared to local treatment, in the 21st year of the 21st century, Dali should focus more on reflection at the top-level design.

This includes both product-side adjustments from imitation to independent innovation, and channel and brand operation-side efforts on how to use new traffic and new marketing methods to reach and capture the post-90s/post-95s. They still have many unmet potential needs. The key is whether Dali can board this train of consumer goods innovation.

This also directly determines whether Dali, which owns seven brands and billions in cash, can transform from flabby to truly strong.

Source: Understanding Finance (id: dudongcj) Author: Sun Yong

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