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On March 10, condiment giant Haitian Flavoring released its 2015 annual report, showing revenue of 11.29 billion yuan and net profit of 2.51 billion yuan, up 15.1% and 20.1% year-on-year respectively, with net margin reaching a record high of 22.2%. Against the backdrop of a sluggish domestic economy, Haitian still achieved considerable growth, and its performance is undeniably impressive. However, a careful analysis of its business segments reveals that its strongest product, soy sauce, saw revenue growth of only 6.6%, significantly below the company's overall revenue growth. Moreover, this marks the fifth consecutive year that Haitian soy sauce's growth has lagged behind the company's overall revenue growth. Correspondingly, the share of Haitian soy sauce in the company's total revenue has declined from 72% in 2010 to 59% in 2015. The table below shows the five-year revenue growth rates for Haitian as a whole and for Haitian soy sauce:

Haitian soy sauce, as the eldest son of the Haitian condiment empire and its strongest product, should have been the leader in driving the company's condiment business growth. Why has it lagged behind for five consecutive years?

Is the soy sauce industry growing slowly? According to data from Goldman Sachs Research, the soy sauce industry's revenue growth is around 15%, with volume and price contributing 8% and 6% annually, respectively. As the number one soy sauce brand, Haitian's compound annual growth rate over the past five years is only 11.08%, significantly below the industry average.

As categories mature, the strong get stronger, and leading brands typically grow faster than the industry, with market share concentrating among leaders. This is a common pattern in consumer goods. For example, Six Walnuts holds 80% of the walnut milk market, and Chengde Lulu holds over 90% of the almond milk market. In the soy sauce category, while the leading brand's share is not as high, the trend of market share concentrating among leaders still exists. In the Japanese soy sauce market, the top five hold 60%, with Kikkoman alone at 31%. In China, the top five hold less than 25%, and the leader, Haitian, holds less than 15%. This indicates significant room for market share growth for leading brands. Haitian soy sauce is in a golden development period with industry growth and increasing market share, which is why capital markets remain bullish on Haitian. So why is Haitian soy sauce stagnating? In my view, a key reason is Haitian's lack of brand management thinking.

Clicking on the "Brand & Products" section of Haitian's official website, the first sentence reads: "Quality deeply cultivated, brand naturally flourishes." If this is just for consumers, it's a self-promotion of product quality, which is fine. But if Haitian's management truly believes that good product quality alone will make the brand strong and guides business operations accordingly, that is a mistake. Judging from Haitian's market performance, the latter is highly likely. This is reflected in:

Insufficient Marketing Investment According to Haitian's annual report, advertising spending has consistently been around 2% of revenue, while other consumer brands like Yili and Lulu spend over 8%, and Qiaqia瓜子 around 6%. At a critical time when Haitian soy sauce is expanding market share and facing product upgrades, Haitian is not leveraging its scale advantages to increase investment and widen its lead, but is instead stingy with marketing. It's no wonder growth is sluggish.

Although Haitian soy sauce currently leads the overall soy sauce market share by a wide margin, this lead is only relative. First, Haitian's market share is only 15%, far from absolute dominance. Second, other brands, though weaker overall, are already counterattacking in regional markets and sub-categories. For example, Chubang performs well in Guangdong and Ningbo, Lee Kum Kee in Guangdong, Shinho in Shanghai, and Qianhe in Sichuan. In sub-categories, Shinho's natural brewed soy sauce, Horan's organic soy sauce, Jiajia's noodle fresh soy sauce, and Qianhe's 180-day and 380-day first-press soy sauce are all doing well. If Haitian does not increase market investment and use its current channel scale advantages to cover these niches, competitors may grow in these markets, accumulate resources, and eventually launch a full-scale attack, turning the current single-dominant market into a multi-player one. By then, it will be too late for Haitian to regret.

Insufficient Investment in Product Upgrades Product upgrades often turn leading brands into laggards. For example, in photography, Kodak fell behind Canon and Sony with the shift from film to digital. In mobile phones, Nokia fell behind Apple and Samsung with the shift from feature phones to smartphones. A key reason is that new products are disruptive innovations to old products that are the main profit source. Leading brands of old products often hesitate or even hope for the best, falling into the "innovator's dilemma," while lagging brands seize the opportunity to invest heavily and overtake the leaders.

In the food sector, such upgrades are not as rapid or thorough as in technology, but they exist. For example, Mengniu, which was second in the plain white milk market, seized the opportunity of milk consumption upgrades to launch the premium milk brand Telunsu, becoming the number one premium milk brand. It not only captured a large share of the plain white milk market but also suppressed Yili's premium brand Jindian.

The soy sauce industry has also undergone two product upgrades. The first was from traditional dark soy sauce to fresh-flavored soy sauce. Chubang rose with its "naturally sun-dried, naturally fresh" selling point. From 2010 to 2014, Chubang's sales increased by 1.2 times, while Haitian soy sauce's sales increased by less than 60% during the same period. Chubang also captured 20% of the Guangdong market, Haitian's home turf. Unfortunately, Chubang failed to follow up and expand its gains according to category development laws (detailed in another article, not repeated here).

The current upgrade is toward "additive-free" soy sauce, such as Chubang's pure brewed soy sauce, Shinho's natural brewed soy sauce, and Qianhe's first-press additive-free soy sauce. Haitian has also launched its Laozihao soy sauce to respond, but this response appears passive and reluctant. The Laozihao products are merely placed on shelves, with insufficient marketing support. Moreover, Haitian Laozihao launched three SKUs at once: zero-additive first-press, first-press, and 365 high-freshness first-press. With four concepts—"zero-additive," "first-press," "first-press," and "365 high-freshness"—Haitian may not have figured out what to sell, so it left the choice to consumers. This approach won't work because the basic role of a brand is to guide consumer choice, not the other way around. Consumers typically respond to what they don't understand by not buying. If competitors can follow category strategy principles to build the "additive-free" soy sauce category, they have a good chance of dealing a heavy blow to Haitian soy sauce, just as Telunsu did to Yili's plain white milk.

Growth businesses require a growth strategy: long-term vision, willingness to invest, and focus not on short-term financial numbers but on deepening and widening the business moat. Only then can a lasting enterprise be built. Haitian, however, treats growth businesses as declining ones, squeezing profits from existing operations. Net margin rose from 12% in 2010 to 22% in 2015, nearly doubling in just a few years. While the financial numbers look good, this actually plants landmines for the company's long-term development. This is indeed a hidden concern behind Haitian's impressive performance!

If you want to make friends with the author, long-press the QR code below to add: Wang Chao, Chairman of Shangyang

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