On September 19, an announcement about the capital increase and share expansion project of Xi'an Sun Food Co., Ltd. drew attention. The announcement showed that Genki Forest (Beijing) Food Technology Co., Ltd. obtained strategic investor qualification with an investment of over 54.33 million yuan for a 30% stake. Another company, Jiaxing Jianshe Chenyue Equity Investment Partnership (Limited Partnership), obtained financial investor qualification with over 45.27 million yuan for a 25% stake. The public notice period is September 19-23, 2022. Barring unexpected events, Genki Forest will become fresh blood for Xi'an Sun Food, a long-established company, and with complementary resources, they can make great strides in the food sector, especially in the seasoning track.
01
Brands in Memory
The Rise and Fall of "Sun" and "Axiangpo"
Xi'an Sun Food Co., Ltd. was restructured from Sun Food Group, with its predecessor being a state-owned enterprise producing ballpoint pens and jewel bearings, transitioning to food production in 1986. In 1990, "Sun" rice crackers were all the rage, achieving annual sales of 180 million yuan. In 1996, with the airing of the advertisement "Simmering... the wife becomes the mother-in-law" on CCTV, its other brand "Axiangpo" sauce became a national sensation, leading the sauce product category. Entering the food industry marked a qualitative leap for the company. Since then, Sun Food has owned two nationally renowned brands: "Sun" and "Axiangpo". However, as an established enterprise, after the brand development dividend period of the 1990s, due to market competition and internal issues during development, Sun Food gradually fell behind competitors and faded from the mainstream view. At that time, the brand "Laoganma," from the same era as "Axiangpo," surged ahead, rising from obscurity to popularity and remaining a bestseller to this day, making one sigh at the plight of this local legacy brand.
Fortunately, in recent years, Sun Food has begun to see a turnaround, with the municipal government stepping in to help. First, in 2010, Sun Food moved to Chang'an District, covering about 30 mu (approx. 2 hectares) with factory space of about 25,000 square meters, where transportation and environment are very favorable for food manufacturing. Second, in June 2021, business registration information showed that Xi'an Industry Investment Group replaced Sun Food Group to hold 100% equity, becoming the "new owner" of Sun Food. Furthermore, the "14th Five-Year Plan for High-Quality Development of State-Owned Assets and Enterprises in Xi'an" proposed: to accelerate the development of food manufacturing with Xi'an Sun Food Group as the carrier, actively introduce strategic investors, address marketing shortcomings, innovate business models, actively cater to emerging markets, enhance product added value, and advance towards the mid-to-high end of the food industry. It also explores multi-industry integrated development models, leveraging Xi'an's local cultural tourism advantages to achieve synchronized development of the food industry with tourism, culture, and health and wellness industries. This indirectly confirms the Xi'an government's determination to help local brands deepen their local presence while going global.
Currently, Sun Food has over 100 product SKUs across seasoning series, spicy sauce series, and Sun rice cracker series, sold mainly in Shaanxi and radiating to the whole country. However, its performance is mediocre, and compared to Laoganma's annual sales of 4.5 billion yuan sold both domestically and internationally, it seems even less noticeable. Financial data shows that from 2018 to 2020, Sun Food's revenue was 144 million yuan, 155 million yuan, and 113 million yuan, respectively. Net profit for these three years was 2.5267 million yuan, 2.2033 million yuan, and -1.3994 million yuan. In 2021, as of August 31, Sun Food's revenue was 80.3339 million yuan, with a net loss of -3.2229 million yuan, still needing to turn around, and the company had liabilities of 28.8618 million yuan, with a debt ratio of about 44.3%. According to Sun Food's announcement, the raised funds are mainly used for expanding existing site production lines and equipment upgrades, management cost increases, product R&D, office software and hardware upgrades, sales team building, marketing and publicity investments, and supplementing operational working capital. Besides the hard need for funds, Sun Food's introduction of strategic and financial investors is likely aimed at resource integration.
02
Genki Forest's Stake:
What Sparks Can Fly?
As the strategic investor in this round, Genki Forest is not simply putting in money. From Sun Food's perspective, its seasoning brand Axiangpo has great potential. Seasoning is a typical "small product, big market" category. Under the Axiangpo brand, there are Axiangpo Spicy Beef Sauce series, Axiangpo Red Oil Spicy Beef Sauce series, Axiangpo Powder Seasoning series, and Axiangpo Noodle Sauce series, with some seasoning oil products added in recent years. As early as 2018, Sun Food discussed plans for Axiangpo with the media: setting a small goal of selling 300 million yuan first, which, though not as impressive as its 1990s heyday, shows Axiangpo's ambition for significant achievements. According to 2020 statistics from the Top 100 Famous Chinese Seasoning Brands, the total sales of the top 100 companies reached 113.9 billion yuan, with a three-year compound growth rate of 10.1%, and total output of 18.33 million tons, with a three-year compound growth rate of 17.7%.
With a large market capacity and an existing brand foundation, with government and financial support, Sun Food certainly needs more than just money. There are conditions for acquiring Sun Food. In the capital increase announcement, Sun Food set basic conditions: it should be a well-known food and beverage or consumer goods manufacturing enterprise with strong relevance to the company, or other well-known upstream/downstream enterprises in the industry chain, capable of bringing strategic resources such as technology, market, channels, talent, and brand, creating synergies. Additionally, one of the five core financial requirements is as follows:
1: Average annual revenue from 2018 to 2020 of no less than 1 billion yuan, with year-on-year revenue growth of no less than 20% in the past two years; 2: Total assets at the end of 2020 of no less than 1.2 billion yuan; 3: Net assets at the end of September 2021 of no less than 300 million yuan.
This requirement, when applied to the A-share soft drink track, only Dongpeng Beverage and Liziyuan "qualify." But for Genki Forest, it is relatively easy. From 2018 to 2020, Genki Forest's revenue was 200 million yuan, 660 million yuan, and 2.7 billion yuan, with sales growth rates of 300%, 200%, and 309% in the same period, totaling 3.56 billion yuan over three years, with an average annual revenue of 1.187 billion yuan. Total assets and net assets easily meet the conditions.
Since Genki Forest can meet Sun Food's needs, conversely, why did Genki Forest choose Sun Food? From Genki Forest's perspective, the seasoning track complements its current business landscape and is a promising investment target with good returns. As a new darling in the beverage industry, Genki Forest is a rising star in the FMCG sector. Especially with the backing of Challenger Capital, in the eyes of outsiders, Genki Forest, combining "investment institution + consumer goods company," is a perfect match.
Looking at its investment projects, it can be seen that earlier, Challenger Capital, founded by Genki Forest's founder Tang Binsen, invested in consumer sectors such as Shizuren and Wangxiaolu (convenience and leisure foods). Additionally, investments under Genki Forest itself include brands like Tianyuan Zhuyi, Shangui Jitang, NeverCoffee, Guanyun Baijiu, and Bishan Beer, covering coffee, alcohol, light meals, and other fields. This time marks Genki Forest's first foray into the seasoning track.
The seasoning track has low market concentration and fragmented brands, making it a promising sector. In recent years, benefiting from the rapid development of the catering industry, food processing industry, and consumption upgrades, the seasoning industry has maintained growth, with brand enterprises becoming stronger and their market share increasing. As a staple consumer product, with the trend of consumption diversification and scenario fragmentation, the consumption boundaries of food processing, catering, and household retail are expanding, and online and offline channels are accelerating integration. With market segmentation and consumption upgrades, China's seasoning market will undergo a round of industry reshuffling. Opportunities and challenges coexist. Genki Forest can empower Sun Food in corporate management, talent building, marketing capabilities, digitalization, and more, potentially leading this regional brand to establish a foothold in the local market and step onto a larger stage.
Final Thoughts: Times change, industries change, consumers change, and Sun Food must also change. Injecting fresh blood at this time, bringing in Genki Forest's successful experience in the FMCG field, is, to some extent, worth trying for Sun Food. Genki Forest managed to break out of the red ocean of the beverage track, and there must be lessons to learn. It remains to be seen how the two sides can collaborate better in the future to achieve a 1+1>2 effect. This partnership reminds me that Genki Forest defines itself as an innovator and inheritor in the food and beverage industry, and this move seems to align with its business philosophy and style. I believe this clear self-awareness and action-oriented execution may be one of the reasons for its current success.