Recently, the Q3 financial reports of major listed companies were released one after another. Among them, half of the top ten condiment companies saw declines in both revenue and net profit. Haitian Flavoring's revenue decreased by 2.33% year-on-year, and net profit decreased by 7.25%; Zhongju High-tech's revenue decreased by 0.08% year-on-year, and net profit decreased by 403.89%; Fuling Zhacai's revenue decreased by 4.61% year-on-year, and net profit decreased by 5.34%; Hengshun Vinegar's revenue decreased by 2.60% year-on-year, and net profit decreased by 10.50%; Jiajia Food's revenue decreased by 4.28% year-on-year, and net profit decreased by 95.10%. As soon as these reports were released, many media outlets began to claim that condiments were not selling well. One media report mentioned the issue of high distributor inventory, and combined with the double decline in revenue and net profit of several leading companies, concluded that condiments were not selling. Is this really the case? Is it reasonable to judge that condiments are not selling based on these two dimensions? The author had a discussion with Mr. Li Feng, an expert with 28 years of experience in the FMCG industry, specializing in condiments and distributor management, and conducted an in-depth exploration and analysis of this topic. High Inventory First is the issue of high inventory. In the aforementioned media report, the journalist found during a field visit to a farmers' market that the condiments on the shelves were from the first half of the year or even earlier. The distributor interviewed also reported that the freshest Haitian products were from May or June, and that it was almost impossible to get products produced in September or October from Chubang or Qianhe, leading to the assumption that manufacturers were digesting inventory. Is this an isolated case or a common phenomenon? Mr. Li Feng told the author that high inventory has always been a core strategy for FMCG products in distribution channels. It is a rule and routine practice in the FMCG industry. This high-pressure state has persisted for many years and is not a recent phenomenon. The real reason is related to the manufacturer's management of distributor inventory systems. Distributors have been stocking up to meet targets, forming a "vicious cycle," but this does not mean that product turnover is slow, nor does it mean that condiments are not selling. Therefore, using high inventory as evidence that condiments are not selling is actually incorrect. However, it is worth noting that at the Q3 performance briefing, Pang Kang, Chairman of Haitian Flavoring, stated that the company's channel inventory at the end of Q3 had decreased compared to the end of Q2, and the company would continue to accelerate terminal sales to ensure channel inventory remains at a healthy level. Performance Decline Regarding performance decline, each company has different reasons. Analyzing the specific reasons one by one reveals that performance decline does not directly indicate that products are not selling. Starting with the industry leader, Haitian Flavoring's 2023 Q3 report shows a 2.33% year-on-year revenue decline. Mr. Li Feng explained that, first, in terms of distributors, Haitian's distributor count decreased by 397 year-on-year during the reporting period, leading to slight fluctuations in performance, which is normal. The market is in an era of stock, and as the condiment leader, Haitian is continuously optimizing its distributor structure, moving towards larger distributors. Short-term distributor turnover can lead to inventory issues. However, as Haitian's distributor structure stabilizes, inventory will gradually become rational. Second, Haitian's market share is very high, and sales have reached a certain bottleneck, with relatively limited room for growth. Additionally, due to last year's "dual standard" incident, Haitian suffered from "public opinion" impact. But because the leading enterprise's base is large enough, even with the above changes, Haitian's overall base remains stable, and slight fluctuations in revenue are within a reasonable range. Moreover, Haitian has not sat idly by; it has launched a counterattack with zero-additive products. Pang Kang once said: "Zero-additive condiments have maintained good growth. In the future, Haitian will further enrich its product matrix in zero-additive products, enhance product competitiveness, and strive for more incremental space." It is reasonable to speculate that in Haitian's performance, the zero-additive segment is definitely growing. Therefore, the decline in revenue in the financial report may also be related to increased investment and raw material costs. Mr. Li Feng predicts that based on Haitian's attention, financial support, and promotion efforts, it is only a matter of time before its zero-additive business surpasses Qianhe and becomes the number one in China's zero-additive segment, perhaps as early as next year... In summary, Haitian's performance decline is not sufficient to support the view that condiments are not selling. It is also understood that in 2022, Haitian's market share in the soy sauce sector reached 29%. As the largest condiment company in the Chinese market, its development status can, to a certain extent, reflect the development of the entire track. Then, let's look at the reasons for the declines of the other leading condiment companies. Zhongju High-tech's significant performance decline was mainly due to a major lawsuit from 20 years ago. Looking only at its condiment segment, the Meiweixian company did not see a decline; revenue actually increased by 4.21% year-on-year. Fuling Zhacai's decline was mainly due to rising raw material costs, and after several years of price increases, market acceptance was limited, affecting sales. Additionally, the company's strategic direction changed, with increased investment in category expansion. Hengshun's decline was mainly due to promotional activities to reduce inventory, optimizing poorly performing product categories, and internal management issues, with excessive reliance on diversification. Industry insiders sharply commented: "Main business is weak, too many side businesses." Jiajia Food's loss was mainly due to increased advertising and financial expenses during the reporting period, leading to higher sales costs, but market feedback still requires a certain period. It is not difficult to see that the performance declines of these leading condiment companies are more due to their own reasons rather than the condiment track being unviable. Of course, there is also the most important common reason for the performance decline of condiment companies: the rise in raw material prices. Since the end of 2019, the prices of important raw materials such as soybeans for soy sauce have risen significantly, and companies like Haitian and Jiajia have mentioned this in their financial reports. However, soybean prices are currently gradually falling, and prices of other soy sauce raw materials and packaging materials are also on a downward trend... Stable Overall Market The overall condiment market remains stable, and the overall performance is still positive. Taking soy sauce and vinegar as examples, as essential products, 50% of their volume is in the catering sector, about 30% in the household sector, and 20% in food processing. Since the beginning of the year, due to the lifting of pandemic restrictions, the reduction in household consumption of condiments is objective, but this year's tourism boom has driven the recovery and expansion of the catering sector. From January to October 2023, catering revenue reached 4,190.5 billion yuan, an increase of 18.5% year-on-year. Consumers who don't eat at home eat out, so it's just a shift in consumption scenarios, but in terms of overall capacity, condiments cannot be unsellable! Since the overall market is stable and total capacity is unchanged, if some companies see performance declines, naturally there will be companies that grow. In the disclosed 2023 Q3 reports, some companies delivered impressive results. Among them, Qianhe's revenue increased by 50.04% year-on-year, and Lotus Health's revenue increased by 22.77% year-on-year, with both companies' net profit growth in the triple digits. Qianhe seized the internet opportunity, and its long-practiced zero-additive concept quickly became popular, aligning with the trend of consumption upgrading where people pay more attention to quality of life. Lotus Health leveraged the internet trend of reviving old brands, and the revival of conscientious time-honored national brands, with netizens spontaneously defending MSG, led to a surge in sales of Lotus Health's main product, MSG. From financial data and market feedback, it can be seen that consumer demand for condiments has not decreased, and is developing towards zero-additive, nutritious, and healthy trends. Therefore, judging that condiments are not selling based solely on high inventory and performance decline is unfounded. As a traditional industry, the condiment market is stable with a solid foundation. Moreover, with the upgrading of consumption trends, condiments are developing towards diversification, nutrition, and health, and the overall performance continues to improve.