---
title: "From Debt of Millions to Net Worth of 5.5 Billion: How the Pickled Chicken Feet Tycoon Earned 500 Million in Q2 Thanks to the Stay-at-Home Economy"
description: "Recently, Youyou Food, known as the 'first chicken feet stock,' announced its H1 2020 results, with revenue and net profit attributable to shareholders surging to 545 million yuan and 129 million yuan, up 13.94% and 37.74% year-on-year. Boosted by the strong performance, its stock price hit a record high with two consecutive limit-ups, and the market value of the Lu Youzhong family's holdings reached 5.526 billion yuan."
author: "财天作者"
publisher: "New Distribution"
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published: "2020-09-15"
language: "en"
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# From Debt of Millions to Net Worth of 5.5 Billion: How the Pickled Chicken Feet Tycoon Earned 500 Million in Q2 Thanks to the Stay-at-Home Economy

> Recently, Youyou Food, known as the 'first chicken feet stock,' announced its H1 2020 results, with revenue and net profit attributable to shareholders surging to 545 million yuan and 129 million yuan, up 13.94% and 37.74% year-on-year. Boosted by the strong performance, its stock price hit a record high with two consecutive limit-ups, and the market value of the Lu Youzhong family's holdings reached 5.526 billion yuan.

**Recently, Youyou Food, known as the 'first chicken feet stock,' announced its H1 2020 results, with revenue and net profit attributable to shareholders surging to 545 million yuan and 129 million yuan, up 13.94% and 37.74% year-on-year.**

Boosted by the strong performance, Youyou Food's stock price hit a record high with two consecutive limit-ups. As of the close on August 21, the stock price stood at 26.67 yuan per share, with a total market value of 8.122 billion yuan. The wealth of the Lu Youzhong family, the actual controller, also rose accordingly, with the market value of their holdings reaching 5.526 billion yuan.

The pandemic fueled the 'stay-at-home economy,' benefiting not only bread and instant noodle sellers but also pickled chicken feet producers.

**In fact, since its listing on the Shanghai Stock Exchange last year, Youyou Food entered an 8-month adjustment period due to its single product structure and heavy reliance on offline channels. Its stock price once fell to 10.23 yuan per share on February 4, 2020, before recovering with the 'stay-at-home economy' dividend.** (Image source: Youyou Food official website)

##### **-01-**
##### **A 5.5 Billion Fortune Unearthed from Pickle Jars**

The story of the 'first chicken feet stock' dates back to the 1980s.

In 1981, Lu Youzhong, a pastry chef at a state-owned restaurant in Chongqing, was tempted by the wave of entrepreneurship during the reform and opening-up. He decisively quit his 'iron rice bowl' and started a food business. However, for a long time, his ventures were only 'small-scale.'

In 1987, Lu Youzhong founded Youyou Hotel, a small restaurant on a Chongqing street. While managing the restaurant, he noticed an interesting phenomenon: after eating rich dishes, customers often ordered a bowl of rice with crispy and refreshing pickled vegetables as a finale.

So, he used pickled vegetables as a breakthrough and launched a series of pickled pepper-flavored dishes. Unexpectedly, the pickled pepper series not only became popular but also created a brand effect. Within a few years, Lu Youzhong accumulated over 5 million yuan in wealth from the pickled pepper series and opened four restaurants in Chongqing and Chengdu.

After succeeding with pickled pepper dishes, Lu Youzhong had a whimsical idea: 'What would it taste like to pickle meat?' Driven by this curiosity, he put cooked pig ears, pig tails, chicken feet, and other meat into pickle jars for experiments. He found that pickled pepper chicken feet had the best effect and the highest order rate. (Image source: Youyou Food official WeChat account)

If pickled pepper chicken feet could become a replicable product sold nationwide, would the business prospects be broader than running restaurants? After realizing this, Lu Youzhong decisively sold his restaurants and registered a food factory in 1997—Youyou Food Development Co., Ltd.—to mass-produce pickled pepper leisure snacks, with pickled pepper chicken feet as the flagship product.

However, the first order hit a snag. Due to the lack of mature preservation technology, the 700 boxes of pickled pepper chicken feet quickly bloated, and the goods worth 270,000 yuan were lost.

Lu Youzhong had to refocus on developing preservation technology, which not only exhausted his 5 million yuan savings but also left him with over 1 million yuan in debt.

Nevertheless, the preservation technology eventually broke through, and Lu Youzhong successfully solved the packaging problem for pickled pepper chicken feet. In 2001, he submitted a patent application related to pickled chicken feet to the State Intellectual Property Office and obtained authorization. 'Youyou Pickled Pepper Chicken Feet' began to rapidly capture the market. By 2013, Youyou Food's revenue approached 1 billion yuan, with net profit attributable to shareholders at 116 million yuan.

In December 2014, Youyou Food was listed on the NEEQ, and Lu Youzhong's stock market value once approached 3 billion yuan. On May 8, 2019, Youyou Food was successfully listed on the Shanghai Stock Exchange, earning the title 'first chicken feet stock.'

The Lu Youzhong family's wealth also rose, ranking 1148th on the 2019 Hurun Rich List with 3.6 billion yuan.

According to the latest data, as of June 30, 2020, Lu Youzhong, his wife Zhao Ying, and daughter Lu Xin held 49.89%, 12.99%, and 5.16% stakes in Youyou Food, respectively, with a combined stake of 68.04%. Based on Youyou Food's latest market value on August 21, the Lu family's holdings were worth approximately 5.526 billion yuan.

**-02-**
##### **8 Months of Poor Performance, Reversal in Q2 as a Silver Lining**

However, unexpectedly, **Youyou Food's stock price, after hitting a high of 22.92 yuan per share on June 3, 2019, entered an 8-month adjustment period, falling to 10.23 yuan per share on February 4, 2020, before recovering with the 'stay-at-home economy' dividend.**

In terms of performance, Youyou Food recorded revenue declines in the 2019 interim report, Q3 report, annual report, and Q1 2020 report. Net profit attributable to shareholders also declined in the 2019 interim report and Q1 2020 report.

Data shows that in 2019, Youyou Food achieved revenue of 1.008 billion yuan, down 8.44% year-on-year, and net profit attributable to shareholders of 179 million yuan, up slightly by 0.48%. In Q1 2020, its revenue and net profit attributable to shareholders were 210 million yuan and 41.0955 million yuan, down 12.03% and 9.53% year-on-year.

**In Q1 2020, Youyou Food faced a surge in inventory and severe product backlog due to the closure of its heavily relied-upon offline distributor channels.** Data shows that as of March 31, 2020, Youyou Food's inventory amounted to 231 million yuan, over 100 million yuan higher than the same period last year, setting a record high.

According to the 2019 annual report, as of the end of 2019, Youyou Food's inventory was 229 million yuan, up 36.2% year-on-year. Among them, the inventory of dried tofu, peanuts, and bamboo shoots increased by 221.42%, 404.94%, and 1339.13%, respectively.

However, on August 19, Youyou Food released its 2020 interim report. Data shows that its Q2 performance reversed. In H1 2020, Youyou Food achieved revenue of 545 million yuan, up 13.94% year-on-year, and net profit attributable to shareholders of 129 million yuan, up 37.74%. Based on this, Youyou Food achieved revenue of 335 million yuan and net profit attributable to shareholders of 88.2733 million yuan in Q2 2020, approximately 1.6 times and 2.1 times that of Q1, respectively.

Zhou Zening, the company's board secretary, analyzed to the media, 'Due to the pandemic lockdown, sales of small snacks were boosted, and the company was in full production throughout March,' leading to a recovery in performance.

**-03-**
##### **80% of Revenue Relies on Pickled Pepper Chicken Feet; New Products Not Yet Successful**

Although Q2 2020 reversed the previous downturn, Youyou Food's operational issues have not been fully resolved.

External analysis suggests that **Youyou Food's past poor revenue performance is first related to its revenue structure. From 2016 to 2018, pickled pepper chicken feet accounted for 76.27%, 79.45%, and 81.63% of revenue, respectively. In its prospectus, Youyou Food also listed this single-product structure as an operational risk for long-term development.**

In fact, Youyou Food had specifically formulated a '2+3+3' new product development goal, i.e., 'launch at least 2 new products annually, reserve 3 R&D products, and carry out 3 process improvements,' to diversify its product portfolio. It has successively launched new products such as pepper-flavored chicken feet, sauerkraut chicken feet, spiced hairtail, and cumin squid.

It is worth mentioning that regarding product layout, Lu Youzhong once publicly stated that pickled pepper chicken feet are version 1.0, fish products like hairtail and squid are version 2.0, and pig back skin is version 3.0. He even claimed to achieve a 1 billion yuan scale for Spanish pig skin.

However, **according to financial data, sales of new products other than pickled pepper chicken feet have been unsatisfactory.** In H1 2020, the revenue shares of dried tofu, peanuts, bamboo shoots, and other products were 2.07%, 1.45%, and 3.29%, respectively, while the revenue share of other meat products besides pickled pepper chicken feet was only 8.82%.

In the food sector, there are viral hits every year, market competition is fierce, and people's tastes change quickly. It is not easy for Youyou Food to create another hit like pickled pepper chicken feet.

According to public data, the number of domestic enterprises producing pickled pepper chicken feet and other pickled leisure foods has exceeded 600, with nearly half concentrated in the Sichuan-Chongqing region. Although Youyou Food still holds the top spot with a 9% market share, its competitive pressure is not small. In this track, there are not only traditional brands like Qishuang, Zengqiao (Guai Xifu), La Xifu, Yongjian, and Sichuan Pinpin, but also leisure snack brands like Three Squirrels, Bestore, and Laiyifen entering the market.

In terms of pricing, Youyou Food's pickled pepper chicken feet are usually higher than the same specifications of Yongjian, Qishuang, Zengqiao, La Xifu, Three Squirrels, and Laiyifen, but slightly lower than Bestore.

In response, Youyou Food has repeatedly stated in its financial reports that if existing competitors use low-price strategies to compete for market share, or new investors enter the industry based on good expectations, it may intensify industry competition and adversely affect the company's profitability. **In addition to products and market, over-reliance on traditional channels is also a bottleneck for Youyou Food. In terms of channels, over 97% of Youyou Food's revenue comes from traditional distributor channels, while direct sales channels such as e-commerce platforms account for less than 3%. Compared with the fact that many viral hits now originate online, this is clearly a disadvantage for Youyou Food in competing with other brands.**

In response, Zhou Zening, the company's board secretary, said that in the future, the company will enrich product varieties while expanding new marketing methods and channels. For example, in August this year, it held a live streaming session with Li Jiaqi to cope with the intense market competition.

Source: Finance World Weekly (ID: cjtxzk); Author: Zhou Xiangyue


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