Source: Huashang Taolue (ID: hstl8888)

On February 11, 2014, Haitian Flavoring & Food Co., Ltd. went public on the A-share market, with a market value approaching 50 billion yuan that day, creating 34 millionaires.

A soy sauce company becoming a wealth factory surprised many, but even more surprising was that its market value subsequently skyrocketed, exceeding 160 billion yuan this year—a threefold increase!

This rise also boosted the fortunes of those 34 millionaires. On the 2017 Forbes China Rich List, Haitian's boss Pang Kang ranked 31st with nearly 40 billion yuan, just 5 billion short of Lei Jun, who ranked 25th.

1

Pang Kang first has to thank the "Haitian" brand.

Haitian is a time-honored Chinese brand, dating back to the mid-Qing Dynasty, with a history of three hundred years.

Three hundred years ago, Foshan, Guangdong, saw the rise of numerous sauce gardens producing soy sauce and other condiments, with products sold along the Xijiang and Beijiang rivers of the Pearl River system, as well as in Hong Kong, Macau, Southeast Asia, and Europe and America. At that time, in Sydney's Chinatown, Foshan soy sauce was even rationed—each person limited to three bottles, with no delivery.

▲ Ancient sauce garden in Foshan

The reason Foshan soy sauce was so popular was its uniqueness.

The raw material for soy sauce is soybeans, and the most crucial step determining quality is sun-drying. Foshan, located on the Tropic of Cancer, has a warm climate and abundant sunshine, with over 300 days of sunlight annually, making it ideal for sun-drying. This得天独厚的地理条件 made Foshan a paradise for soy sauce brewing, and by the Republic of China era, over 40 old and new sauce gardens had gathered there.

Among these, Haitian was the most meticulous in craftsmanship, with the richest flavor, and the largest scale and influence. A saying of the time went: "Where there are people, there is Haitian."

Pang Kang's connection with Haitian began in 1982. That year, at age 26, he was assigned to "Haitian" as deputy factory director.

At that time, Haitian was not the original Haitian, but an enterprise formed in 1955 when the state promoted public-private partnership, merging 25 ancient Foshan sauce gardens led by Haitian. The new enterprise was renamed Zhujiang Soy Sauce Factory, representing the culmination of Foshan's ancient sauce gardens.

After joining Zhujiang Soy Sauce Factory, Pang Kang diligently studied the business, becoming an expert within a few years and rising to general manager. Subsequently, a series of policy dividends came his way.

In 1988, when state-owned enterprises implemented the contract management responsibility system, Pang Kang gained the leading role in enterprise development. Six years later, as SOE reforms deepened, 70% of state shares were transferred to Haitian employees. These shares later evolved and concentrated, with management led by Pang Kang gaining controlling stakes. This change was confirmed and deepened through a new restructuring in 2007, making Haitian a completely private enterprise.

Along with the change in ownership, the brand name also changed.

As early as 1994, during the second restructuring, Pang Kang changed the company name from Zhujiang Soy Sauce Factory to Foshan Haitian Flavoring & Food Company, reviving the "Haitian" brand. Over the next decade, this ancient brand regained vitality under his management, and in 2006 it was selected by the Ministry of Commerce as one of the first batch of "China Time-honored Brands."

Thus, through historical circumstances, Pang Kang and management obtained a golden signboard for writing a wealth legend.

2

Seven things for daily life: firewood, rice, oil, salt, soy sauce, vinegar, and tea.

"Sauce" refers to soy sauce.

Since ancient times, soy sauce has held an important place in Chinese cuisine. However, before Haitian, strong demand had not created a giant enterprise. The ancient Foshan sauce gardens of the Qing and Republic eras were already substantial, but their reach was limited to the Pearl River system and overseas Chinatowns, while other regions were dominated by local brands.

The fundamental reason was production capacity limitations: traditional workshop-style production could not meet national demand.

Pang Kang recognized this early on and always emphasized that for traditional industries to develop, scale is key.

To achieve scale, in the 1990s, when Haitian had just a little capital, Pang Kang spent over 30 million yuan to introduce foreign production lines. In the new century, his investments grew larger: in 2005, he invested 1 billion yuan to build a 1-million-ton production base, and in 2014, another 1.5-million-ton base.

Currently, Haitian's overall production scale exceeds 2 million tons, covering 3,000 mu, leaving competitors far behind.

Of course, production alone is not enough; the millions of tons of products must be sold, requiring a large-scale distribution network.

By the end of 2016, Haitian's channels covered all 31 provincial-level regions, over 300 prefecture-level cities, nearly 1,000 counties, and 330,000 terminal marketing points. From Jiamusi in Heilongjiang to Tashkurgan in Xinjiang, and to Sanya in Hainan, Haitian products are everywhere. Moreover, Haitian products are exported to over 60 countries and regions, becoming a standard in overseas Chinese communities.

During the Qing and Republic eras, "where there are people, there is Haitian" was a poetic expression; now it has become a realistic description.

How does Pang Kang control such a vast channel network?

His methods are as follows:

First, he established a mid-level network of 1,500 distributors and 5,000 sub-distributors to oversee the 330,000 terminal points, and trained a special force of over 1,000 people to guide and manage these local lords.

When appointing these lords, he used a "two-horse carriage" system, setting up at least two distributors in each region to prevent rebellion and stimulate competition.

To further drive these lords, unlike many peers who set only an annual sales target, he broke down the annual target into monthly goals: 8% of the annual target for each month in the first half, and 9%-10% in the second half, keeping the entire channel network constantly active.

Finally, he adopted a policy of payment before delivery to avoid tying up his own funds. At the same time, he rarely occupied distributors' funds. Many peers encouraged distributors to stock up with high rebates, but Pang Kang was not keen on such tactics and offered few rebates. Without overstocking, distributors would not engage in cross-regional dumping or price disruption, stabilizing the entire system. Every 2-3 years, Pang Kang raised terminal prices to leave sufficient profit for distributors.

Through these four points, Pang Kang tightly integrated distributors into the Haitian system. In 2016, this system generated 12.4 billion yuan in performance.

Strong channels have created many star enterprises, such as Gree in air conditioning, Wahaha in beverages, and Hengan in tissue paper. Haitian has become the representative in the condiment sector.

Because building channels takes a long time, once established, they are hard for competitors to surpass, becoming a powerful core advantage. For example, media have been criticizing Wahaha in recent years for not keeping up with consumption upgrades, but its annual revenue remains above 50 billion yuan, still making it China's largest beverage company.

Of course, without product advantages, a company cannot stay ahead. Haitian's fortune lies in the mature product philosophy established by management led by Pang Kang.

3

Haitian's product philosophy is similar to Gree's: make one product the industry leader, then expand into related products.

Haitian's earliest product was soy sauce. After achieving first place in soy sauce, it added oyster sauce, and after oyster sauce became first, it added seasoning sauce. By 2016, these three categories accounted for 63%, 15%, and 15% of total revenue, respectively, totaling 93%. The remaining 7% came from products developed in recent years, such as vinegar, cooking wine, chicken essence, and fermented bean curd.

Pang Kang has been at Haitian for 36 years, and in 36 years, he has only developed a few products—truly "unambitious." Remember, Pang Kang, who joined Haitian in 1982, is a first-generation entrepreneur after reform and opening up. Most entrepreneurs of that generation were fascinated by diversification, admiring Jack Welch, the former GE CEO known for diversification. Even in recent years, figures like Jia Yueting, who played with ecosystems, have emerged.

In such an environment, it is very difficult for an entrepreneur to stick to one industry and a few products.

Only in recent years has public opinion shifted. Now people rarely mention Jack Welch, instead admiring Steve Jobs. Even tough guys like Sun Hongbin harshly criticized Jia Yueting, with the gist being: "Damn it, you say not one of your seven sub-ecosystems can be missing, but if you can do one well, that's already amazing!"

Behind the praise for specialization is a dramatic change in the competitive environment.

In the first 30 years of reform and opening up, product competition was still extensive. As long as a product was not too bad, it could be sold. Haitian, which focused on one product, had no obvious competitive advantage, and with its production capacity and channels not yet fully developed, it was not prominent at the time.

In the last decade, things have changed.

The 2008 financial crisis swept away weak enterprises like autumn wind sweeping leaves, while survivors worked to strengthen competitiveness in their main businesses. In recent years, consumption has entered an upgrade cycle, extensive competition has ended, and specialized enterprises like Haitian have been greatly rewarded.

From 2013 to 2016, Haitian's annual revenue climbed from 8.4 billion to 12.4 billion yuan, and net profit steadily increased from 1.6 billion to 2.8 billion yuan. While other manufacturing entrepreneurs complained, Pang Kang was quietly making big money.

However, some media have questioned Haitian's specialization strategy, claiming that over-reliance on soy sauce may become a bottleneck. They point out that the national soy sauce market is about 7 million tons, and Haitian's share is already 15%, leaving little room for growth. Soy sauce is not cola; marketing cannot easily boost sales.

Haitian management disagrees, arguing that the formal soy sauce market is about 7 million tons, with an additional 3 million tons from small workshops. Therefore, Haitian's market share is not 15% but 10.5%, which is not high—Japan's soy sauce king, Kikkoman, has a 31% market share!

They further point out that not only Haitian but the top five Chinese soy sauce companies together account for less than 30%, indicating low industry concentration.

It is expected that in the coming years, industry consolidation will be a major theme in the soy sauce sector, with small workshops and weak local brands being integrated, as the Bible's Matthew says: "For whoever has, to him more will be given, and he will have abundance; but whoever does not have, even what he has will be taken away from him."

In addition to integrating outdated capacity, Haitian has optimized its soy sauce product structure.

Initially, the ratio of high, medium, and low-grade soy sauce was 1:6:3. In recent years, this has been adjusted to 2:6:2, with a future target of 3:6:1. The price difference between high and low grades is significant: a 500ml bottle of high-grade soy sauce sells for over 7 yuan, while low-grade sells for under 4 yuan. The strategy of moving upmarket will significantly improve Haitian's profit margins.

Of course, management led by Pang Kang understands that the criticism is not entirely unfounded. Integrating outdated capacity may take a long time, and the space for product structure optimization is limited, especially since competitors in the high-end segment are formidable. Therefore, starting in 2011, they developed products like seasoning sauce, fermented bean curd, and vinegar.

Seasoning sauce is highly related to soy sauce in raw materials and processes, giving Haitian a huge advantage, so they produce it themselves. This product has grown the fastest, now contributing 15% of revenue.

For fermented bean curd and vinegar, which are not Haitian's strengths, they adopted an acquisition strategy. In 2014, Haitian acquired Kaiping Guangzhonghuang Food Company to enter the fermented bean curd field; in 2017, Haitian acquired Zhenjiang Danhe Vinegar Company to expand in the vinegar market. Given Haitian's favor in the capital market, it is likely to launch a series of acquisitions to grow other condiments.

Pang Kang's dream is to build the world's largest condiment production kingdom, achieving first place in all categories.

4

In 2012, Wang Yang, then Guangdong Provincial Party Secretary, visited Haitian and after touring the factory remarked, "There is technology in soy sauce; this is the competitiveness of transformation and upgrading."

It may be hard for outsiders to imagine that a soy sauce company has a research team of over 700 people, including postdoctoral researchers, external expert consultants, science and technology commissioners, and dozens of senior and intermediate engineers, with an average age of over 30. Additionally, the company has established long-term cooperation with research institutions such as the Chinese Academy of Sciences, Oxford University, and Sun Yat-sen University, undertaking multiple national-level research projects, and in 2014 received the "National Science and Technology Progress Award" second prize from the State Council.

Today, Haitian has obtained over 200 valid patents, setting a benchmark for the industry.

Take the production process of koji-making as an example.

The process of cultivating beneficial microorganisms for soy sauce fermentation is called koji-making. The quality of koji determines the yield and quality of soy sauce. Traditional workshops find it difficult to control koji because changes in the external environment can easily interfere with the growth of the strains. Haitian, relying on big data, has established a production standard that allows strains to grow controllably in constant temperature and humidity, greatly improving the yield of soy sauce and protein conversion rate, saving costs while enhancing the taste and nutrition of the final product.

While developing independently, Haitian also extensively introduces advanced foreign production lines and technologies to enhance its competitive advantage.

Haitian has introduced 10 automated fully enclosed production lines from Germany. Each line requires only four or five workers but can fill up to 48,000 bottles of soy sauce per hour, leading the industry.

More importantly, these lines avoid hygiene issues from manual contact, and with the production workshops implementing a 100,000-level cleanliness standard comparable to the pharmaceutical industry, Haitian is confident in food safety.

To enable headquarters to have an all-seeing control over the entire production and sales system, Haitian began establishing a product traceability mechanism in 2011. Through an intelligent packaging production line management system, as well as RFID and barcode recognition technology, data from each production line is aggregated to form a data information chain. With this chain, you can clearly understand which day, which production line, and which order each bottle of soy sauce was produced on.

Moreover, you can control production overall, monitor warehousing, and maintain equipment. A damaged small part can be easily traced at Haitian because the system will promptly issue an alarm.

Haitian's brand director Zhang Xin proudly said: "Currently, Haitian's intelligent production and lean management have set a new benchmark for China's condiment industry."

Through 36 years of continuous accumulation, Pang Kang has built extremely high competitive barriers for Haitian in production capacity, channels, and research. It is precisely with these barriers that Haitian today sits in a position to harvest the market and integrate others, becoming a big winner of the Matthew effect.

Thinking of this, the author's heart is at ease, no longer worrying about missing any windfalls—without competitive barriers that make opponents fear, no windfall is yours.

-END-