Author: Qi Minqian Source: Shijie (ID: ishijie2018) Despite being labeled as a "dowry" or "sellout," the partnership with Tiandi No.1 fulfills a dream for Zhu Xinli. The problem is, while Zhu Xinli was looking for a "white knight," the juice industry had already changed. Huiyuan Juice has always had a paradoxical sense of disconnection. Whether in terms of market share or consumer recognition, Huiyuan Juice is the No.1 in China's medium and high concentration juice market. Yet in recent years, it has been busy laying off employees and selling assets. To save itself, even the "Huiyuan" trademark is now being injected into a new company established with Tiandi No.1 and Hezhi Investment. Many still remember the grand scene when Huiyuan Juice was listed in Hong Kong in 2007. At that time, Huiyuan set a record for the largest IPO on the Hong Kong Stock Exchange, with its stock price rising 66% on the first day, and its market value once exceeded HK$31.3 billion. It seems like it happened just yesterday. Zhu Xinli has worked tirelessly to maintain Huiyuan, even managing to escape unscathed from the Delong crisis back then. Now, with the partnership with Tiandi No.1, can he lead Huiyuan through the current crisis? The Juice King Who Loves Farming Although Zhu Xinli, the founder of Huiyuan, is a nationally renowned entrepreneur, he still loves farming due to his peasant background. In 2008, at the age of 56, he had been running the Huiyuan Group for 16 years. The arduous entrepreneurship made him consider "retirement." He complained to the media, "Running Huiyuan is truly hard work; there is nothing harder. For 16 years, I have never had a single Sunday or Spring Festival off. I have never rested properly." Zhu Xinli has both a son and a daughter. In traditional Chinese thinking, after a father retires, his children should take over. However, his son has no interest in corporate management; his daughter is already a wife and mother, and he cannot bear to let her devote herself entirely to the company like he did. Zhu Xinli was tired. He was determined to sell the listed company Huiyuan Juice to Coca-Cola. His idea at the time was: Coca-Cola would help sell the juice, while he would focus on the fruit business. Huiyuan's concentrated juice and jam would be the sole global supplier to Coca-Cola. Zhu Xinli thought, "If the acquisition succeeds, I would immediately enter over 100 countries with them. It would be very difficult for me to do it alone; even in 10 years or a lifetime, I could not enter these 170-plus countries." (Note: Compared to Huiyuan Juice, Zhu Xinli preferred the upstream agriculture and fruit business.) Unfortunately, this seemingly win-win acquisition was prohibited by the Ministry of Commerce due to monopoly concerns. Since then, Huiyuan Juice has been in decline, with its stock price plummeting and consecutive years of losses. As long as Huiyuan Juice remained in his hands, the Huiyuan Group had to continue investing in channels and sales, areas where it was not strong, and Zhu Xinli's dream of focusing on "farming" had to be shelved. Fortunately, after ten years of waiting, Huiyuan, which had failed to "marry" Coca-Cola, finally found its "ideal match." On April 26, Huiyuan Juice, which had been suspended for over a year, announced that it would establish a new company with Tiandi No.1 and Hezhi Investment. Huiyuan Juice would contribute assets worth 2.4 billion yuan to the new company, holding a 40% stake. This 2.4 billion yuan includes the registered trademark of "Huiyuan." After the establishment of the joint venture, it would also purchase 3 billion yuan worth of Huiyuan Juice's assets, equity, and channels. Huiyuan would provide pulp, concentrated juice, and OEM production services to Tiandi No.1 and the joint venture. The announcement caused a stir in the market. People were amazed that the "national juice" brand's "buyer" was not the well-matched giants like Yili or Wahaha, as rumored, but Tiandi No.1, a little-known NEEQ-listed company. Facing this outcome, Zhu Xinli might feel helpless or even unwilling, but in any case, he can finally catch his breath. If the cooperation goes smoothly, Huiyuan will receive 3 billion yuan, temporarily alleviating its debt pressure, while weakening its channel sales and shifting to upstream planting and processing, which Zhu Xinli has always wanted to do. After the dust settles, rather than lamenting the tragic story of the "juice king selling out," the market should focus on how Huiyuan got to this point and whether partnering with Tiandi No.1 can truly save it. Huiyuan Juice "Squeezed Dry" Looking back at recent years, Huiyuan Juice lent 4.3 billion yuan to related companies without board approval or contracts. Despite appearing generous, Huiyuan Juice itself was heavily in debt and unable to save itself. Since its listing, Huiyuan Juice has grown larger, but its core business has been loss-making almost every year, and Zhu Xinli's hair has turned grayer. From 2009 to 2016, Huiyuan Juice's revenue increased from 2.85 billion yuan to 5.76 billion yuan, but its net profit peaked at around 300 million yuan. In 2014 and 2015, it recorded net losses of 130 million yuan and 230 million yuan, respectively. Worse, a significant portion of Huiyuan Juice's profits came from government subsidies and asset sales. From 2011 to 2016, Huiyuan Juice's "other income" was 260 million, 280 million, 340 million, 110 million, 220 million, and 145 million yuan, respectively. In its annual reports, the company stated that other income mainly consisted of government subsidies. For example, in 2013, Huiyuan Juice's net profit was 230 million yuan, which included 340 million yuan in other income and 430 million yuan from the disposal of Chengdu and Shanghai factories. Therefore, the company's non-GAAP net profit was even worse. From 2009 to 2016, over seven years, Huiyuan Juice only had a net profit of 24.5 million yuan in 2010; all other years were loss-making. Among them, 2014 had the largest loss of 580 million yuan. That's not all; Huiyuan also had huge debts. As of December 31, 2017, Huiyuan Juice's total liabilities were 11.4 billion yuan, with a debt-to-asset ratio of 51.8%. This debt ratio was not the highest in the industry, but of the total liabilities, 8.4 billion yuan were borrowings from banks, corporate bonds, and financial leases. Borrowing money incurs interest. From 2014 to 2017, Huiyuan Juice's interest expenses were 300 million, 310 million, 350 million, and 550 million yuan, respectively. With its core business not making money and heavy debts, Zhu Xinli had to roll over old debts with new ones and dispose of assets. Ten years ago, Coca-Cola offered HK$17.9 billion to acquire Huiyuan Juice; now, Huiyuan Juice's market value is only HK$5.4 billion. In April 2018, the Hong Kong Stock Exchange dealt another heavy blow to Zhu Xinli. Huiyuan Juice was ordered to suspend trading because it provided nearly 4.3 billion yuan in irregular loans to related companies. Two months later, the Hong Kong Stock Exchange listed conditions for resumption, requiring Huiyuan Juice to conduct a strict self-inspection to prove management integrity, publish the missing financial results, and explain audit revisions. However, a year has passed with no progress. Huiyuan Juice still has not published its results, nor has it provided an explanation for the irregular loans. According to Hong Kong Stock Exchange rules, if Huiyuan Juice fails to meet the resumption conditions by January 31 next year, the exchange will initiate delisting procedures. On May 7, Huiyuan Juice announced that trading would continue to be suspended. The long-delayed 2017 annual report, 2018 interim report, and 2018 annual report were only mentioned in one sentence: "The company will endeavor to publish them as soon as practically possible." Huiyuan, burdened by deep-seated problems, has been pushed to the edge of a cliff. How Did It Come to This? People don't understand how Huiyuan Juice, with its brand and market, still cannot make money. Wang Fei worked at Huiyuan for several years. In his view, the biggest problem lies in management. The arbitrariness of company policies was the hardest thing for him to bear. "Have you ever seen a company modify its performance appraisal method every quarter or even every month?" Wang Fei complained to Shijie. In his view, this arbitrariness in policies makes employees lack a sense of purpose, destabilizes the team, and consequently leads to market instability. The personnel turmoil at Huiyuan Juice is also evident from its annual reports and announcements. From 2011 to 2017, the number of employees at Huiyuan Juice first dropped from over 10,000 to over 7,000 in two years, then surged from over 7,000 to over 17,000 in just one year from 2013 to 2014. The 2016 annual report shows that Huiyuan Juice had 4,266 employees, a decrease of 13,470 from 2014. Huiyuan Juice's executives were also unstable. Since January 13 this year, six executives have left, including CEO Wu Xiaopeng, who had only been in office for seven months. A team with such drastic personnel changes is likely to lack long-term strategic planning, expanding aggressively in good times and contracting sharply in bad times, laying off employees. Huiyuan's management has been criticized many times. In past media reports, people generally attributed Huiyuan's management problems to the ills of family businesses and Zhu Xinli's absolute authority within the company. But in Wang Fei's view, that is not the case. He believes that the root cause of Huiyuan's problems lies in excessive decentralization of power. Huiyuan implements an amoeba management model, where factories and regions are independently accounted for and operate independently, leading to poor coordination between production and sales. "For example, some equipment can produce tens of thousands of boxes at a time, but some factories do not start production until orders are accumulated. This leads to the market waiting for production, rather than production meeting market demand." He also told Shijie, Huiyuan Juice's product development and packaging design are decided by factories, and factories and sales operate independently, making coordination difficult, ultimately leading to poor market insight and difficulty in making profits. Before leaving, Wang Fei was a sales employee in a region of the southern market for Huiyuan Juice. Through contact with distributors, he gradually realized that, at least in the southern market, Huiyuan Juice was a company with "a brand but no service." After delivering goods to distributors, the company was relatively poor in follow-up promotional strategies, distribution, and after-sales service. Objectively speaking, Huiyuan Juice is the undisputed leader in domestic juice in terms of quality and consumer recognition. Therefore, its product sales are strongly driven. However, the internal and external problems caused by management issues have ruined a good hand. Rome wasn't built in a day. If Zhu Xinli wants to revive Huiyuan, he must take drastic measures and undergo painful reforms. Turning Point Zhu Xinli is a smart man. He has a keen sense of smell and unique vision. He knows his company's strengths and weaknesses well and wants to form alliances to complement each other, but unfortunately, he has been a bit unlucky. The first partner, the Delong Group, almost tricked him. In 1997, Huiyuan Juice, which had just started its business in Beijing, spent 70 million yuan to win the bid for a 5-second advertisement slot during the 1997 CCTV News Broadcast. It was this "sky-high" advertisement that made Huiyuan a household name in China. The aggressive development strategy led to a cash crunch around the turn of the millennium. At that time, the Delong Group was at its peak, with assets exceeding 120 billion yuan. In 2001, Zhu Xinli approached Tang Wanxin of the Delong Group, and they hit it off, jointly establishing Beijing Huiyuan. Just as the cooperation was in full swing, the Delong crisis emerged. By the end of 2002, Tang Wanxin had borrowed a total of 380 million yuan from Huiyuan. Zhu Xinli, who had hoped to ride on the Delong Group's coattails, never expected Beijing Huiyuan to become their cash machine. Fortunately, Zhu Xinli later raised 530 million yuan in cash to buy back Beijing Huiyuan, becoming the only company to escape the Delong crisis unscathed. Zhu Xinli always knew that Huiyuan Juice was not good at channels and sales. He had long wanted to offload Huiyuan Juice. To that end, he had approached Uni-President Group and Coca-Cola, hoping to use their channel resources or let them handle the channels while he transformed into a raw material and product supplier. However, both times, he was a bit unlucky. The cooperation with Uni-President Group fell through because Taiwanese authorities stipulated that Taiwanese companies' investment in mainland China could not exceed 40% of their net capital. The cooperation with Coca-Cola was thwarted by the Ministry of Commerce's antitrust ban. Now, with Tiandi No.1 entering, Huiyuan can finally hand over its troublesome channels and sales to them. Chen Wei, a beverage industry expert and senior partner at Levitt Brand Consulting Co., Ltd., believes that Tiandi No.1 has rich experience in channels and marketing, and is very likely to bring a turning point to Huiyuan Juice. He told Shijie: "Tiandi No.1 has experience in operating high-end products, and the company itself has restaurant channels. In terms of omni-channel operations, it is not weaker than Huiyuan. Huiyuan's advantage lies in upstream and industrial chain construction." In fact, similar "cooperations" are common in the beverage industry. A few years ago, Zhu Xinli mentioned a detail in a media interview. At that time, when Coca-Cola wanted to acquire Huiyuan, the Ministry of Commerce approached another industry leader to ask for his opinion. This leader unhesitatingly voted against it. Later, when discussing this with Zhu Xinli, the leader said, "Of course I don't agree with your cooperation. If you two cooperate, what will I do?" Zhu Xinli said that later, when this leader's company wanted to cooperate with PepsiCo, the Ministry of Commerce asked for his opinion, and he readily supported it. If not mistaken, this leader should be the boss of Master Kong. When Pepsi's business in China was struggling, it signed an agreement with Master Kong, exchanging 9.5% of Master Kong's beverage equity for all rights to Pepsi's non-alcoholic bottling business in China, while Pepsi focused on its potato chip business. Similarly, when Starbucks first entered the Chinese market, it handed over the operation rights of the East China market to Uni-President Group. Huiyuan Juice's "sellout" to Tiandi No.1 is essentially no different from the above two cases. In business, it's all about each taking what they need. Huiyuan needs money, and Tiandi No.1 needs to expand northward and diversify its categories, so they hit it off. Despite being labeled as a "dowry" or "sellout," the partnership with Tiandi No.1 fulfills a dream for Zhu Xinli. The problem is, while Zhu Xinli was looking for a "white knight," the juice industry had already changed. Huiyuan Juice's main products are ambient-temperature juices. With changing consumption habits, low-temperature juices with short shelf life are now more popular among consumers. Although Huiyuan Juice launched low-temperature juices in 2015, the shelf placement in convenience stores shows that the dominant players in this field are Wei Chuan and Nongfu Spring. Note: Low-temperature juices on convenience store shelves Revitalizing Huiyuan Juice is a long and arduous task for Tiandi No.1. Currently, the two sides are evenly matched and in a "cooperative relationship." If Tiandi No.1 develops well, will it completely swallow Huiyuan Juice like a snake eating an elephant? The future of Huiyuan Juice is uncertain. How can Zhu Xinli ensure that his upstream development will go smoothly? In the most prominent position in the Huiyuan Group office building, there is a poem that perhaps reflects the life Zhu Xinli yearns for most. The distance should be a mountain of flowers and fruits A place with birds singing and flowers fragrant Where flowers are bright and fruits are fragrant In my heart, the distance should be a paradise Fresh air, colorful fruits, and nutritious juice People are not so tired, nor always so busy "The Distance" - by Zhu Xinli When he started his business in 1992, Zhu Xinli proposed the corporate spirit of "diligence, pragmatism, efficiency, and innovation." After years of hard work, Zhu Xinli has hardly rested on any holiday or weekend, spending every New Year's Eve in the workshop with his employees. Now, Zhu Xinli is tired. Can he still have the countryside and distance he yearns for, as he wrote in his poem? At the request of the interviewee, Wang Fei is a pseudonym. If the tip is adopted, a reward of 400-2000 yuan will be paid. China FMCG + Internet Professional New Media Dedicated to FMCG manufacturers' transformation, upgrading, and channel digitalization solutions