Lulu almond milk is the undisputed pioneer of China's plant-based protein beverages, but its market position is now awkward.

Lulu's Awkward Position

Chengde Lulu's predecessor was Chengde Canned Food Factory, established in 1950.

The birth of almond milk is said to be related to General Wang Zhen. In 1974, General Wang Zhen, then Minister of the State Farm and Land Reclamation, visited Hebei and saw large quantities of almonds being shipped out. Upon inquiry, he learned they were for export to Japan. The old general frowned and said, "When I visited Japan, I drank a beverage made from almonds that tasted great. Japanese officials said it was made from Chinese almonds. Why aren't we developing this in Hebei instead of just selling raw materials?"

After hearing General Wang Zhen's instructions, the Hebei Provincial Party Committee and Provincial Government immediately assigned this major task to the then Chengde Canned Food Factory. When General Wang Zhen heard that Hebei was starting development, he earnestly told the factory director, "We should accelerate the development and production of almonds to develop our Chinese national beverage." The research task received strong support from national departments, research institutions, and universities. After arduous efforts and overcoming numerous difficulties, in June 1975, the first can of Lulu almond milk was produced. The original Jinting Mountain brand almond milk became today's Lulu brand almond milk.

It can be said that Lulu almond milk is the undisputed pioneer of China's plant-based protein beverages, but its market position is now awkward.

Vertically, from 2015 to 2017, operating revenue was 2.7 billion, 2.5 billion, and 2.1 billion yuan respectively; earnings per share were 0.62, 0.46, and 0.42 yuan; net profit was 463 million, 450 million, and 414 million yuan. Over three years, performance and profit have shown a continuous decline. Horizontally, among plant-based protein beverage companies, Hainan Coconut Palm's coconut juice has sales of 4 billion yuan, and Hebei Yangyuan Food's Six Walnut had sales of 7.7 billion yuan in 2017, with net profit reaching 2.3 billion yuan. Six Walnut's net profit alone is higher than Chengde Lulu's total sales! The former underdog that was never taken seriously has now become the king of plant-based protein beverages, making Chengde Lulu's position embarrassing and uncomfortable.

The North-South Lulu Dispute

According to data, Chengde Lulu went public in 1997. Before listing, in March 1996, to develop the southern market, Lulu Group and Hong Kong Feida Enterprise Company jointly established Shantou Lulu, with Lulu Group holding 51% and Feida holding 49%. Feida was also the supplier of tinplate for Lulu cans. Wang Baolin, founder and chairman of Lulu Group, also served as chairman of the new company. This began the 22-year North-South Lulu dispute.

From the second half of 1996, the stock market surged. In 1997, Lulu Group initiated a listing and established Hebei Chengde Lulu Co., Ltd. (i.e., Chengde Lulu). Lulu Group became the major shareholder with 64.9% state-owned shares. Shantou Lulu was also incorporated into the listed company system at that time. However, although Shantou Lulu was included in the listed company's consolidated financial statements, its controlling shareholder remained Lulu Group, not Chengde Lulu, and Shantou Lulu operated independently.

At that time, the ownership of the Lulu trademark and patents belonged to Lulu Group, and both Chengde Lulu and Shantou Lulu were authorized to use them. After Chengde Lulu went public, tangible assets such as the almond milk factory, canned food factory, heating plant, and transport team became assets of the listed company, while intangible assets like trademarks and patents were firmly held by Lulu Group. Subsequently, disputes among the three "Lulu" entities—Lulu Group, Chengde Lulu, and Shantou Lulu—revolved around the core issue of trademarks and patents.

For the listed company Chengde Lulu, there was a long-standing awkward problem: Lulu's most core assets—trademarks and patents—were not in its own hands but firmly controlled by the parent company Lulu Group, with Chengde Lulu only having usage rights. This awkward situation was not resolved until 2006. At that time, the split share structure was a major drawback hindering China's stock market; most shares of listed companies were non-tradable state-owned shares and legal person shares, giving state-owned parent companies absolute control over listed companies, which was detrimental to both the development of listed companies and the stock market.

On September 4, 2005, the CSRC issued the "Measures for the Reform of the Split Share Structure of Listed Companies." Against this backdrop, the Chengde Municipal Party Committee and Municipal Government began to lead the withdrawal of state capital from Lulu Group, and Lulu Group withdrew from Chengde Lulu. In February 2006, Chengde Lulu initiated the split share structure reform, conducting a targeted acquisition of state-owned shares. In June of that year, the reform was completed. Wanxiang Agriculture Co., Ltd. invested 319 million yuan to repurchase the state-owned shares held by Lulu Group in the listed company. Lulu Group withdrew from the listed company, and Wanxiang became the largest shareholder of Chengde Lulu. During the reform, the issue of trademark and patent ownership began to be addressed. On April 19 of that year, Lulu Group and Chengde Lulu signed the "Agreement on Principles for Handling Trademark Rights," stipulating that after the repurchase was completed, Lulu Group would transfer the ownership of the "Lulu" trademark to Chengde Lulu at a price of 300-400 million yuan. However, this process was not smooth, and disputes continued even four years later.

According to a veteran employee of Chengde Lulu, the North and South basically maintained a stable pattern, which was closely related to the control of Chengde Lulu at the time. Although Wanxiang became the major shareholder in 2006, the actual business operation was still led by Lulu Group, and Wang Baolin continued to serve as chairman of both Chengde Lulu and Shantou Lulu. It was not until 2010, when Guan Dayuan from the Wanxiang system became chairman, that Chengde Lulu truly entered the "Wanxiang era," and the North-South Lulu conflict began from then on.

To this day, lawsuits and counterclaims between North and South Lulu continue. During the golden decade of plant-based protein beverage development, Lulu was mired in internal strife over the North-South dispute and equity changes, which may have severely constrained Lulu's dominance in the plant-based protein beverage market and laid the groundwork for its defeat in the battle against Six Walnut.

Battle Against Six Walnut

On the land of Yan and Zhao, there is no shortage of distinctive beverage companies. Xurisheng pioneered iced tea, Xiaoyangren Mianlian was a pioneer in fruit milk, and Lulu is the leader in almond milk. In contrast, the state-owned Hebei Yangyuan Company had a dim profile; its "mother-in-law" changed from Hengshui Water and Electricity to Hengshui Laobaigan, with little improvement, and it only avoided bankruptcy due to the system. In 2005, the management team led by Yao Kuizhang implemented a management buyout for 3.0949 million yuan, and Hebei Yangyuan shed its state-owned label, officially entering a new era. Yao Kuizhang never dreamed that the company bought for over three million yuan would achieve a main board listing and sales exceeding 8 billion yuan.

Yao Kuizhang knew well that Yangyuan's urgent task was to focus its business operations; its marketing efforts were clearly dispersed: it had entered mainstream beverage categories such as carbonated, juice, and milk-containing drinks, with as many as 15 varieties. After a quick and decisive move, it selected walnut milk as the breakthrough focus. To crack the walnut beverage market, Yao Kuizhang felt a "fulcrum" was missing. "Yangyuan" as a company brand and product brand lacked industry characteristics and a clear appeal. Where was this gimmick hidden?

According to rumors, during a drinking session among senior management, someone suddenly said "one walnut, two walnuts..." until counting to six walnuts. The number six symbolizes smoothness and good fortune, auspicious and festive! "Six Walnut Walnut Milk" was determined as the category name and would become a weapon for breakthrough. In 2008, Yangyuan also caught a major wave of good fortune: milk, the hidden competitor of the entire plant-based protein beverage industry including walnut drinks, was hit by the melamine scandal.

Milk had long been on people's daily dietary lists and become a daily necessity, while plant-based protein beverages like walnut milk were still at the stage of occasional consumption, with market size unable to compete with milk. The "collective downfall" of the milk industry finally gave plant-based protein beverages a golden opportunity to occupy people's tables. This time point corresponded to Dazhai's bottleneck period but exactly matched Six Walnut's rise. In 2009, riding this wave, Yangyuan Six Walnut achieved a curve overtaking, leaving Dazhai, the first brand of walnut milk with stagnant growth, far behind.

However, in its home base of Hebei, Lulu Group was the undisputed industry leader. At that time, wholesale departments and small shops only recognized Lulu almond milk, which had sales of over one billion yuan, and ignored Six Walnut. Most of Six Walnut's sales team came from Hengshui Laobaigan, and this team, long working on the front lines, discovered a pattern: Lulu was mainly purchased in two situations: first, as gifts, mostly sold through circulation channels; second, as a drink for women and children, sold in restaurants.

So Six Walnut did not first attack circulation channels but used liquor sales channels to distribute, focusing on promotion in the catering industry. As a result, it sold very well in restaurants, with Hebei sales reaching over 300 million yuan. As the saying goes, "If catering is not hot, circulation is not active." Consumers who tried Six Walnut in restaurants then went to wholesale departments and supermarkets to buy it, which in turn pulled channel merchants to stock up. Six Walnut's series of actions and rising sales finally caught Lulu's attention, so Lulu turned and followed suit, launching Lulu Walnut Milk to compete for market share. The first batch of Lulu Walnut Milk also chose three provinces—Hebei, Henan, and Shandong—which were also Yangyuan Six Walnut's base areas.

After Lulu Walnut Milk was launched, the wealthy Lulu Group immediately used its trump card—raising channel profits and increasing promotional efforts. Dealer profits were about 8-9 yuan per case, much higher than similar products in the short term. Due to high profits, the enthusiasm of second-tier distributors significantly increased. For the terminal, Lulu launched a large-scale "buy 4 get 1 free" promotion, equivalent to a 20% price cut.

Just as Lulu Walnut Milk achieved good initial results, something strange happened. Some markets in the first batch of Lulu Walnut Milk experienced long-term stockouts. The reasons behind this may involve Lulu's difficulty in turning around due to its size and institutional constraints. Besides stockouts, Lulu, which had long dominated channels, also had some "chronic diseases," such as serious cross-region selling. Additionally, Lulu's market staff, accustomed to being the boss, were not very active in running the market, causing complaints from many dealers.

The opponent's obvious weaknesses gave Six Walnut, which could not afford such heavy spending, an opportunity. Six Walnut proposed a "star-level sales assistance" service model. In essence, it played the role of a meticulous "nanny," assisting dealers with distribution, customer maintenance, terminal visualization, and other tasks, coupled with high rebate rates, greatly boosting dealer enthusiasm.

Besides channels, Lulu had another hard flaw: brand perception. In consumers' minds, Lulu is almond milk, while Yangyuan Six Walnut is walnut milk. At the same time, Lulu Walnut Milk at terminal stores used the same shopping bags as almond milk. When consumers came to buy almond milk, the store owner, just for profit, would tell them: "Lulu Walnut Milk is also good; it has a shopping bag and a similar price," so consumers would take Lulu Walnut Milk. This practice of passing off one thing as another meant Lulu was using its own walnut milk to fight its own almond milk, inevitably creating a dilemma: continuing to sell walnut milk would hurt almond milk sales; and the more walnut milk sold, the more losses, as such heavy channel promotions had squeezed manufacturer profits, possibly even requiring almond milk profits to subsidize walnut milk.

In the fierce battle with Six Walnut, Lulu did not start from a category strategy, did not deeply understand the consumer perception that Lulu equals almond milk, not walnut milk, did not plan a new brand to fight Six Walnut, and did not have effective channel operations. It hastily responded and lost to Six Walnut. Yangyuan continued to deepen consumers' perception of Six Walnut as the leading brand in the walnut milk category and its channel operations. In this way, Yangyuan achieved small changes every year and major changes every three years, finally joining the 1 billion yuan club in 2010. Sales from Hebei, Henan, and Shandong accounted for the majority of total revenue, essentially rising right under Lulu's nose. In 2017, Six Walnut's net profit alone reached 2.3 billion yuan, exceeding Chengde Lulu's total sales of 2.1 billion yuan.

Lulu Returns to the Fray

On October 25, 2017, with the death of 72-year-old Lu Guanqiu, an era came to an end. In November of the same year, his only son, 46-year-old Lu Weiding, succeeded as chairman of Wanxiang Group. Perhaps after the second generation took over, Chengde Lulu attracted the attention of the Wanxiang system. Chengde Lulu was no longer satisfied with its awkward market position. On January 15, 2018, Chengde Lulu repositioned itself and held a new product launch in Beijing, aiming to warm young people's "every striving morning," and proposed the brand slogan "Good nutrition for breakfast, drink hot Lulu," intending to enter the breakfast market.

At the new product launch, Lulu for the first time proposed the brand endorsement "Pioneer of plant-based protein beverages, starting from 1950." The low-key Lulu seemed to be facing an increasingly competitive plant-based protein beverage market, and it is undeniable that this slogan was a "low-key declaration of war." Chengde Lulu proposed a "Breakfast Nutrition Upgrade Plan," targeting young white-collar workers rushing to work, with the slogan "Warm every striving morning," linking hot Lulu with breakfast scenarios and creating a clear drinking scenario.

Lulu almond milk hot drink still follows Lulu's blue packaging, but the blue is slightly lighter, priced at 120 yuan per case. The product packaging no longer features spokesperson Xu Qing, but instead uses the pure white Lulu drink itself and an enlarged almond as main elements. The new product will be launched first in white-collar gathering areas in five cities: Beijing, Xi'an, Shijiazhuang, Zhengzhou, and Dalian. Along with the new product launch, Lulu invested heavily in elevator advertising in multiple cities across the country, directly targeting the white-collar audience. This time, Lulu is serious. "Drink hot Lulu in winter, drink iced Lulu in summer," Lulu's promotion more than a decade ago can be said to have opened the era of winter warm drinks. Today, Lulu still proudly insists on the "hot drink Lulu" product positioning, which will not make consumers feel unfamiliar.

Lulu's past popularity was inseparable from its catering channel layout, and according to media surveys, the failure of catering channels is the main reason for Chengde Lulu's declining performance. As a former preferred brand in the catering market, many new products have emerged in recent years, leading to poor overall sales of Lulu almond milk. In 2018, Dali launched a "Quality Breakfast Project," making the breakfast market a segment that major companies are vying for. Lulu took the opportunity to launch its "Breakfast Nutrition Upgrade Plan," leveraging its product characteristics to get a share of the breakfast market.

Ideals are full, but what about reality?

Is Lulu Lost?!

Setting aside the shortcomings in channel operations, and not to mention whether young people are the ones Lulu should warm, the battle with Six Walnut already exposed Chengde Lulu's deficiencies in brand strategy. In fact, when Lulu equals almond milk, it is determined that using the Lulu brand will make it difficult to achieve anything in the walnut category! Not only did Lulu almond milk fail to achieve anything in the walnut category, but it also lost ground in its own almond milk category. Why can Six Walnut, as a latecomer, achieve sales of 7.7 billion yuan, higher than the combined sales of the two old plant-based protein beverage brands, Hainan Coconut Palm and Chengde Lulu?

As an ordinary consumer, when you think of almond milk, you can think of Lulu, but further? The same problem occurs with Coconut Palm coconut juice. But when you think of walnut milk, you can think of Six Walnut, and you can also think of a brand slogan: "Use your brain often, drink more Six Walnut." The main reason for the stagnant sales of almond milk and coconut juice, I believe, is that these two companies have not strongly linked their products to consumer benefits, which inevitably leaves their products and brands in an awkward position of being dispensable and replaceable!

Looking at beverage brands in the Chinese market with sales exceeding 7 billion yuan, Wanglaoji herbal tea: you think of "Afraid of getting angry, drink Wanglaoji"; Red Bull vitamin beverage: you think of "Tired and sleepy, drink Red Bull"; Wahaha Nutri-Express: you think of "One bottle in the morning, energetic all morning"; Six Walnut: you think of "Use your brain often, drink more Six Walnut"; These big single products exceeding 7 billion yuan, without exception, use brand slogans to strongly link their products to consumer benefits! What about almond milk? What are the benefits of drinking almond milk? Why should consumers drink almond milk? The brand must give consumers a strong reason, preferably an irreplaceable one!

Now, look at Chengde Lulu's newly released brand slogan "Good nutrition for breakfast, drink hot Lulu." Can this slogan be implemented and accepted by consumers?

What will breakfast consumers drink?

Can almond milk rank ahead of milk and soy milk?

Can almond milk's nutrition surpass milk in consumer perception?

Who will heat up the three-piece can almond milk?

Do consumers have time to heat almond milk?

Do dealers have the capability to operate breakfast channels?

How to make Lulu hot at the terminal?

Has Chengde Lulu truly deeply understood consumer needs and integrated them with its own product characteristics to enter the market? Currently, "Good nutrition for breakfast, drink hot Lulu" clearly does not! The inability to capture the strong link between product characteristics and consumer benefits, and the lack of deep insight into consumer needs and application scenarios, determine Chengde Lulu's vague brand image in consumers' minds!

Chengde Lulu, are you lost?!

Source: Fast Moving Consumer Goods Elite Club (ID: FMCG-CLUB)

Tips will be paid 400-2000 yuan upon adoption.

China FMCG + Internet Professional New Media

Committed to FMCG manufacturer transformation and channel digital solutions