More and more companies are crossing into the beverage industry, but Evergrande's Biying has halted production, and Jiangzhong's beverage inventory remains unresolved. In an industry where even Master Kong struggles, these outsiders should stay out.

Jiangzhong Needs Urgent 'Digestion'

After crossing over, Jiangzhong Group has not been smooth sailing. At least in the beverage sector, it needs to be properly digested.

"The goods are gone, and the money hasn't been paid," Lin Nan (pseudonym) told New Finance Observer reporters. The goods he refers to are the Hougu (monkey head mushroom) and Langu (blueberry wolfberry) beverages that were stored in his warehouse.

In early 2015, seeing that the Hougu biscuit market was still promising, Lin Nan signed an agreement with Jiangzhong Shiliao Technology Co., Ltd. (hereinafter referred to as Jiangzhong Shiliao), binding both parties. Thus, he naturally became a distributor for Jiangzhong Shiliao in a certain region for 2015.

Lin Nan said that at the time, he thought Jiangzhong Shiliao was a subsidiary of Jiangzhong Group, a powerful large state-owned enterprise. During negotiations, the other party promised that "all unsold goods would be handled by the company to the end, and we would not let you suffer losses." But now, with April approaching, the inventory has been cleared, but the company still hasn't paid for the goods. He has negotiated multiple times with the regional manager, but each time he was told to "wait for the company to issue a unified policy to resolve it," and then there was no follow-up.

At that time, Lin Nan, following Jiangzhong Shiliao's performance requirements, had shipped nearly 400,000 yuan worth of goods by May 2015. However, after the product was placed in retail outlets, market performance was poor, leading to sluggish sales and distributor inventory piling up. "So, starting from August or September last year, the company began using the JieDaiBao platform to digest distributor inventory."

"Although the company's initial intention in cooperating with JieDaiBao may not have been to handle inventory, at the time, it was a good way for the company to help distributors clear inventory, and it was being implemented nationwide," Lin Nan said.

Lin Nan's company managed to clear over 300,000 yuan worth of inventory, but the payment for these goods has still not reached Lin Nan. Lin Nan said that because JieDaiBao counts as "centralized procurement," achieving "sales" through this method actually only fetches at most 80 yuan per box, 35 yuan lower than the ex-factory price. Even if the company reimbursed distributors at this price, they would still lose money, let alone not seeing the money at all.

In other words, in 2015, Lin Nan not only didn't make money, but he hasn't even recovered the funds from clearing inventory. "In five years of doing beverage business, this is the first time I've encountered such a situation," he said. He said his biggest fear now is that the company will compensate him with a batch of new products at a discounted price. Logically, as a beverage distributor, he could continue selling these products, but after 2015, he has lost confidence in Jiangzhong Shiliao's products. Moreover, this year he hasn't signed a cooperation agreement with Jiangzhong Shiliao and no longer wants to cooperate.

Similarly, a Beijing distributor of Jiangzhong Shiliao had basically the same experience as Lin Nan. The difference is that, like Jiangzhong Group, he crossed over into beverages and lost money on his first attempt.

"Some distributors still have inventory and can't find anyone from Jiangzhong to resolve it. No one is paying, and there are no new products. If I had a choice, I would want the hundreds of thousands of yuan from clearing inventory," the distributor lamented.

"A distributor I know bought 3,000 boxes each of the two products in the first half of 2015 and still has inventory. The category hasn't been cultivated well, and the barriers are too low," a professional manager in the FMCG industry in Northeast China told New Finance Observer reporters.

"It's quite bad; they've been dealing with near-expiry products all along," said a veteran FMCG practitioner, commenting on the performance of Jiangzhong Shiliao's two beverage products in the Henan market. In his view, for products launched at the end of 2014, it's basically difficult to see significant improvement now.

The Pain of Crossing Over

According to the aforementioned distributor, among his peers, the highest amount for inventory clearance alone reached one million yuan, and there are nearly 600 such distributors nationwide, involving nearly 200 million yuan. This is also an important reason why the regional manager has been dragging his feet.

Data shows that Jiangzhong Pharmaceutical, the listed company under Jiangzhong Group, had a net profit attributable to parent company shareholders of only 265 million yuan in 2014.

"Can't afford to delay" is a common concern for Lin Nan and others. However, Jiangzhong Shiliao also can't afford to delay.

Jiangzhong Group crossed over into the food and beverage industry in 2013, starting with Hougu biscuits and later Hougu and Langu beverages, all of which have been questioned for their "functional" claims.

"The biscuits are okay, but beverages have their own rules. Simply put, the beverage industry is too competitive. A 310ml can selling for 8 yuan—if it's positioned as a gift, Jiangzhong Shiliao hasn't refined that concept; if it's an ordinary drink, it doesn't constitute a reason for consumers to make repeat, high-frequency purchases," said the aforementioned FMCG insider.

Worse, Jiangzhong Group, which crossed over into beverages, lacks the talent to operate high-end beverages. People poached from major beverage companies couldn't reach a consensus due to their different backgrounds, so an unsound marketing system and non-standard management have become Jiangzhong Shiliao's weaknesses.

These issues can be glimpsed from the inventory handling process.

"For other brands, new product shipments generally don't exceed 500 boxes. On one hand, we don't have inventory and capital pressure; on the other hand, the market can gradually accept them, and even if there are problems, adjustments can be made at any time. But Jiangzhong Shiliao pays the closest attention to distributor inventory, pressing it down hard. Some goods, once stored in the warehouse, basically don't move. Additionally, with other brands, when there's inventory, the manufacturer and distributor share the losses, and the company helps clear slow-moving items, with payment returning to us promptly. But Jiangzhong keeps delaying. Some distributors are also burdened with bank loans and have to pay interest to the bank every month," Lin Nan said.

In his view, the biggest problem with Jiangzhong Shiliao is treating new products like mature old products. Regardless of whether Jiangzhong Shiliao's attitude and methods in doing beverage business are correct, the immediate problem it must solve is how to properly handle the outstanding inventory payments owed to some distributors, as well as the products approaching their expiry dates in the market. "Otherwise, its beverage market in 2016 will also be affected," said the aforementioned professional manager.

Jiangzhong Group did not respond to interview requests regarding the outstanding payments to distributors. In its view, "This is not only a commercial secret, but verifying the data takes time, and more importantly, the relevant person in charge is on a business trip."

Source: 纳兰醉天

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