In 1995, with just one yogurt machine, two human-powered tricycles, and three rooms, Wei Lihua founded the dairy brand Junlebao in Shijiazhuang. At that time, there were over 40 dairy companies competing in Shijiazhuang alone. Lacking technology and reputation, Junlebao's yogurt couldn't sell and had to be destroyed. To open up sales channels, Wei Lihua led his employees to conquer small shops one by one: chatting with owners, helping with chores, until finally a shop agreed to display Junlebao products. To encourage consumers to buy their products, when competing with brands at the same price, Wei Lihua gradually opened up the market by giving consumers an extra exquisite cup. By 1997, Junlebao's sales exceeded 10 million yuan. In the following nearly 30 years, Junlebao successively leveraged the influence of Sanlu and Mengniu to push sales past 1 billion and 10 billion yuan respectively. Later, after parting ways with Mengniu, Junlebao set a higher goal for itself—striving to achieve 500 billion yuan in sales by 2025. According to Junlebao, the company has officially launched its IPO project, aiming to complete the listing by 2025. Thus, Junlebao began working towards its ambitious declaration: fully focusing on high-end, continuously expanding through mergers and acquisitions, integrating various local dairy enterprises nationwide, and actively preparing for the IPO. Now, a year after the IPO horn sounded, Junlebao, which is "carrying diseases" of low profits, high debt, and consumer complaints, still has a long road ahead.

Trapped in Low Prices Low prices are often a sharp blade that allows consumer brands to quickly increase volume and dominate. Frontline salespeople often have deep insights into this. In the process of dealing with customers, Zhang Le, a promoter responsible for Junlebao liquid milk at a supermarket in Gu'an County, has mastered a set of "universal" scripts. "If you see a customer ready to buy yogurt, tell them our yogurt is buy two get one free, it's a good deal!" "When you see a consumer picking up other products, quickly recommend Junlebao's zero-additive yogurt, inviting them to look at the clean ingredient list." "If the customer is hesitating between brands, say Junlebao has its own pasture and is a big brand." In short, try to get consumers to walk out of the supermarket with Junlebao products. This once made Junlebao one of the most frequently restocked brands in the liquid milk section. A stock clerk told the author that a 900-gram zero-additive yogurt selling for only 8.9 yuan, with a buy-two-get-a-small-storage-box promotion, sells best, "followed by Jianchun yogurt, which also has a good number of buyers, since the price is not high and it's suitable."

Image / 900g yogurt selling for only 8.9 yuan

At another maternal and child store, Junlebao milk powder occupies the best position on the display shelf. Salesperson Xu Jie is enthusiastically recommending Junlebao's milk powder, "Our milk powder is originally 389 yuan per can, but buying a box brings it down to just over 240 yuan. Among milk powders at the same price, this one is the best deal. If you don't buy today, that's fine; you can taste it for free, and we can also give you a small can to take home and try for your child."

Image / Junlebao milk powder available for free trial

Zhang Le and Xu Jie also admitted to the author that Junlebao's good sales are indeed related to low prices, "Nowadays, young people are more resistant to products with high cost-performance." However, cost-performance has contributed to Junlebao's sales, but it is also one of the obstacles it faces in its IPO.

Going back to 1999, Sanlu acquired 34% of Junlebao's shares through brand investment. From then on, Junlebao became a subsidiary of Sanlu producing liquid milk, and began producing and selling yogurt products under the brand name "Sanlu Junlebao." This also laid the groundwork for Junlebao's subsequent "low-price strategy." After the Sanlu incident, even though Junlebao had only made yogurt and had no milk powder business, and all its products passed inspection, some still called for its "euthanasia." Later, when Junlebao entered the milk powder industry, it faced even greater market pressure. At that time, Chinese people preferred to buy foreign infant formula. "After Junlebao's milk powder was launched, no one bought it, so they had to give it away for free, but consumers still didn't accept it; some used it to steam buns, others to feed cats." To rebuild consumer trust, Junlebao called itself the "price butcher" of the milk powder industry for a long time. In 2014, when Junlebao entered the milk powder industry, it became known for producing products at half or one-third of the normal market price. While this strategy helped open the market, it also limited the improvement of gross margins to a certain extent. Excessively low gross margins often indicate that a company's profitability faces significant challenges and can also make the capital market lose confidence in it. According to data published when Mengniu controlled Junlebao, in 2017 and 2018, Junlebao's revenue was 10.2 billion yuan and 13 billion yuan respectively, but net profit was only 225 million yuan and 379 million yuan. That is, Junlebao's net profit margin in 2017 and 2018 was only 2.2% and 2.9%. In comparison, Yili and Feihe's net profit margins in the same years were 8.82%, 8.11% and 19.68%, 21.55% respectively. Even after Junlebao "broke up" with Mengniu, Mengniu's CFO publicly stated, "Future acquisition targets must have a higher profit margin than Junlebao." The old owner's public declaration pointed directly to Junlebao's development problem—low profit margins. Clearly, how to balance cost-performance and high-end positioning has always been a problem Wei Lihua and Junlebao need to solve.

The High-End Path is Difficult Junlebao clearly recognizes the brand limitations brought by low prices. Therefore, in the past few years, high-end positioning has become one of Junlebao's breakthrough paths. High-end means higher prices, which opens up profit space and provides more ample resources for business development. On the other hand, it is more conducive to long-term brand development and can enhance brand value to a greater extent. In terms of products, Junlebao launched the high-end fresh milk brand "Yuexianhuo" in 2019. According to public information, by September 2023, Yuexianhuo had sold over 360 million bottles, with a unit price of 9.9 yuan per bottle, implying total sales of 3.564 billion yuan.

Image / Junlebao official Weibo

The success of "Yuexianhuo" further accelerated Junlebao's pursuit of high-end positioning. In May 2022, Junlebao released three milk powder products at once: Quanzhenai, Zhenweiai, and Xinlezhen, targeting the high-end milk powder market controlled by foreign and leading domestic brands. Last year, Junlebao favored Moyogurt, which is positioned as mid-to-high-end, and strategically invested in the brand, holding 30% of its shares. In addition, Junlebao has also made efforts in cheese, goat milk, and buffalo milk tracks. Even to promote its high-end image, Junlebao revealed that in the past decade, it has invested over 8 billion yuan in pasture planting and dairy cow breeding. In marketing, Junlebao's brand Jianchun became the exclusive title sponsor of "Singer 2024" and also announced itself as the official partner of China's top ten national teams. However, when impacting the high-end market, external competition is fierce, coupled with excess raw milk, competition among dairy companies is further escalating. Against this backdrop, Junlebao's high-end path is not easy. More and more leading dairy companies are emphasizing health labels and setting higher prices, using "no additives," "noble milk," and "high-end milk" low-temperature milk as the second growth curve for dairy companies. Mengniu Dairy established a fresh milk division and launched the brand "Meirixianyu"; Yili Co., Ltd. created the Jindian fresh milk brand, officially entering the low-temperature milk field; Nestlé also launched its first cold-chain fresh milk. By this year, new low-temperature yogurt products from established dairy companies such as Mengniu, Yili, Bright, and New Hope have also increased, with products featuring zero sugar, zero additives, probiotics, and other health concepts coming one after another. The low-temperature track also has many entrants. Lefresh was founded in 2014; in 2015, Xia Haitong, from Mengniu's low-temperature division, left to start a business and, with four other co-founders, established Pucheng Dairy, which had already targeted the high-end market and launched "Jianai"; in 2019, Genki Forest entered the yogurt market with the brand "Beihai Ranch"... As competition intensifies, the "promotion war" in the dairy industry has followed. Previously, a promoter told the author that brands are all fighting promotion wars. Both online and offline, you can see liquid milk, yogurt, milk powder, and other categories with price reductions and multi-buy discounts. "There are almost daily full-reduction promotions because distributors are cutting prices, terminal purchase prices are cheaper than before, and most series are on promotion." To boost sales, Junlebao's low-temperature yogurt still adopts many promotional activities, including buy-one-get-one-free and multi-bottle purchase discounts.

Image / Junlebao products on promotion

Junlebao's progress in impacting the high-end milk powder market is also not smooth. In the past two years, with the transition to new national standards, high-end milk powder has become the hardest hit area in this round of price wars, and more and more maternal and child stores are joining the "buy and give" army. To maintain an advantage in competition, Junlebao not only has to continuously invest large amounts of funds in product research and development and launch new products, but also needs to spend more effort on market promotion and sales, and these sales costs will further compress the company's gross margin. The high-end strategy that was already established has also been repeatedly impacted by price wars.

Buying Spree Leaves "Hidden Worries" Junlebao once revealed that its sales revenue in 2021 was 20.3 billion yuan. Although Junlebao is developing rapidly, doubling revenue to 50 billion yuan in four years is not an easy task. To break through, since parting ways with Mengniu in 2019, Junlebao has started a buying spree, expanding scale through mergers and acquisitions to prepare for the IPO. In 2021, Junlebao strategically invested in cheese product supplier Sikeqi; in 2022, Junlebao acquired shares of Laisi'er Dairy to strengthen its layout in the southwest region. In 2023, Junlebao's expansion pace further accelerated. According to public information, in 2023, Junlebao initiated at least 6 investment and acquisition deals—investing in cheese industry startup Luoshen Shijia, acquiring shares of Laisi'er Intelligent and Laisi'er Dairy, acquiring dairy manufacturer Yinqiao Dairy to further expand its influence in the northwest region, and strategically investing in yogurt brand Moyogurt and probiotic and lactic acid bacteria developer Yiran Bio. Regarding Junlebao's counter-cyclical expansion, dairy expert Song Liang once said that Junlebao is positioned as a large national dairy company, with existing performance scale and comprehensive strength second only to Yili, Mengniu, and Bright, ranking fourth in the industry. By investing in and acquiring mature regional dairy companies or brands, Junlebao can build its own production bases in target regions, thereby radiating to local markets, and in areas without suitable acquisition targets, it will build its own production bases. However, Junlebao's rapidly expanding business map has also left "hidden worries" for its debt ratio and business management. It is understood that the aggressive acquisition and expansion have led to a high debt ratio for Junlebao. As of December 31, 2022, Junlebao's unaudited financial data showed total assets of approximately 21.089 billion yuan, with estimated liabilities of 16.372 billion yuan, and a debt ratio of about 78%. In comparison, in 2022, Yili and Mengniu's asset-liability ratios were 58.66% and 57.52%, respectively, indicating that Junlebao's asset-liability ratio is significantly higher in the industry. Junlebao's debt ratio is much higher than that of leading A-share dairy companies, which may also increase the uncertainty of its IPO. However, in the view of Zhu Danpeng, a Chinese food industry analyst, since Junlebao was spun off from Mengniu not long ago and needs to make various layouts in a short period, a temporarily high debt ratio is relatively normal, "Just like New Hope also underwent large-scale mergers and acquisitions to expand its scale and brand effect. For the sake of higher gold content in the future listing, I think the high debt ratio is temporary and there is no problem." Zhu Danpeng told the author, "As a dairy company supported by the state, I am full of confidence in its future overall development." It is reported that in April 2019, the Hebei Province Dairy Industry Revitalization Leading Group issued the "2019 Hebei Province Dairy Industry Revitalization Work Plan," which also clearly stated "support Junlebao Dairy Group's main board listing and expand financing channels." In fact, one of the two buyers of Mengniu's shares—Penghai Fund—is backed by the Hebei State-owned Assets Supervision and Administration Commission. In March 2020, Junlebao Dairy added 4 institutional shareholders, 2 of which came from Hillhouse Capital and Sequoia Capital, and 1 had a background in central enterprises and Hebei Provincial Construction Investment. However, with policy support in front and the company's buying spree behind, the company has strong development momentum, but it also places higher demands on Junlebao's business management. It is worth noting that Junlebao has been involved in quality incidents multiple times. Recently, a netizen posted a video on social platforms showing black substances in Junlebao milk. Junlebao stated that after learning of the situation, it immediately contacted the consumer, actively communicated, and sent batch retained samples to a qualified third-party institution for testing, and the results were completely qualified.

Image / Related video on social platforms

But some consumers still do not accept it. Some say, "No wonder Junlebao is cheap." Others even wonder, "Can Junlebao still be drunk?" This is not the first time Junlebao has been involved in similar quality incidents. As early as July 2023, someone exposed black substances in its yogurt. As of the time of writing, on Sina Black Cat Complaint Platform, there are as many as 1,388 complaints about Junlebao, mainly involving milk powder deterioration, foreign objects in yogurt, false advertising, and expired products. Image / Junlebao continuously complained by consumers

As such, the effectiveness of the "going national market" strategy is still unknown. But one thing is clear: if food safety issues occur frequently, Junlebao may face the challenge of rebuilding consumer trust again.