Click to read the original article for details The halo of the 'first share of leisure snacks' has dimmed. Despite being crowned the 'first share of leisure snacks,' Lai Yifen (603777) is now shrouded in dark clouds, mired in multiple crises including product quality and safety issues and high-level turmoil. On March 1, the company's board received a written resignation report from Vice President Feng Xuantian, citing personal reasons for stepping down from his position. Recently, Lai Yifen has seen frequent changes in its senior management, with shareholder representative supervisors, directors, and other executives resigning one after another. In the eyes of outsiders, the frequent executive departures over the past six months are closely linked to Lai Yifen's declining profitability. Indeed, compared with other snack companies, Lai Yifen's performance decline is severe, with net profit dropping by over 90% in 2018. Industry analysts point out that having failed to keep pace with the times for many years, its deep-rooted problems are hard to cure, leaving little chance for a turnaround. Frequent high-level turmoil On March 3, Shanghai Lai Yifen Co., Ltd. issued an announcement regarding the resignation of a senior executive, stating that the board received a written resignation report from Vice President Feng Xuantian on March 1, 2019. Due to personal reasons, Feng resigned from his position as vice president. Lai Yifen stated that Feng would no longer hold any other position in the company after his resignation, and that his departure would not affect normal operations. Lai Yifen has seen frequent personnel changes recently. In December last year, the company received written resignation reports from shareholder representative supervisor Zou Xiaojun and director and board secretary Zhang Panhong. Among them, Zhang Panhong resigned from her positions as director and member of the board's strategy committee but will continue to work at the company. The executive departures have also raised concerns in the capital market. In response, a reporter from China Times attempted to interview Lai Yifen, but as of press time, the company had not replied. Public information shows that Shanghai Lai Yifen Co., Ltd. was established in July 2002 and has been in operation for 17 years. It was listed on the Shanghai Stock Exchange in October 2016 as the 'first share of leisure snacks,' pioneering the listing of snack companies. According to Lai Yifen's official website, as of June 30, 2016, the company had opened 2,111 directly operated stores in regions including Shanghai, Jiangsu, Zhejiang, Beijing, Anhui, and Shandong. As of June 30, 2018, the company had opened franchise stores in more than 15 provinces, including Shanghai, Jiangsu, Zhejiang, Beijing, Anhui, and Guangzhou, totaling over 250 franchise stores. However, success and failure are two sides of the same coin. As the number of stores increased, hidden dangers were planted. According to Lai Yifen's recent performance forecast for fiscal year 2018, net profit attributable to shareholders is expected to plummet by more than 90%. Missed the e-commerce channel dividend period Regarding the strange phenomenon of plunging profits, Lai Yifen's senior management stated that the promising prospects of the domestic snack industry have attracted many investors, intensifying market competition. To maintain its leading position, Lai Yifen has been expanding offline channels and bringing in management talent, which has increased related expenses. It is reported that Lai Yifen has been expanding its offline store scale. At the end of 2016, the total number of stores under Lai Yifen was 2,260. By the first half of 2018, the number had surged to 2,628, with directly operated stores reaching 2,350. In a year and a half, directly operated stores increased by more than 270. Such large-scale offline expansion naturally requires substantial capital, which is the main reason for the sharp decline in net profit. However, it is worth noting that the popularity of offline snack chain stores is gradually fading, as consumers are attracted to online snack brands. Lai Yifen has lost a large number of store customers as a result. To maintain business performance, it has been forced to continuously expand its offline store scale. Industry insiders point out that compared with online snack brands, Lai Yifen has many disadvantages, including high store rental costs, personnel expenses, and service management costs, all of which reduce gross margins and compress net profit. With no competitive advantage in offline stores and a late entry into the online space, Lai Yifen finds it difficult to establish a foothold, leaving it in a development dilemma. Compared with peers, Lai Yifen's development pace has indeed fallen behind. At the end of last year, leisure snack brand Liangpinpuzi launched a high-end product layout, upgrading product categories, packaging, and ingredient sourcing, while Three Squirrels frequently claimed the top spot in Tmall's Double 11 snack sales. Regarding the reasons for Lai Yifen's declining net profit, an insider close to Lai Yifen in the snack industry told a China Times reporter: 'Lai Yifen missed the dividend period online, failing to create new increments and achieve economies of scale. Its offline stores are not concentrated, with only Shanghai and Zhejiang provinces being profitable. Other stores are scattered, lacking scale efficiency, and are not profitable. The profitable regions are first-tier cities, where labor and rent costs are rising, reducing profit margins. The brand is aging with no innovation, and old customers are being lost, diverted to strong online brands like Liangpinpuzi and Three Squirrels.' Is there still hope for Lai Yifen? 'Unless it makes a breakthrough in the online model, there is no opportunity on e-commerce platforms now,' the insider said. OEM model triggers quality crisis As is well known, for a food company, food quality and safety are the fundamental foundation. But in its rapid expansion, Lai Yifen seems to have forgotten this importance. In recent years, Lai Yifen has frequently appeared on food sampling 'blacklists.' In 2012, product quality issues even affected its IPO process. The China Securities Regulatory Commission stated in its decision not to approve Lai Yifen's initial public offering: 'During the reporting period, your company was repeatedly penalized by relevant authorities for product quality issues,' and 'internal controls have deficiencies that have a material adverse impact on operations, and after media exposure of quality issues, sales revenue declined significantly.' In March 2013, Jiangsu Provincial Food Safety Office announced that one batch of 'Lai Yifen' nougat produced by Kangkang Food Factory of Shanghai Lailin Industrial Co., Ltd. exceeded the standard for coliform bacteria. In May 2015, the former China Food and Drug Administration reported that one batch of 'Lai Yifen' hand-torn meat strips produced by Zhangzhou Zhengui Food Co., Ltd. exceeded the standard for total bacterial count. In June 2016, Jiangsu Provincial Food and Drug Administration reported that one batch of 'Lai Yifen' crispy potato chips produced by Jiangsu Desheng Food Co., Ltd. exceeded the standard for coliform bacteria. Moreover, as early as April 24, 2012, CCTV's 'Consumer Advocate' program exposed the dirty production environments of some domestic preserved fruit processing plants, where workers arbitrarily added additives. The exposed companies, including Hangzhou Lingxin Food Co., Ltd., Meiyuan Food Factory, and Yonghai Food Factory, were confirmed to be Lai Yifen's preserved fruit suppliers. It was not until 2016 that Lai Yifen, relying on its OEM model to rapidly expand its product line, finally went public. However, industry insiders point out that since its listing, Lai Yifen has been overly focused on development speed, and its OEM model makes it difficult to fully control the safety of the industrial chain, leading to product problems. Lai Yifen's prospectus shows that from 2013 to the first half of 2016, the company recalled a total of 70,250 kilograms of substandard products, involving meat products, aquatic products, pastries, fruits, and vegetables. In fact, the reason quality issues keep recurring is that Lai Yifen is merely a snack retail chain brand. Although it sells more than 1,400 snack categories, none are produced by Lai Yifen itself; all rely on OEM production by partner snack manufacturers. This OEM model prevents Lai Yifen from directly testing product quality. Zhu Danpeng, a Chinese food industry analyst, stated: 'The key to Lai Yifen's product quality problems lies in the lack of strict review of so many OEM manufacturers, making it difficult to fully control the industrial chain. The increasing number of OEMs and rapidly expanding product quantities have increased management difficulty, leading to challenges in external procurement, internal control, and store management. Costs are also rising, which may erode profits.' From the above issues, it is clear that Lai Yifen's operational crisis is no accident. It has gradually pushed itself into a valley with no turning back, and its chances of catching up with peers are almost gone. Source: China Times New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar and Wine Fair from March 15 to March 18. This conference will focus on the theme 'Breakthrough' and engage in in-depth discussions with numerous brand owners, supply chain service providers, distributors, retailers, and others. Compared with previous conferences, this summit will be fully upgraded. In addition to original topics such as channel innovation, city distribution logistics, and distributor transformation, it will add multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail. 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