Click on the image to register for participation Introduction In June 2017, Keming Noodles acquired 100% equity and creditor's rights of Wugu Daochang for a total of 106 million yuan, renaming it Keming Wugu Daochang Food Co., Ltd. According to the company's latest financial report, operating profit in 2017 declined sharply, with a loss of 10 million yuan in the first year of acquisition! Latest public data shows that after the acquisition by Keming Noodles, Wugu Daochang was renamed Keming Wugu Daochang Food Co., Ltd. In 2017, the company achieved total operating revenue of 2,269,383,100 yuan, an increase of 4.89% year-on-year; operating profit of 146,803,700 yuan, a decrease of 9.36% year-on-year; total profit of 150,130,900 yuan, a decrease of 12.84% year-on-year; net profit attributable to shareholders of the listed company of 112,675,200 yuan, a decrease of 17.79% year-on-year. Revenue increased, but profits declined sharply, and Keming Noodles lost 10 million yuan in the first year of acquiring Wugu Daochang! In response, Keming Noodles stated that the main reasons for the increase in operating revenue were:
The company's management adhered to brand building, promoted the sales of high-end branded noodles, and sales revenue grew steadily;
The acquisition of Wugu Daochang was completed, and its operating revenue was included in the consolidated financial statements. Keming Noodles explained the main reasons for the decline in profits:
In the current period, the acquisition of Wugu Daochang Food Co., Ltd. was evaluated by an appraisal agency, and goodwill impairment losses were recognized;
In the current period, the company's associates incurred excess losses, leading to a year-on-year decline in profits. According to Keming Group's strategic development plan, Wugu Daochang's sales are expected to exceed 500 million yuan in 3 years and 1 billion yuan in 5 years, which will contribute to the further development of Keming Noodles. According to the announcement, both the revenue growth and profit decline are closely related to the consolidation of Wugu Daochang. It seems that completely transforming Wugu Daochang and seamlessly integrating it with Keming Noodles' existing business is still a long and arduous task. From its peak to its decline, Wugu Daochang has seen ups and downs in just over a decade. Founder Wang Zhongwang made it glorious but also brought it down; Ning Gaoning favored it but was disappointed; can Chen Keming, with his dedication to noodle making, reverse the decline? The Past and Present of Wugu Daochang Wang Zhongwang, founder of Wugu Daochang. With only a primary school education, Wang Zhongwang had a difficult start in business. In 1996, he joined his fellow townsman Fan Xianguo, the head of Hualong, as the general distributor for Hualong in Northwest China. Rumors say they eventually parted on bad terms. Later, Wang Zhongwang and Master Kong established San Taizi Food Co., Ltd. The packaging of San Taizi instant noodles featured a pattern of "Nezha holding a spear and challenging a dragon," which was full of hostility. The enemy of my enemy is my friend, but shortly after cooperation, Wang Zhongwang revealed greater ambitions, targeting Master Kong's high-end instant noodle market, and the two eventually parted ways. Later, Master Kong described the cooperation with this sentence: "We entered because we didn't understand Zhongwang, and we exited because we understood." In April 2005, the Ministry of Health issued a document questioning the presence of carcinogens in fried foods such as French fries. Wang Zhongwang, with a keen market sense, seized the opportunity and launched "Wugu Daochang" instant noodles, planning the advertisement "Refuse Frying, Keep Health" and choosing to air it on CCTV. Wugu Daochang, heavily promoting health, forcibly carved out a new category in the instant noodle market, making competitors like Master Kong and Uni-President tremble in a short time. It was also through this that Wugu Daochang quickly grew from nothing to become a major player in the domestic instant noodle industry. At its peak, annual sales once reached about 2 billion yuan. At this time, different voices emerged within Wugu Daochang. Many senior executives believed that Wugu Daochang should not continue to confront the entire instant noodle industry but should focus on channel construction and product development. After all, Wugu Daochang's products still had great room for improvement, and Wang Zhongwang's main channel construction for Wugu Daochang was not well-developed. In other words, once competitors intercepted channels and distributors refused to stock products, the more Wugu Daochang produced, the more it lost. However, Wang Zhongwang insisted on his own way, dismissing the vice president of operations and the planning director who held different opinions, and ultimately invested 1.8 billion yuan to expand 38 production lines nationwide to increase capacity. By 2008, Wugu Daochang's total liabilities reached 600 million yuan. At that time, the company had long been in arrears on wages, workers went on strike and caused disturbances, the Wugu Daochang production base in Fangshan, Beijing was sealed by the court, and distributors and suppliers from all over the country who were owed money swarmed in... Under such heavy pressure, Wang Zhongwang finally lowered his proud head and realized it was time to find a wealthy father to acquire Wugu Daochang. After many twists and turns, COFCO became the new owner of Wugu Daochang. In a situation where it could no longer sustain itself, in 2009, Wugu Daochang officially "sold itself" to COFCO for 109 million yuan. At that time, Wugu Daochang hoped to be reborn under the protection of COFCO. Although it had the solid backing of COFCO, Wugu Daochang failed to enjoy the shade of a big tree. COFCO never gave up on the brand, providing financial support and also conducting extensive brand promotion and adjusting product flavors, but none of these measures worked, and Wugu Daochang's market share continued to shrink. A person deeply involved in COFCO's takeover of Wugu Daochang revealed that Ning Gaoning, then chairman of COFCO, had a special "preference" for Wugu Daochang. In marketing, on one hand, heavy investment was made in advertising and marketing for Wugu Daochang; on the other hand, Song Guoliang, one of the founders of Master Kong, former marketing director of Huafeng Instant Noodles, and former president of Baixiang Instant Noodles, was hired as general manager. After taking office, Song Guoliang continued the "non-fried" health concept, emphasized taste innovation, and launched multiple new products at once. However, the market did not respond favorably. During the 7 years under COFCO, Wugu Daochang never improved and remained in a state of loss. Even though it kept losing money and never met sales targets, Ning Gaoning still allocated an additional 200 million yuan to Wugu Daochang two years after the acquisition, continuing to support it. But in the end, Wugu Daochang did not "save face" for the former chairman of COFCO. Public data shows that until Ning Gaoning left COFCO, Wugu Daochang had not achieved profitability. Instead, sales and market share continued to shrink, products became hard to find, and the brand was marginalized. To make matters worse, since 2011, the instant noodle industry as a whole has been shrinking, and even the top brand Master Kong has suffered huge losses for years. Even with the wealthy COFCO backing, Wugu Daochang's performance decline was inevitable. Helplessly, at the end of 2016, COFCO had to list Wugu Daochang for sale with 100% equity and 53.67 million yuan in creditor's rights. In June 2017, Keming Noodles acquired 100% equity and creditor's rights of Wugu Daochang for a total of 106 million yuan. It is reported that Keming Noodles' acquisition of Wugu Daochang was also part of its strategic development planning. Wang Yong, secretary of the board of directors of Keming Noodles, said that in 2016, Keming Noodles had already been testing the convenience food business, launching products such as instant udon noodles. Although the product form differs somewhat from instant noodles, the essence is the same. After winning the auction, Keming Noodles will simultaneously develop both noodle and convenience food businesses, and does not rule out adding new categories to Wugu Daochang's business. Keming Noodles and Wugu Daochang have matching main businesses. Although the product forms are slightly different, the channels are very similar. Keming Noodles has inherent advantages in retail and supermarket channels, which is one of the foundations for its acquisition of Wugu Daochang. On the other hand, COFCO is a large conglomerate, making it difficult for Wugu Daochang to stand out, but under Keming Noodles, Wugu Daochang has new opportunities. Keming Noodles is China's largest noodle production enterprise, with 2016 operating revenue of 2.164 billion yuan and net profit of 137 million yuan. In recent years, the noodle industry has entered a severe consolidation period. In this context, Keming Noodles, with the goal of "building a 10-billion-yuan enterprise," has never stopped its external expansion impulses. In 2016, Chen Hong, son of founder Chen Keming, officially took office as general manager of the company. Food companies that match Keming Noodles' R&D, production, and channels are the acquisition targets it is actively seeking. Moving Wugu Daochang's factory from Beijing to Henan, cutting costs is the first move. Team integration is the second move. Wang Yong said that Keming Noodles will retain the original core team of Wugu Daochang, and the latter will invest in the new Wugu Daochang and become partners. Keming Noodles values Wugu Daochang's brand and channels. In terms of brand, Wugu Daochang has high brand awareness and a large fan base; in terms of channels, Wugu Daochang's years of accumulated instant noodle sales channels can fill Keming Noodles' shortcomings; in terms of technology, Wugu Daochang's sauce packet technology also helps Wugu Daochang's next steps. In 2017, Wugu Daochang did not bring profits to Keming Noodles. After more than half a year of integration and development, Keming Noodles was thought to have gotten a bargain at a low price, but the actual results were not as ideal as expected by the outside world. Now it seems that completely transforming Wugu Daochang and seamlessly integrating it with Keming Noodles' existing business is still a long and arduous task. Old Na's Comment: Keming Noodles' goal is to become the leader in China's "noodle" industry. However, it has some unsuccessful genes. Keming Noodles is a Hunan brand, while the major consumption provinces for noodle products are in the north, such as Henan, Shandong, and Hebei. A southern enterprise challenging the northern noodle market is somewhat legendary. That's why Chen Keming calls himself a noodle fanatic. But being obsessed with noodles alone is useless. What it cannot solve is how to shape the image of "China's No.1 noodle brand." Unlike the strong brand concept in the instant noodle industry, the noodle industry has never had a strong brand concept, which is a reality that cannot be changed in the short term. Noodles are not as convenient as instant noodles, and in terms of taste and health, northern consumers believe that freshly pressed noodles from noodle machines are the best, even categorizing them as "fresh" products. Noodles are more of a supplement to the market when there are no instant noodles or "fresh noodles," and their market share is extremely small. In such a share, Chen Keming also faces competition from "Jinmailang, Baixiang, and Arawana," as well as local brands, leaving very little room. Acquiring Wugu Daochang is also an adventure and an ice-breaking move for Keming Noodles. In recent years, Keming Noodles has been diversifying, involving mineral water and seasonings, but the overall results have been poor. In acquiring Wugu Daochang, Keming is bottom-fishing. At that time, COFCO was eager to sell, and other manufacturers were waiting. Keming chose to act. Although Wugu Daochang is fraught with difficulties, it has always been a topic of focus, and its reputation in the industry far exceeds that of Keming Noodles. Wugu Daochang is naturally traffic-generating. Everyone is watching to see "whether Wugu Daochang's products are bad or its marketing is bad." In the capital market, the spread of topics is more important than losses of millions. Through this, people learned about Keming Noodles, which is extremely important for Keming's pursuit of shaping the "No.1 noodle brand in China." From the current sales data, sales are increasing, profits are declining, and although there are losses, the future is still promising. In the long run, although the instant noodle market is declining in sales, people's pursuit of healthier and more delicious food has not changed. Although Wugu Daochang has had a tortuous development, consumers still regard it as synonymous with "healthy and high-end," representing the future direction of the instant noodle market. Its prospects are broader than those of noodles.