Introduction: Although it has turned losses into profits, Wugu Mofang's growth path is still long and arduous. In 2021, Wugu Mofang achieved positive growth after the pandemic, but the double-digit revenue growth and significant turnaround to profitability did not make investors feel the spring of "another year after winter." Looking at Wugu Mofang's performance over the past five years, 2021 revenue has not yet recovered to 2019 levels, and profits are less than half of 2017. As of the close on May 30, 2022, the stock price of HK$0.46 per share had fallen 81.2% from its historical high. Under the pandemic, how can Wugu Mofang repair its profitability and enter the billion-yuan track?

Two Strategic Crises for Wugu Mofang

1. Supermarkets Enter an Era of Losses, Wugu Mofang Faces Offline Crisis Looking at the 2021 annual reports of listed supermarkets, 9 out of 12 listed supermarkets reported losses, with an average loss of over 500 million yuan. Industry benchmarks Yonghui Superstores and Sun Art Retail both reported their first losses since listing. Citing tracking data from "Third Eye Retail," the supermarket industry has been in decline since 2012. Source: Third Eye Retail (ID: retailobservation) When young people no longer find shopping and strolling fun, and when convenience stores and online shopping can meet most shopping needs, it is evident that fewer young people are in supermarkets, and the entire supermarket consumption faces an aging crisis. Although Wugu Mofang has tried to increase sales by improving operational efficiency and strengthening dietary consultation, when supermarkets lack the ability to attract traffic, the gradual reduction of in-store shops remains a Sword of Damocles hanging over its head.

2. Transitioning Online, Doubts About New Customer Acquisition Facing offline growth difficulties, Wugu Mofang turned its attention to online e-commerce. Since 2019, Wugu Mofang's online channel sales have continued to grow. In 2021, online channel revenue reached 587 million yuan, a year-on-year increase of 42.1%, accounting for nearly 40% of total revenue. The reason for the online sales growth is that Wugu Mofang has the highest brand awareness, was the earliest to transition online, and its star product "Walnut Sesame Black Bean Powder" was the first to undergo brand operation (named Heizhiyang). However, despite the booming online situation, senior management still has doubts about continuous customer acquisition online:

  • The online traffic dividend period has passed. How can deep cultivation of online channels transform from an internet-famous brand to a long-lasting brand, and how to avoid repeating the old path of Taobao brands from ten years ago?
  • Offline members are generally over 35 years old, while new online customers are generally under 35. After offline old customers are converted, how to expand new customers?
  • When competitors like Yanzhifang and Laojin Mofang follow up with online promotions, how long can the favorable online situation last?

Strategic Trial and Error How Many Corporate Resources Will Wugu Mofang Waste?

1. Why Doesn't the Path of Strengthening Purchase Benefits Work? Many FMCG companies hope to break into the market with slogans like "Drink Wanglaoji to avoid getting angry" or "Drink Six Walnuts for frequent brain use," but after investing millions or even tens of millions in advertising, they find that in the era of fragmentation, heavy advertising is far less effective than offline promotions and end-cap displays. On Xiaohongshu and Douyin, thousands of consumer posts claiming that sesame pills promote hair growth have been batch-deleted. The fundamental reason is advertising law restrictions; most compelling and penetrating slogans are prohibited. Moreover, when health products like donkey-hide gelatin and bird's nest are questioned by young people for their efficacy, can ordinary functional foods still talk their way out? Data source: Rong360 Dimension Therefore, even if cooperating with the Chinese Academy of Agricultural Sciences for special sesame breeding, consumers' perception of sesame's value is hard to adjust. If the value return of donkey-hide gelatin is like a princess lost among the people coming home, and the rise of bird's nest is like a nobleman's daughter entering the palace, then black sesame is just a commoner's daughter, unqualified to participate in the health product palace drama. Trying to replicate the cases of Dong'e Ejiao and Xiaoxian Dun, hoping to open the market by adjusting consumers' perception of black sesame's nutritional value, is like climbing a tree to catch fish.

2. Why Doesn't Heizhiyang's Return to Offline Work? As early as 2017, the predecessor of Heizhiyang entered Wugu Mofang's offline counters, but was quickly removed. The reason is simple: the 68 yuan price would steal many customers from the 200-300 yuan Yiyuan Bazhen Powder. Why doesn't entering supermarket shelves work now? Because there are problems of aging, marginalization, and low pricing. The aging issue has been explained earlier. What is marginalization? As is well known, supermarkets partition products; items like oatmeal and walnut powder are usually placed at the edge of the supermarket, even on lower shelves. Poor placement, easy to be overlooked, naturally leads to marginalized consumption. The low pricing issue is also obvious: when products like Southern Black Sesame Paste lock prices at 20-30 yuan, how can a 68 yuan high price move offline? Can offline shelves provide the same detailed product description as e-commerce detail pages?

3. Why Is the Path of Focusing on Breakfast Scenarios Difficult? Setting aside the issue that young people are too busy to eat breakfast, why has the market for grain powder not opened up among breakfast eaters? On the surface, mainstream breakfast products are very strong. Whether it's buns, noodles, bread, soy milk, pancakes, or porridge, none can be compared to grain powder. Moreover, in terms of convenience, takeout and dine-in are far better than boiling water, brewing, and washing products yourself. On a deeper level, it's a category issue for grain powder. High carbs, low protein, unable to meet nutritional balance needs and easy to gain weight; average taste, requiring various companions to be palatable; poor satiety, only existing as a supplementary food.

Scenario-Based Product Matrix to Break the Aging Crisis Scenarios contain consumption and purchase cognition. Wugu Mofang's core problem is not product benefits, but the lack of core consumption scenarios. When post-90s start using thermos cups with goji berries, and when over half of post-90s spend over 500 yuan monthly on health maintenance, it shows that young consumers do not lack health awareness, but the consumption scenarios for related products are not opened. Coupled with the aging of original channels and products, growth issues arise. Rather than extracting product benefits to educate consumers, it's better to think about how to effectively integrate into young people's consumption scenarios and build new products based on consumption scenarios, thereby creating second and third growth curves for the enterprise.

1. Beverage Health Scenario Looking at health tea brands, few focus on educating consumers that red bean health tea removes dampness or goji berry tea improves eyesight. These health effects have become common knowledge for the target group; for them, just knowing that drinking more health tea is good for health suffices. For enterprises, simply changing the product form—grinding the grains that need polishing and packaging them in tea bags—can enter the brewed health tea market. Following Dayi, brands like Xiuzheng, Renhe, and Tongrentang have entered. During last year's "618" shopping festival, Xiuzheng's red bean and coix seed health tea alone sold over 40 million yuan, and Tongrentang's brown sugar ginger tea sold over 100,000 boxes in one minute in Viya's livestream. In addition to brewed health tea, the bottled health tea scenario has also been seized by Genki Forest. Its new product, Xiancha, has repeatedly achieved good results in just one year. Since last November, Xiancha has been the top seller, top-rated, and top repurchase on Tmall's sugar-free tea list for 8 consecutive weeks; during this year's 618, the new product Mulberry Five Black Tea sold 30,000 bottles in three days.

2. Snack Health Scenario After turning grain powder into pills, do consumers care about reduced health effects? But once the snack health scenario is clarified, consumers' purchase intention is stimulated. Early on, Laojin Mofang followed Wugu Mofang in making grain powder, with sales suppressed. But when Laojin Mofang discovered the snack health scenario, it launched a counterattack with black sesame pills. From 2019 to 2021, it sold 250 million pills, with GMV across all channels exceeding 1 billion yuan, becoming a leading brand in the Chinese tonic category on e-commerce platforms, and also driving grain powder sales. Although Wugu Mofang made sesame pills earlier, because the company focused on grain powder, it rarely thought about how to use the moist, bursting texture of sesame pills to attract young consumers, nor did it consider using national trend packaging to get closer to young consumers, nor did it consider using new snack products to open offline shelf space. Besides sesame pills, pear paste lollipops are also a snack product with rapidly increasing sales. In the absence of minor illnesses like cough and phlegm, few people eat pear paste. But when pear paste is snackified, it becomes a healthy snack for all ages. Companies like Qingyuantang, Qiutian Manman, and Shangpin took only one year to grow the pear paste lollipop market from a hundred-thousand-yuan scale to a hundred-million-yuan scale, with online Alibaba platform sales growing 508.2% year-on-year. Wonderlab's white kidney bean dietary fiber candy and Dongchi's white kidney bean jelly enzyme have also become internet-famous snacks.

3. Portable Health Scenario Wugu Mofang once launched strip-packaged brewing powder like instant coffee, but unfortunately it was still sold in large cans of grain powder. Besides the problems of high unit price and inconvenience, many member customers didn't even know Wugu Mofang had launched this product. If the packaging commonality with instant coffee were more thorough, it might have integrated into the afternoon tea consumption scenario of white-collar workers.

4. Meal Replacement Scenario Under the cognition of "five black" nourishment, making grain powder into cakes, pastes, and high-concentration smoothies also has great potential. In the first seven months of 2022 alone, sales of food products containing the words "five black" on Alibaba platforms reached 2.1 million units, with sales growing 2901.31% year-on-year. For consumers, directly claiming health concepts lacks credibility, but they are more willing to try products with higher nutritional value in ordinary light meal replacements. Fuminglian's Five Black Mulberry Purple Rice Cake and Tongrentang's Five Black Grain Paste could become direct substitutes for Snickers.

How Can Wugu Mofang Return Offline? The incubation of multiple new products is conducive to Wugu Mofang's brand rejuvenation and diversified scenario consumption, continuously maintaining online channel competitiveness. But how to mobilize offline channel momentum, how to create offline consumption scenarios, and how to reshape business value will be key to the entire grain food industry!

1. Product Innovation: Leverage High-Value Ingredients Functional foods have low perceived value, and also have problems of being unclear, hard to perceive, and restricted. But once entering the health product or even pharmaceutical category, consumers' value judgment rises sharply. Under the influence of thousands of years of Chinese herbal medicine culture, high-value ingredients such as ginseng, American ginseng, donkey-hide gelatin, fish maw, Poria, and Dendrobium have cultivated a series of strong brands. Taking Jung Kwan Jang as an example, empowered by the high-value ingredient red ginseng, its Tongrenmi skincare products won first place in Tmall's Double 11 new brand pre-sale for FMCG this year, and ordinary functional foods have sold over 300 million boxes globally. Wugu Mofang also gained short-term competitive advantage by adding high-value ingredients like chickpeas, but due to lack of sustained R&D investment and failure to define product standards first, it fell into a "military race" of "six black ingredients" and "ten black ingredients."

2. Channel Innovation: Leverage High-Growth Channels The supermarket channel entering an era of losses is also related to channel penetration. Chain supermarkets are the highways of FMCG, but not the capillaries. The heavy capital, high-investment operating model, with core consumer markets limited to high-tier cities, makes it difficult to simultaneously penetrate the multi-tier consumption of 1-6 tier cities and county towns, and site selection is also restricted. Looking at global channel transformation trends, it's not hard to see that with urbanization, street-side chain stores are in vogue, and brand specialty stores on streets partially replacing supermarket category stores has become a development trend. With the strengthening brand power of industry leaders, improved logistics and information capabilities, and increased residential density from urbanization, street-side stores represented by catering and convenience stores and community supermarkets represented by retail have become new channel opportunities. Many snack brands have also jumped out of the food court store-in-store model. Mixue Ice City, Shuyi Xiancao, and Luckin Coffee have also opened specialty store models.

3. Scenario Innovation: Seize the Largest Consumption Scenario Within the scope of enterprise operating capabilities, how to enter the largest consumption track and seize the largest consumption scenario is key to activating the offline market. Grain powder has a market size of only about 10 billion yuan, which can only nurture a few billion-yuan brands. But in the 100-billion-yuan plant milk and 300-billion-yuan new-style milk tea tracks, there are opportunities to create 10-billion-yuan new products. The transformation from grain powder to grain tea drinks is a key step for Wugu Mofang to step out of the store-in-store counter model and reshape business value. Under the trend of young health consciousness, consumers' demand for healthy drinks is increasing. Plant-based drinks represented by Xiancha and Doudou are difficult to break out of retail channels and lack the health characteristics of freshly ground hot drinks; milk tea brands represented by Mixue Ice City are strong in store numbers but cannot meet the health drink needs of the mid-range; Wanglaoji, although it launched the 1828 sub-brand to enter the milk tea track, its strong herbal tea perception has led to slow development in milk tea stores; only Shanghai Auntie's early success with five-grain milk tea as a strong regional brand is worth Wugu Mofang's deep thought. Nowadays, many street-side stores imitating Wugu Mofang's freshly ground grain powder have developed to the county level, breaking the problem of insufficient customer traffic in high-tier city supermarket channels; at the same time, these generic grain powder stores have also begun to rename themselves as grain milk tea stores, selling freshly ground grain powder while using 10-yuan grain milk tea as a new product to attract customers, actively converting market share from Doudou, low-end milk tea, and soy milk hot drinks. At this time, Wugu Mofang, leveraging its brand advantage, is highly likely to harvest the market of these generic brands through follow-up imitation, just like in the catering industry where Laoxiangji and Dami Xiansheng harvest many generic small-bowl steamed vegetable fast-food restaurants.

Final Thoughts: Product cognition adjustment and large-scale advertising are only tactical diligence, but at the strategic level, how to use resource and brand advantages to build an interlocking product matrix, how to penetrate various core consumption scenarios through the product matrix, and how to grasp trend changes to reshape business value are key to maintaining corporate competitiveness and growth. Actively leveraging the related diversification of grain powder food nourishment cognition, making competitors in the track dispensable in consumers' minds is the value of a natural food nourishment expert. Clinging to the positioning of "leading brand of food nourishment powder" will limit the company's operating thinking and development space. Li Xiangru, Senior Consultant at Best Management Consulting, senior brand strategy expert, with 12 years of brand strategy positioning experience, serving Fangtai Electric, Jinmailang, Foton Pickup, Yihai Kerry, and other billion-yuan enterprises, with consulting experience spanning FMCG, industrial goods, condiments, and catering. He has upgraded positioning theory and brand image theory, and created the meaning brand strategy methodology.