---
title: "Daliyuan: This Might Be the Most Successful 'Copycat' Company"
description: "A food company adept at 'copying' has achieved net profits exceeding the combined profits of Uni-President and Master Kong. The FMCG industry began to change around 2014, with Want Want's market value evaporating by nearly 89 billion yuan, Master Kong constrained by its sluggish instant noodle business, and Uni-President still in the shadow of problematic food recalls... The dramatic shifts in the consumer market have provided ample room for local enterprises to rise. While JDB and Wong Lo Kat are still fighting fiercely over herbal tea, one company has been quietly following suit. It is Fujian's Dali Foods Group (hereinafter referred to as Dali). According to Dali..."
author: "老纳"
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published: "2017-04-07"
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# Daliyuan: This Might Be the Most Successful 'Copycat' Company

> A food company adept at 'copying' has achieved net profits exceeding the combined profits of Uni-President and Master Kong. The FMCG industry began to change around 2014, with Want Want's market value evaporating by nearly 89 billion yuan, Master Kong constrained by its sluggish instant noodle business, and Uni-President still in the shadow of problematic food recalls... The dramatic shifts in the consumer market have provided ample room for local enterprises to rise. While JDB and Wong Lo Kat are still fighting fiercely over herbal tea, one company has been quietly following suit. It is Fujian's Dali Foods Group (hereinafter referred to as Dali). According to Dali...

How does a food company adept at 'copying' achieve net profits exceeding the combined profits of Uni-President and Master Kong?
The FMCG industry began to change around 2014. Want Want's market value evaporated by nearly 89 billion yuan, Master Kong was constrained by its sluggish instant noodle business, and Uni-President was still in the shadow of problematic food recalls... The dramatic shifts in the consumer market have provided ample room for local enterprises to rise. While JDB and Wong Lo Kat are still fighting fiercely over herbal tea, one company has been quietly following suit. It is Fujian's Dali Foods Group (hereinafter referred to as Dali).
According to Dali's 2016 annual report, its food net profit was 3.137 billion yuan, with a gross margin of 38.30%. During the same period, Master Kong's net profit was 1.220 billion yuan, down 31% year-on-year, with a gross margin of 31.30%, while Uni-President's net profit was 607 million yuan, with a gross margin of 34.4%.
This means that in 2016, Dali's net profit exceeded the combined profits of Master Kong and Uni-President, and its gross margin also led. In fact, as early as 2015, its net profit had already surpassed Master Kong and was even more than three times that of Uni-President. Interestingly, Dali has always followed a low-end route, with its products entering the market mostly as imitators, typically ranking second or third in the industry. Each of its products may not have the highest profit, but combined, its profits are higher than its peers.
Products: Latecomers Overtake
Dali's products date back to 2002, when its first flagship product, Daliyuan, was launched, mainly imitating Korea's Orion. At that time, Orion Pie was one of the few products in China that guaranteed no preservatives in its filled cakes and had a shelf life of up to one year. With its 'pie' technology, it sparked a craze for 'Orion Pies' in China. However, Orion priced its pies at 14 yuan, deterring many price-sensitive consumers.
Dali sought to capture these price-sensitive consumers. After two years of research and development, it launched 'Egg Yolk Pie' at a price one-third lower than Orion's, quickly seizing market share. Subsequently, Dali introduced square cakes, chocolate pies, and fruit pies, forming a pastry matrix. Coupled with relentless TV advertising, it overshadowed Orion.
Using the same method, in 2003, Dali turned its attention to the popular product: potato chips. As a foreign product, potato chips were initially embraced by women. However, the mainstream market was dominated by a few multinational brands like Pringles and Lay's. There was a lack of strong local brands to compete, and prices were high.
Dali seized the opportunity to launch 'Capica' potato chips, targeting the youth market, and invited Edison Chen and Jay Chou as spokespersons. It regarded Pringles, the market leader, as its primary rival. It adopted a strategy of customizing products by channel, using tub packaging to enter the first-tier market and more cost-effective air-packaging to fill the second- and third-tier markets.
In the second month after Capica's launch, Pringles felt the pressure and reduced its retail price from 18 yuan per tub to 12 yuan, but Capica chips of the same weight cost only 6 yuan. Through channel differentiation and price wars, Capica successfully outsold Pringles.
Based on these two successful experiences, Dali essentially established its latecomer strategy. It takes existing products in the market as learning models, conducts extensive research and validation, develops new products, and launches them at relatively low prices. Then, through celebrity endorsements and advertising blitzes on major TV stations, it quickly builds brand awareness.
▲ Capica potato chips under Dali
The Wisdom of 'Copying'
Many people disdain Dali's latecomer strategy, viewing it as a mere imitator without technology, copying successful products, inviting well-known spokespersons, and bombarding from sky to ground with ads to attract distributors to pay and quickly recover funds. It doesn't even have a single product that is the industry's number one, and it always follows the low-end route.
But is Dali truly a low-quality imitator? In fact, it excels at using the three axes of advertising, price, and channels to conquer the market, which is also a necessary journey for enterprises in their early development. In an era when products were relatively homogeneous, these three axes were a lifesaver, and if used properly, their effectiveness could even multiply. Dali has its own playbook in advertising, pricing, and channels.
Weaving a Large Net
▲ Centered on Fujian, gradually radiating nationwide, like a large net
▲ Dali's product chain is broad and deep
Currently, Dali has six major product categories, covering pastries, potato-based puffed foods, biscuits, herbal tea, compound protein beverages, and functional drinks, with over 720 single products and 107 beverage items. Its product chain is broad and deep. Matching this are 18 subsidiaries, 30 food and beverage production bases, and 3,847 distributors. Centered on Fujian, they gradually radiate nationwide, like a large net covering first- to third-tier cities across the country.
These self-owned factories are all adjacent to Dali's distributors, direct-operated supermarkets, and terminal markets, saving production time and logistics costs. Dali can also more easily obtain customer feedback and quickly improve products, so its turnover rate is higher than its peers. In 2014, Dali's logistics costs accounted for only 2.2% of revenue, lower than its peers. Compared with Want Want, because Dali has an additional portion of profits from its self-owned factories, including color printing and packaging plants and potato processing plants, accounting for about 2% of revenue, despite its brand positioning being slightly lower than Want Want, its net margin was higher than Want Want's during the same period.
Celebrity Effect
Dali's cleverness is most directly reflected in the fact that almost every flagship product it launches becomes a hit. It knows that when following existing categories in the market, it must first build brand awareness. Dali chooses celebrity endorsements. Take the 'Haochidian' biscuits launched in 2004 as an example. At that time, the popular 'Little Swallow' Zhao Wei endorsed it, and with the slogan 'If it's delicious, eat more,' it quickly entered the snack food market, accompanied by overwhelming e-commerce ads and billboards to accumulate awareness. Similarly, Chen Daoming's 'Chinese herbal tea Heqizheng,' Jay Chou's 'For chips, eat Capica,' and also Xu Qing, Guo Jingjing, Gao Yuanyuan... Dali particularly favors inviting well-known celebrities to endorse its products, and this tactic has never failed.
At the same time, Dali increases its exposure through different channels such as billboards, TV, websites, and social media, as well as sponsoring sports events and other activities. From 2012 to 2014, Dali's promotional and advertising expenses reached 312 million yuan, 396 million yuan, and 484 million yuan, respectively. This shows Dali's obsession with advertising.
In fact, each of Dali's slogans is highly replaceable and cannot even reflect product differentiation. But 10 years ago, when products were relatively homogeneous, well-known celebrities could effectively create momentum for products, and multi-dimensional marketing strategies could quickly enhance product awareness.
Solid Channel Warfare
To find matching channels for low-priced products, Dali goes deep into counties, towns, and even villages. Currently, Dali has about 3,900 distributors, covering third- and fourth-tier cities.
Dali has always relied on more than 8,000 full-time sales personnel to maintain its extensive distribution network. They work closely with distributors and direct-operated supermarkets to formulate and implement sales plans, maintain close relationships with sub-distributors and retailers, and strengthen the stability of cooperation. Sales personnel can also directly connect with first-level agents at the county level.
In addition to traditional distributor channels, Dali established a direct-operated supermarket team in 2012. It has now established cooperation with 33 direct-operated supermarkets, with a team of about 400 employees handling these accounts. They can promptly obtain first-hand feedback on Dali products from retailers, allowing Dali to adjust its product and marketing strategies. In 2015 alone, Dali's sales and distribution expenses increased by 86.4% year-on-year to 2.046 billion yuan, used to conduct more marketing activities and expand sales channels.
The advantage of channels is particularly evident in the beverage category. In 2016, its beverage sales increased by 4.1% year-on-year to 7.645 billion yuan. Revenue from the Lehu functional drink alone reached 1.092 billion yuan in the first half of the year, up 71.4% year-on-year. In 2016, Dali's sales and distribution expenses were 2.788 billion yuan, with particular efforts on marketing Lehu, placing ads on TV, at airports, and on highways, and sponsoring sports events and campus activities to continuously increase Lehu's exposure.
Back in 2015, the domestic functional beverage market size reached 60.6 billion yuan, up 15.16% year-on-year. There were already brands like Red Bull, Qili, and Dongpeng in the market. Dali's Lehu joined the fray at about 4 yuan per bottle. In terms of channels, Dali paid high display fees to supermarkets to quickly occupy supermarket channels and a large number of third- and fourth-tier cities and township markets. It is adept at using 'adhesion tactics,' leveraging its extensive distributor network to quickly follow, appearing wherever Red Bull, Qili, and Dongpeng are present.
Today, Qili, due to its high-profile launch and high pricing, but poor channel control leading to widespread distributor cross-selling, ultimately faded quickly; China Red Bull and Thailand Red Bull postponed production due to profit distribution issues; when Huabin Group was pushing bottled 'War Horse,' Dali's Lehu was already a step ahead. Using the three axes of advertising, low price, and channels, Lehu has grown from annual sales of 390 million yuan in 2015 to an estimated over 2.2 billion yuan in 2016, with sales growth exceeding 500%.
▲ Dali is adept at using adhesion tactics, leveraging its extensive distributor network to quickly follow
Imitate or Innovate?
Dali's products are not outstanding in tactics and lack meticulous market cultivation, but it is very good at analyzing and grasping consumer behavior. It chooses to imitate products that are on the rise in the market, which can quickly attract consumers and avoid the high 'sunk costs' of new product failures. By using these potentially wasted expenses to reduce product costs, it is clearly better than promoting a product with unknown future performance at high cost.
But as consumer attitudes change, their demands for products are no longer just low prices, and more and more market segments are emerging. How far can Dali's low-end imitation route go?
Blind imitation should not become the norm. Imitation must eventually transition to true innovation, and preparations should be made early because the path from imitation to absorption and learning, and then to innovation, is not easy at each stage. With a slight slack, it is easy to fall into 'path dependence,' hindering further leaps and improvements. From its annual reports, it can be seen that in the past two years, Dali has used 20% of its raised funds to improve channels and promote brands, and 20% to develop new products. Dali is still a sales-driven enterprise, but it is also beginning to try the mid-to-high-end market, such as launching Landibao Danish cookies and Zhenhao cookies.
In 2017, Dali launched a new beverage product, Doudouben, with Sun Li as the spokesperson. Perhaps it saw the strong growth momentum of Vitasoy in recent years, whose net margin can stabilize at around 10%. Following Dali's usual approach, Doudouben may follow the same path as other products. However, in the future, Dali will continue to expand high-margin products, after all, even it says that 'the increase in the proportion of revenue from new products and high-margin products is the key to profit growth.'
**Source: Kuaixiao Mentu, New Distribution or authorized reprint. For reprint, please contact Kuaixiao Mentu.**
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