Click image for more info In 2016, when explaining why not to increase marketing efforts, then-chairman Guan Dayuan explained, 'We originally thought that good wine needs no bush.' Source: Shijie (ID: sparklelive) Who still drinks Lolo? The answer is Xu Qing. As of December 2018, this 'ageless' actress has been drinking it for 16 consecutive years, setting a small record in product endorsement duration. Finding a 'loyal' celebrity is easy, but making consumers 'loyal' seems too hard. A study by a European health food magazine shows that young consumers are avoiding established food and beverage companies. From the experiences of Wahaha and Master Kong, Lolo has not been spared. According to Shijie's investigation, Chengde Lolo, which holds 90% of the national almond milk market share, has seen its performance decline for several consecutive years, with growth turning sharply from positive to negative. The younger generation is gradually drifting away. Surprisingly, in the face of this quietly approaching 'crisis,' Chengde Lolo's management is quite 'Buddhist.' Two years ago, Lolo launched a 'Save Youth' plan: changing the sales scene in county convenience stores, striving to shape the image of white-collar consumption, and even trying a golden yuan marketing strategy, but as of 2018, this plan has not reversed the decline. This year, Lolo is 43 years old, and youth is gone forever. Will it be abandoned? 01 Elderly Drink 'Every time I go home, I often hear relatives discussing which county has built another almond debittering factory.' Chengde native Zhang Min (pseudonym) told Shijie. Chengde, 230 kilometers from Beijing, has not enjoyed much real estate dividend from the Beijing-Tianjin-Hebei integration, but fortunately, almond milk provides at least hundreds of thousands of local jobs. Besides Lolo endorsed by Xu Qing, there are many other almond milk brands in Chengde. Historically, Chengde contributed the Mountain Resort to the country, while Lolo created a warm memory for the snowy north. During the Spring Festival, nine out of ten visiting cars will load two boxes of almond milk at roadside supermarkets. In a restaurant in Northeast China, whether a man is considerate to a woman is measured by hot Lolo. The special sentiment for Lolo in Chengde is completely opposite to the outside world. Consumers in Nanjing, Shenzhen and other places told Shijie directly that either they have never drunk Lolo, or they haven't drunk it for a long time. Surrounded by 'happy water' (sugary drinks), many post-90s are quite unfamiliar with Lolo, with their last consumption dating back to childhood. 'What era is it? Who still drinks Lolo?' Chengde Lolo has official stores on JD.com and Tmall. Shijie found an interesting phenomenon in the comment sections: most people placing orders are not actual consumers, but send it to grandparents, parents, and fathers. Meanwhile, Lolo's Hebei compatriot, 'Six Walnuts' born in Hengshui, is basically bought for children. Zhu Danpeng, a Chinese food industry analyst, believes that Lolo's products are aging, lack innovation, and its consumer base is relatively elderly. In the fiercely competitive FMCG field, besides Lolo, the other product that has not changed its endorsement star for 16 years is Wahaha, which is also currently facing growth difficulties. Wang Leehom holds that record. 'Six Walnuts' invited the currently popular 00s star Wang Yuan. Chengde Lolo is not unaware of its insufficient appeal to the younger generation. In June 2016, at a rare new product launch, Chengde Lolo changed its conservative style and launched five new products in succession. Not only did it invite long-term spokesperson Xu Qing, but also famous figures like Cai Kangyong, Gao Yunxiang, and Liu Tong. ▵ June 2016, Chengde Lolo new product launch This series of operations was interpreted by the outside world as the official start of Chengde Lolo's transformation strategy. The core of the transformation strategy is actually 'age reduction.' Lolo proposed a new slogan: 'Warm every struggling morning,' targeting young white-collar workers. It wants to move from county supermarkets to high-end office buildings, so that not only the elderly love to drink it, but also young people. Xu Qing's endorsement role remains unchanged, but for this actress born in 1969, new products began to reduce her screen time. 02 Declining Against the Trend The birth of Lolo has a beautiful story. In 1974, General Wang Zhen, then Minister of Agriculture and Reclamation, visited Hebei and saw large quantities of almonds being shipped out, only to learn they were exported to Japan. 'When I visited Japan, I drank a beverage made from almonds, which tasted great. Japanese officials said it was made from Chinese almonds. Why doesn't Hebei develop this instead of just selling raw materials?' After listening to General Wang Zhen's instructions, Hebei decided to entrust this major task to Lolo's predecessor, Chengde Canned Food Factory. In June 1975, the first can of Lolo almond milk came off the production line. The mountainous areas of Chengde are rich in wild mountain almonds. Although plant-based protein beverages were not as popular as they are today, in the 1990s, almond milk caught up with the era of consumption explosion. In the almond milk field, Chengde Lolo has always been the industry leader, with a market share as high as 90%, holding a monopoly position. 'South Coconut Tree, North Lolo' once created a beautiful story in the industry. ▵ Hebei Chengde Lolo Co., Ltd. In recent years, old brands have faced mid-life crises, but the plant protein beverage industry is in a rising phase. Surprisingly, Chengde Lolo has experienced a decline against the trend. According to a report by Qianzhan Industry Research Institute, the compound growth rate of the plant protein beverage industry from 2007 to 2016 was 24.5%, and its share in the entire beverage industry rose to 18.69%. It is expected that by 2020, the market size of plant protein beverages will reach 258.3 billion yuan, and its share in the beverage industry will continue to rise to 24.2%. Shijie's statistics show that Chengde Lolo's decline was already evident in 2014. Since 2012, Chengde Lolo has disclosed almond milk sales information in its annual reports. Since 2014, the growth rate of its almond milk product sales has dropped significantly, and it began negative growth in 2015. In 2017, its almond milk product sales were only 241,000 tons, lower than in 2011. In Chengde Lolo's revenue structure, almond milk product revenue has consistently accounted for over 99% of the company's operating revenue, almost its only source of income. The decline in this product's sales is devastating to the company's performance. And reality has unfortunately confirmed this judgment. From 2014 to 2017, the company's revenue growth rates were 2.67%, 0.13%, -6.85%, and -16.73%, respectively; corresponding revenues were 2.703 billion yuan, 2.706 billion yuan, 2.521 billion yuan, and 2.112 billion yuan. Among them, the 2017 revenue scale was equivalent to that of 2012, returning to five years ago. Although the listed company took measures such as price increases and cost control to protect profits, net profit still declined uncontrollably. From 2015 to 2017, the company's net profit attributable to shareholders was 463 million yuan, 450 million yuan, and 414 million yuan, with growth rates of 4.52%, -2.78%, and -8.16%, respectively. It is worth noting that the company's gross margin has risen from around 30% to over 50% in recent years, making the decline in net profit much slower than revenue. Shijie found that this is due to the decline in almond raw material prices in recent years, which passively raised the gross margin, while the listed company itself did not propose many improvement measures. In the first three quarters of this year, Chengde Lolo's performance rebounded, with revenue and net profit reaching 1.674 billion and 350 million, respectively, up 7.30% and 9.76%. However, compared with its own past growth rates or the growth rate of the plant protein beverage industry, Chengde Lolo has shown signs of fatigue. While Chengde Lolo slowed down, its Hebei compatriot 'Six Walnuts' 500 kilometers away continued to accelerate. 'Six Walnuts' did not start as early as Lolo. Yao Kuizhang, chairman of Hebei Yangyuan Zhihui Beverage, born in 1965, started from a small factory on the verge of bankruptcy and took 10 years to grow Yangyuan Beverage from 0 to 10 billion yuan in revenue. In the first three quarters of 2018, Yangyuan Beverage achieved revenue of 5.757 billion yuan and net profit of 1.741 billion yuan. Its net profit exceeded Chengde Lolo's revenue by 67 million yuan. Its revenue was more than three times that of the latter. 03 Buddhist Management In its reply to Shijie, Chengde Lolo attributed one of the reasons for the performance decline to a protracted lawsuit. In March 1996, to open up the southern market, Lolo Group and Hong Kong Feida jointly established Shantou Lolo (Shantou High-tech Zone Lolo South Co., Ltd.). Later, due to various reasons, Shantou Lolo and Chengde Lolo were decoupled in terms of equity. Since 2015, the two sides have been embroiled in endless litigation over registered trademarks and patented technology. Chengde Lolo has long controlled the northern market, while Shantou Lolo operates in eight southern provinces, each developing separately. However, Wang Jinhong, securities affairs representative of Chengde Lolo, told Shijie that Shantou Lolo and Chengde Lolo 'form horizontal competition, affecting the company's normal operations and development, while also hindering the company's refinancing and technological transformation, seriously damaging the company's economic interests and long-term development.' Now, the lawsuit is still ongoing. Zhu Danpeng, a Chinese food industry analyst, introduced that Lolo's growth has been weak in recent years. Besides the lawsuit, more importantly, its own operations have problems: top-level design does not match the highly developed market; the marketing system lags behind the industry's development; product upgrades and innovation are insufficient. Through financial report data, Shijie found that among listed companies, facing performance decline, Lolo's 'Buddhist management' is unique. Lack of ambition may be its biggest problem at present. Almost all FMCG companies understand the significance of advertising and marketing. When 'Six Walnuts' launched 'The Brain' on entertainment platforms, Lolo seemed to be vacationing in Chengde, 'refusing' to improve operations by increasing expenses. From 2013 to 2017, the growth rate of Chengde Lolo's almond milk product sales continued to decline, but its sales expenses as a proportion of revenue remained almost unchanged. That is, when facing declining product sales, Chengde Lolo did not attempt to increase sales investment to recover performance. In 2016, when explaining why not to increase marketing efforts, then-chairman Guan Dayuan explained, 'We originally thought that good wine needs no bush.' Not only the sales expense ratio, but since 2010, the company's period expense ratio has not changed much, and operations management is abnormally passive. 'Chengde Lolo is a bit like boiling a frog in warm water. Overall, it feels trapped by its own thinking. Not acting, not daring to act, not knowing how to act—this is the current state of Lolo's entire marketing system,' Zhu Danpeng told Shijie. The difference in marketing systems can also be seen when compared with 'Six Walnuts.' According to a 2016 statistic from Securities Market Weekly: Chengde Lolo's distributor profit is 1-2 yuan per box, and terminal profit is 2-3 yuan; while 'Six Walnuts' distributor profit is 5-6 yuan per box, and terminal profit can reach 7-8 yuan. In 2006, Chengde Lolo completed its restructuring, and Lu Guanqiu's Wanxiang Group became the company's largest shareholder. Lolo was reduced to a 'cash machine' for Wanxiang, with no interest in expanding production. Shijie found that despite declining performance year after year, Chengde Lolo is very keen on cash dividends. Since 2006, Chengde Lolo has distributed more than half of its profits as dividends almost every year. From 2006 to 2017, the company accumulated net profit attributable to shareholders of 3.385 billion yuan and distributed dividends totaling 2.005 billion yuan. That is, about two-thirds of the company's profits over these years were directly distributed to shareholders, not reinvested in production. In addition, the listed company's asset-liability ratio has been declining year by year, and there has been no interest-bearing debt on the balance sheet for many consecutive years. Therefore, there is no situation of using debt to expand business scale. Some industry analysts suggest that Chengde Lolo should upgrade its brand image, use modern communication methods, and connect with fashion trends; on the other hand, only by increasing product formula research and development, enhancing product added value, and finding new appeal points can it gain consumer recognition. From financial report data, for a long time, Chengde Lolo seemed uninterested in actively improving operations and has been comfortably living off its past glory. 04 Lolo Seeks Change Recently, there have been reports that Chengde Lolo is planning to move some headquarters departments to Beijing to boost its declining performance. The news is detailed, with departments to be moved including R&D, brand, marketing, and online sales, to absorb Beijing's human resources and stop the current poor performance. This is also the 'pain point' most criticized by the industry. Chengde Lolo denied this news to Shijie. However, it is indeed planning changes. In November 2016, five months after the new product launch, Chengde Lolo's general manager Li Zhaojun left. Subsequently, Lu Yongming, a member of the Lu Guanqiu family, became the company's general manager and also served as the financial officer. In the first half of 2017, Lu Yongming carried out reforms: the original 14 departments were optimized and merged into 7 departments and 1 marketing center, emphasizing the core position of the marketing center, and implementing a four-region business unit system in the marketing center; channel management was carried out to double channel profitability, and the compensation system for grassroots sales personnel was reformed to link salary with performance. On April 16, 2018, Chengde Lolo announced that Guan Dayuan resigned as chairman 'due to work reasons.' Only three days later, Lu Yongming became chairman, and Chengde Lolo moved into an era of centralized management by the Lu Guanqiu family. However, as can be seen from the aforementioned financial report data, the results were minimal, and the reforms did not stop the decline in performance. In response, Wang Jinhong, securities affairs representative of Chengde Lolo, told Shijie: 'The company is in a strategic adjustment period. We have launched new products such as the hot drink version. The promotion and improvement of new products still need to be strengthened.' The new product Wang Jinhong mentioned is the 'hot drink version' Lolo almond milk launched at the beginning of 2018. Different from the classic version with Xu Qing elements, this product is positioned 'for fashion-conscious, high-end consumers represented by young urban white-collar workers, mainly distributed in cities at the prefecture level and above in the company's main markets.' To change its image among consumers, Chengde Lolo, which had been keeping a low profile, began to step out. In the recent reality show 'Wild Kitchen,' Chengde Lolo became its exclusive designated plant protein beverage, and the hot drink version of Lolo almond milk appeared frequently in the show. Unlike 'Six Walnuts' 'crazy' sponsorship model, this is a rare sponsorship of a variety show by Chengde Lolo. ▵ Reality show 'Wild Kitchen' Chengde Lolo also sponsored the hit drama 'Ruyi's Royal Love in the Palace' and the 2018 Beijing Marathon this year. In the first three quarters of this year, Chengde Lolo's sales expenses increased by 109 million yuan year-on-year, a surge of 44.41%, reaching 355 million yuan. Previously, due to too small profit margins leading to insufficient terminal sales motivation, Chengde Lolo used new products as a test field and carried out bold reforms. Shijie learned from visits that the prices in major supermarkets in Beijing are all aligned with e-commerce platform prices. The new 'hot drink version' 240ml*24 cans is priced at 120 yuan. A large supermarket in Beijing purchases directly from the manufacturer without going through distributors, with a purchase price of 81.6 yuan per box. The profit margin left for the sales terminal is nearly 40 yuan per box, an impressive margin. At the 2016 launch event interpreted as a transformation, then-general manager Li Zhaojun said: 'Lolo, as a company, has hope to become a century-old enterprise.' If counting from the factory's establishment in 1950, Lolo is 68 years old this year, and the challenge of the remaining 32 years seems greater than the previous 68.