---
title: "How Did the Hidden Champion of the Baking Industry Achieve a Market Value of 35 Billion and a 60% Net Profit Surge?"
description: "With low-end packaging, branding, and marketing, Taoli Bread's growth shows that seemingly low-end businesses often thrive. Over 25 years, from a small city in Dandong to 240,000 retail points, 5.6 billion in sales, and a 35 billion market value, the octogenarian Wu Zhigang has led Taoli Bread to defy business norms repeatedly. In an era of business failures, such occasional success stories are precious. When you think of bread, who comes to mind first?"
author: "黄晓军"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-06-14"
language: "en"
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---

# How Did the Hidden Champion of the Baking Industry Achieve a Market Value of 35 Billion and a 60% Net Profit Surge?

> With low-end packaging, branding, and marketing, Taoli Bread's growth shows that seemingly low-end businesses often thrive. Over 25 years, from a small city in Dandong to 240,000 retail points, 5.6 billion in sales, and a 35 billion market value, the octogenarian Wu Zhigang has led Taoli Bread to defy business norms repeatedly. In an era of business failures, such occasional success stories are precious. When you think of bread, who comes to mind first?

With low-end packaging, branding, and marketing, Taoli Bread's growth shows that seemingly low-end businesses often thrive.
Over 25 years, from a small city in Dandong beyond Shanhaiguan, it has grown to 240,000 retail points, 5.6 billion in sales, and a 35 billion market value...
The octogenarian Wu Zhigang has led Taoli Bread to break the theory of business insulation time and again.
In an era accustomed to business failures, such occasional success stories are precious.
When you think of the bread industry, who comes to mind first?
Panpan French Mini Bread, Sanhui Maifeng, Bread Talk, Paris Baguette... They are either regulars in TV ads or foreign brands with built-in traffic.
But when it comes to the rustic Taoli Bread, few people think of it first.
Even on China's leading brand data platform ChinaPP, this brand does not rank in fields like "Food & Beverage - Food - Bread."
But who would have thought that such a brand would create China's first bread stock and become the hidden champion in the short-shelf-life bread sector?
On April 15, Taoli Bread released its 2019 annual report: revenue of 5.644 billion yuan, up 16.77% year-on-year; net profit attributable to shareholders of 683 million yuan, up 6.42%.
The next day, the company's 2020 first-quarter report showed revenue of 1.323 billion yuan, up 15.79%; net profit attributable to shareholders of 194 million yuan, up 60.47% year-on-year.
The plastic packaging of rustic Taoli Bread, image/network material
Currently, Taoli Bread's market value is around 35 billion yuan.
**Listed companies in the baking sector, such as Yuanzu, Holiland, and Christine, have a combined market value less than a quarter of Taoli's.**
Seemingly low-end businesses often thrive.
**-01- Starting a Business at 60, Comparable to Zong Qinghou**
Zong Qinghou is a well-known entrepreneur in China's food and beverage sector.
At 42, he started a business with a tricycle, and with a wave of his hand, he established a united sales system, making Wahaha mineral water ubiquitous on the Qinghai-Tibet Plateau, second only to yak dung.
Taoli Bread has a similar entrepreneurial story.
Its founder, Wu Zhigang, was born in 1935 in Dandong, Liaoning. In 1995, at the age of 60, Wu retired from his teaching position at a silk institute. Instead of enjoying his golden years, he was inspired by the wave of reform and opening up.
He pulled his son Wu Xuequn, and the father-son duo decided to do something.
Once, while walking on the street, Wu saw someone arguing with a bakery owner because the bread tasted different.
It turned out that although there were many bakeries on the street, product quality was uneven, and most relied on additives to extend shelf life.
What if they set up a standardized factory to produce bread without additives, with a short shelf life, and a limited variety?
So they started.
In 1997, Wu Zhigang invested 300,000 yuan, and Wu Xuequn invested 103,000 yuan in cash and 97,000 yuan in fixed assets, totaling 500,000 yuan in registered capital to establish Shenyang Taoli Food Co., Ltd.
To ensure freshness, Wu Zhigang started delivery at 3 a.m. every day, ensuring all bread reached street-side stores by 6 a.m.
With this advantage, **within just two years, he became the largest bread producer in Dandong.**
Compared to Zong Qinghou, who is still active in the industry at over 70, Wu Zhigang, now 85, also serves as chairman of Taoli Bread.
But now, due to his advanced age, Wu no longer handles frontline business.
In early 2019, while simulating a reduction of his shareholding, this elderly man mistakenly executed a "sell" order as a "buy," purchasing 7,200 shares of the company's stock, nearly causing insider trading.
From starting a business at 60 to the fat-finger error at 85, we see the aging of a generation of entrepreneurs.
But what interests us more is how this bread producer with 500,000 yuan in registered capital, located in Dandong, Liaoning—where investment is said not to cross Shanhaiguan—grew into a hidden champion in the baking industry with a market value of 35 billion yuan?
After witnessing business failures, such occasional success stories are precious.
**-02- Replicating the Dandong Experience Nationwide**
In the early days, Taoli Bread did not advertise; its biggest feature was no additives.
This made this small brand stand out among breads that relied on additives to extend shelf life.
But additive-free short-shelf-life bread typically has a shelf life of 7-9 days in winter and 3-7 days in summer. This shelf life inherently limited Taoli's regional expansion.
In this field, four main business models prevail:
**First, individual operation and self-baking.**
This model is common; even now, we can see such small workshops among individual businesses in townships.
**Second, factory semi-finished products sent to stores for final processing.**
Brands like Yuanzu and 85°C use this model. They open stores in commercial centers, factories produce semi-finished products, transport them to stores, and staff do secondary processing based on consumer needs.
Currently, new-style tea drinks like Heytea and Naixue also use this model, positioning themselves relatively high-end.
**Third, pure online model.**
Happy Cake, Nuoxin, 21CAKE, etc., do not have stores in each city; instead, consumers order online, satellite factories produce, and third-party logistics deliver.
**Finally, the "central factory + wholesale sales" model.**
This is favored by traditional industry giants. The advantage is that the central factory produces directly, then wholesales to distributors, and finally reaches terminal channels like supermarkets and mom-and-pop stores.
Generally, the distribution range of a central factory varies by product. Beverage companies like Nongfu Spring and Wahaha use a similar model, with several production bases nationwide.
Taoli Bread also uses this model. Its biggest advantage is that once the model is validated in one city, it can be replicated on a large scale in other cities.
After becoming the largest in the Dandong market, Taoli Bread established a new factory in Dalian in 1998.
Again, delivery started at 3 a.m. daily, ensuring all bread reached street-side stores by 6 a.m.
The exception was that Wu Zhigang did not hand this market to distributors but managed it himself. In his view, if distributors added layers of markup, Taoli Bread would lose its cost-performance advantage.
Models are rigid, but people are flexible. Wu, a former teacher, was accustomed to drawing inferences. By modifying just one link in the "central factory + wholesale" model, Taoli Bread's gross margin exceeded 35%.
Schematic of Taoli Bread's central factory model, image/company report
Among comparable listed companies using the "central factory + wholesale" model, Kemen Noodle's gross margin is less than 25%, and even Sanquan Food is only around 30%.
Starting from the new central factory in Dalian, Taoli Bread had built 18 central factories by the end of 2019.
To ensure cost-performance, Wu still kept most markets under self-operation, only handing small customers like mom-and-pop stores to distributors.
As of December 31, 2019, Taoli Bread had established over 240,000 retail points nationwide and formed stable cooperation with large KA chains like Yonghui, China Resources Vanguard, Carrefour, Walmart, and RT-Mart.
**-03- Premium Route Amid Capacity Issues**
The central factory model also reveals a problem: in areas not covered by factories, Taoli Bread finds it difficult to distribute.
Consequently, the company's growth relies relatively on factory construction and capacity expansion.
From the prospectus, we can see that Taoli Bread's capacity utilization was almost always around 90%.
Note that the international standard is that capacity utilization above 90% indicates insufficient capacity.
Taoli Bread's capacity utilization before listing, image/company report
To alleviate capacity issues, streamlining SKUs may be the only way.
The financial report shows that Taoli Bread currently produces and sells mainly bread and pastries, supplemented by traditional festival products like mooncakes.
**Bread is the company's leading product, accounting for over 97% of operating revenue during the reporting period.**
For over 20 years, Taoli Bread has adhered to a strategy of fewer but better products, never exceeding 5 bread series and no more than 30 products in total.
Among them are star products like red bean paste buns, Chunshu, natural yeast, and hand-torn bread. As early as 2016, sales of Chunshu and natural yeast reached the 100-million-yuan level.
According to Euromonitor 2019 data, Taoli Bread holds an 11% share in the fermented bread market and a 26.4% share in the packaged bread market.
Following behind are Dali, Panpan, Bimbo, and Mankattan, with a significant gap.
Premium products focus on quality control and R&D.
First, quality control:
The biggest quality control for product sales is the factory.
In traditional companies, production and sales have unspoken conflicts of interest, which is a main reason for internal discord and chaotic upstream/downstream management.
To break this pattern, Taoli Bread makes every employee an owner of the company.
As early as 2009, the company increased capital and issued shares to 129 key employees in cash.
Since then, the company's shareholder list has included factory managers, directors, accountants, logistics supervisors, quality control staff, etc.
From management to frontline employees, Taoli Bread's shareholders cover all levels of the company. This alone ensures everyone cares about quality and contributes to development.
Besides factory quality control, Taoli Bread also ensures quality control at the channel level.
It is reported that Taoli Bread's terminal delivery cycle is daily, and expired products are even recovered.
In contrast, most other bread brands have a delivery cycle of 3-4 days per visit. Consumers can naturally taste the difference in freshness.
Second, R&D is quite interesting:
In 2019, Taoli Bread's R&D expenses increased by 56.49% year-on-year, but only accounted for 0.15% of revenue.
Not doing marketing, and not even doing much R&D?
This is indeed the case in the bread sector. For such a daily food that individual businesses can make at home, investing heavily in R&D might be misguided.
In 2018, Taoli Bread launched a "dirty bread" following the internet-famous "dirty bun," which became a hit.
Securities Daily reported that the new dirty bread showed rapid growth, further enhancing the comprehensive competitiveness of Taoli Bread's products.
For a new product, Taoli Bread typically has a six-month trial period.
Through pilot sales, they collect and analyze sales data and customer feedback, allowing lagging products to exit promptly. New products are piloted in one region for 4-6 months, and once mature, they are replicated in other regions for promotion.
It's the same validation and replication approach.
**-04- The Siege from Dali**
In terms of scale, Taoli Bread is already China's number one short-shelf-life bread brand.
As early as 2015, in an industry where handcrafted workshops accounted for 58%, Taoli Bread's market share reached 10.5%.
But if Taoli Bread continues at its 25-year pace, it would need 8-10 years to cover the 700,000 existing retail points nationwide.
**During this process, if food giants like Wahaha, Nongfu Spring, or Dali enter this field, it could be a major threat to Taoli Bread.**
For example, in October 2018, Dali launched its short-shelf-life bread product Meibeichen, which includes 5 series and 28 products.
In 2019, Meibeichen aggressively promoted in markets like Beijing, Fujian, and Northeast China, and Taoli Bread began to struggle.
That year, the latter's bread and pastry inventory increased by 54.49% year-on-year.
Taoli Bread's 2019 inventory situation, image/company report
Poor sales were more due to changes in the original return policy.
According to Zhongfangwang Finance, Taoli Bread added a condition to deliveries—merchants had to determine accurate order quantities based on their sales; if products were not sold in time, Taoli Bread no longer accepted returns.
Previously, Taoli Bread would restock stores and promptly recover near-expiry products.
"Now, with this new rule, we dare not order," said a community supermarket manager.
This gave Meibeichen an opportunity.
The trouble was directly reflected in the data. In 2019, sales expenses reached 1.228 billion yuan, up 23% year-on-year, far exceeding revenue growth.
According to a report by New Consumption, the new media of China Business Journal's FMCG chain section, Taoli Bread's sales expense ratio increased from 14.04% in 2015 to 21.76% in 2019.
Taoli Bread's sales expense ratio since 2015, image/New Consumption, Caishuo
Among these, store expenses were the most prominent. In 2019, this expense reached 133 million yuan, up 66% year-on-year.
These expenses mainly consist of sales rebates, promotional service fees, and new product entry promotion fees.
New Consumption commented: The substantial increase in Taoli Bread's store expenses essentially means increased promotional efforts. Despite such vigorous promotions, profit growth was only single-digit, suggesting the company's expansion is not going smoothly.
Every family has its own problems, and hidden champions are no exception.
On the road to commercial expansion, how can it be smooth sailing? In the first 25 years, which are hard for us to explore, how many opponents like Dali did Taoli Bread encounter? We don't know.
But according to data, by 2021, sales in Taoli Bread's market are expected to exceed 840 billion yuan.
**This market can accommodate 150 Taoli Breads, and a few more Dalis would not hurt.**
For Taoli Bread and Dali, their biggest opponent is not each other, but expanding the boundaries of this 840 billion yuan market.
Source: New Business Reference (ID: xinshangye2016) Author: Huang Xiaojun


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