---
title: "Ganyuan, Stuck in the Pain of Transformation"
description: "A disappointing earnings report brought Ganyuan Foods back into the spotlight. Two years after its listing, Ganyuan, which had once surged 282.02% cumulatively with 10 consecutive limit-ups and 9 one-word boards, released its 2021 results on April 28, and its stock price hit the limit-down on the same day. Data shows that in 2021, Ganyuan achieved operating revenue of 1.29 billion yuan, a year-on-year increase of 10.4%, with revenue growing for three consecutive years. However, this was accompanied by increased revenue but not profit: in 2021, net profit attributable to shareholders of the listed company was 154 million yuan, down 14.29% year-on-year; net profit after deducting non-recurring gains and losses was 128 million yuan, down 14.90%."
author: "郑一鸣"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2022-05-07"
language: "en"
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# Ganyuan, Stuck in the Pain of Transformation

> A disappointing earnings report brought Ganyuan Foods back into the spotlight. Two years after its listing, Ganyuan, which had once surged 282.02% cumulatively with 10 consecutive limit-ups and 9 one-word boards, released its 2021 results on April 28, and its stock price hit the limit-down on the same day. Data shows that in 2021, Ganyuan achieved operating revenue of 1.29 billion yuan, a year-on-year increase of 10.4%, with revenue growing for three consecutive years. However, this was accompanied by increased revenue but not profit: in 2021, net profit attributable to shareholders of the listed company was 154 million yuan, down 14.29% year-on-year; net profit after deducting non-recurring gains and losses was 128 million yuan, down 14.90%.

A disappointing earnings report brought Ganyuan Foods back into the spotlight. Two years after its listing, Ganyuan, which had once surged 282.02% cumulatively with 10 consecutive limit-ups and 9 one-word boards, released its 2021 results on April 28, and its stock price hit the limit-down on the same day.
Data shows that in 2021, Ganyuan achieved operating revenue of 1.29 billion yuan, a year-on-year increase of 10.4%, with revenue growing for three consecutive years. However, this was accompanied by increased revenue but not profit: in 2021, net profit attributable to shareholders of the listed company was 154 million yuan, down 14.29% year-on-year; net profit after deducting non-recurring gains and losses was 128 million yuan, down 14.90%.
**Where did the money go?**
High costs and high spending might be the reasons for Ganyuan's increased revenue but not profit in 2021.
If we use total operating revenue as the denominator and total operating cost as the numerator, we can create a bar chart for comparison. From this structural percentage table, Ganyuan's operating cost as a proportion of total revenue has been rising year by year. In 2019, total operating cost accounted for 80.75%, in 2020 it was 82.75%, and in 2021 it was 87.03%.
This trend is reflected in the financial report: in 2021, Ganyuan's total operating cost increased by 16.09% compared to 2020 and 25.75% compared to 2019.
In contrast, Ganyuan's revenue growth in 2021 compared to 2020 and 2019 was 5.70% and 10.38%, respectively. Revenue growth cannot keep up with cost growth, so where did Ganyuan's money go?
Comparing historical data, the expenses with significant increases are: 1) operating cost (distinct from total operating cost), 2) selling expenses, and 3) R&D expenses.
Operating cost in 2021 increased by 19.56% compared to 2020. The main business cost constitutes the majority of operating cost, including direct material cost, direct labor cost, and manufacturing expenses. Direct material cost is the largest, accounting for over 78%, with main raw materials being various nuts and seed agricultural products, palm oil, and packaging materials.
Affected by factors such as production area output and market supply and demand, the purchase price of palm oil in 2021 increased by 43.25% year-on-year, leading to a rise of 33.44 million yuan in related fried product costs during the period.
Raw material price increases are Ganyuan's explanation for the rise in operating cost.
Among the other two significantly increased expenses, R&D expenses grew by 127.31%, while selling expenses, after excluding hard costs such as wages, logistics, travel, office, and meetings, saw promotional and advertising consulting fees increase by 53.95% and 146.62% respectively compared to the previous year.
The increase in R&D expenses is mainly due to increased investment in new product development during the period; the increase in selling expenses is mainly due to increased investment in elevator media advertising (16 million yuan), e-commerce live streaming fees, supermarket fees, and market expenses.
The growth of these expenses actually had signs earlier. According to the 2020 financial report, R&D expenses, promotional fees, and advertising consulting fees had already shown an increasing trend compared to 2019, with advertising consulting fees increasing by 280.30% year-on-year and R&D expenses increasing by 54.92%.
If the increase in promotional and advertising expenses was to maintain the exposure of Ganyuan's "old three" products—green peas, melon seeds, and broad beans—then logically, these expenses should have remained stable over several years, not surged by 280.30%.
Therefore, it is reasonable to infer that the increase in R&D expenses is for developing new products, and the surge in promotional and advertising fees is to market these new products.
As a traditional snack food company, Ganyuan has increased investment in new products for two consecutive years in 2020 and 2021, which makes one wonder: why is Ganyuan spending money?
**Who is the money for?**
"A leisure food production enterprise dominated by seed-based fried goods, nuts and kernels, and grain crisps. Currently, the main products include melon seeds, broad beans, green peas, bean and fruit mixes, kernels, rice crisps, pot stickers, fried dough twists, and glutinous rice sticks," is how Ganyuan describes itself on its official website.
Although the product categories on the official website are diverse, Ganyuan's market strategy is actually based on a niche segment, aiming to form sufficient differentiated competitive advantages.
According to Ganyuan's prospectus published in 2019, from 2016 to 2019, Ganyuan's operating revenue was 708 million yuan, 788 million yuan, 911 million yuan, and 1.109 billion yuan respectively. The "old three" products—melon seed series, broad bean series, and green pea series—accounted for 79.12%, 74.21%, and 71.36% of main business revenue respectively.
From the above data, Ganyuan is clearly a product-driven company, relying on single products to support the brand.
This raises a new question: when a company achieves a high market share in its niche, how can it break through the sales ceiling?
For Ganyuan, this question can be concretized as: after the "old three"—green peas, melon seeds, and broad beans—which product will be the next to support Ganyuan?
With the slogan "Inheriting China's Five-Grain Snacks," Ganyuan chose the nut track. Starting in 2020, Ganyuan began to lay out peanuts and flavored nuts, and product development and innovation were included in the 2021 business plan.
Nuts themselves have high nutritional characteristics, aligning with trends in consumption upgrade and consumer awareness upgrade. Secondly, the current nut processing technology has low entry barriers, with shallow processing depth of raw materials, making the process simple and the technical threshold low. "Collection" and "screening" cause differences in raw material quality, while roasting and cooking processes cause taste differences, which are important reasons for product differentiation.
Due to the low entry barriers, low sunk costs, and low launch barriers for tree nut snacks, most companies are eager to try. However, when an industry gains more attention, competition becomes fierce. Complex processing and composite products will be the development trends in this field.
Complex processing means moving from shelled to shell-less, from rough to deep processing; product composite means richer usage scenarios and more segmented and diverse snack functions. In this process, consumers' higher demands for snack variety, product quality, and consumption scenarios are essentially a pursuit of better user experience.
Different brands give different answers on how to add value to nuts. To differentiate from the healthy nuts and original-flavor nuts on the current nut track, Ganyuan chose to develop flavored nuts.
According to Ganyuan's investor relations activity table from February this year, Ganyuan stated that it would focus on flavor.
"Simple combination," "low technical barriers," and "fierce competition" are indeed the current status of the tree nut field. Ganyuan chose a deep-processing model, "dressing up" original nuts with deep processing and secondary seasoning. Taking salted egg yolk macadamia nuts as an example, the final form of this product is a layer of powder coating on the nut.
Ganyuan is trying to discover a second growth curve before the "old three" products reach the end of their life cycle, betting on the nut track. No wonder R&D expenses and selling expenses have increased significantly for two consecutive years.
So what are the returns?
**Is the money well spent?**
Compared to 2020, revenue from the mixed kernel series increased by 43.51%, and other series (peanuts, puffed rice, etc., hereinafter referred to as other series) increased by 25.84%. According to the 2021 financial report, among Ganyuan's main business revenue, green peas, melon seeds, broad beans, mixed kernels, and other series accounted for 25.67%, 18.07%, 22.81%, 16.07%, and 17.03% respectively.
In just two years, the mixed kernel and other series have been able to rival Ganyuan's "old three," but this does not mean that Ganyuan, which previously had the "old three" as star products, has successfully expanded its second growth curve.
Behind the pleasing growth rate is the embarrassing gross margin of new products. According to the financial report, Ganyuan's gross margin for the mixed kernel and bean and fruit series in 2021 was 26.10%, compared to 31.66% in 2020; the other series (peanuts, puffed rice, etc.) had a gross margin of 21.53% in 2021, down 9.36% from 2019.
In stark contrast, the gross margins of the "old three" products are all around 40%. In 2021, the gross margins for green peas, melon seeds, and broad beans were 44.57%, 38.51%, and 41.90% respectively.
A decline in gross margin is either due to rising costs or falling selling prices.
Affected by factors such as production area output and market supply and demand, the purchase price of palm oil in 2021 increased by 43.25% year-on-year.
But is palm oil the main reason for the decline in new product gross margins?
Affected by the palm oil price increase, the gross margins of the "old three" also declined slightly in 2021, but all were controlled within about 3%. Compared to the declines of at least 6% for mixed kernels and other series, it is clear that palm oil is not the main reason.
Ganyuan's current main sales models are distribution and e-commerce.
In the distribution model, the gross margins for mixed kernels and other series in 2021 were 24.90% and 20.90%, respectively, compared to 30.64% and 30.08% in 2020. In the e-commerce model, the gross margins for these two products in 2021 were 29.94% and 21.56%, respectively; in 2019, they were 34.26% and 33.18%.
In September 2020, Ganyuan entered Viya's live streaming room, selling 450,000 packs that night, and subsequently frequently appeared in top streamers' live rooms, with total sales exceeding 11 million yuan. In addition to entering influencer live rooms, Ganyuan also actively opened live rooms on platforms like Kuaishou, Douyin, and Taobao, established community marketing, and explored new marketing models through various mainstream online social platforms.
The decline in gross margins for new products in both distribution and e-commerce channels may be an attempt to seize market share through price concessions.
Current players on the nut track include Three Squirrels, Bestore, and Chacha at the top. Among them, Bestore shifted its channel focus online in 2017, while Three Squirrels is typical of growing online and penetrating offline, creating complementary business formats.
For online channels, Ganyuan has set up a new marketing center in Hangzhou, increased online live streaming efforts, and established a factory live room; offline, it has increased advertising investment and channel promotion expenses. These actions aim to continuously expand the brand's awareness group and achieve deep penetration and coverage of the consumer base.
Exchanging resources for growth space and spending money to create new growth points is not an easy task. Ganyuan's strategic actions over the past two years are simply to find and lay out a second growth curve before the first growth curve shows signs of decline, which is very similar to what Chacha did in the past.
In 2012, after years of deep cultivation in the melon seed field, Chacha's growth began to slow, lasting for five years until Chacha launched its "small blue bag" pecan-flavored melon seeds and "small yellow bag" daily nuts.
What is valued today may become insignificant in the future. Whether flavored nuts will succeed is a question no one can answer. Ganyuan, currently in the pain of transformation, may need more time to emerge from its temporary trough.
Everything is like a cycle. Sixteen years ago, Ganyuan chose shelled multi-flavored melon seeds. Now, Ganyuan has chosen shelled multi-flavored macadamia nuts. Change has always been the norm, while constancy is the exception.
For business, the only certainty is uncertainty.
**Are you "watching" me?**


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