Recently, it was learned that ORIGIN Packaging, formerly a supplier to Red Bull and Wanglaoji, has begun providing beverage contract manufacturing services for brands such as Genki Forest and War Horse. This means ORIGIN will complete integrated services from can manufacturing to beverage production.

ORIGIN Packaging was established in 1997, initially focusing on producing easy-open cans, with a typical traditional manufacturing background. After more than 20 years of development, ORIGIN has become the leading metal packaging enterprise in China.

However, this company has been criticized by industry insiders as "living on blood transfusions from Red Bull." Whether this breakthrough in filling services will bring substantial change remains to be seen.

-01- Success and Failure Both Tied to Red Bull

According to public data, ORIGIN Packaging was listed on the Shenzhen Stock Exchange in 2012, becoming the first A-share listed metal packaging company in China. Of course, this IPO was also a rarity, as few listed companies exhibit such heavy dependence on a major client.

From the beginning, Red Bull Vitamin, controlled by Hua Bin Group, has been ORIGIN's largest client. When Red Bull first entered China in 1995 and set up a factory in Shenzhen, ORIGIN's founder Guan Yuxiang saw an opportunity and sought cooperation with Red Bull. As her son Zhou Yunjie once recalled: "My mother, in a nearly humble manner, secured the cooperation opportunity with Red Bull. Over nearly two months, my mother and I traveled between Hainan, Shenzhen, and Guangzhou 41 times." Eventually, after agreeing to all of Red Bull's requirements, they obtained the order. As Red Bull expanded in China, ORIGIN also benefited from this association.

Financial reports show that Red Bull's purchases of cans increased from 771 million yuan in 2008 to 4.975 billion yuan in 2016, a direct increase of 6.5 times. In 2016, ORIGIN's revenue grew by 14.1% year-on-year to 7.6 billion yuan, with three-piece beverage cans (Red Bull packaging is three-piece cans) generating 5.37 billion yuan in revenue, up 3.7% year-on-year.

Moreover, 90% of Red Bull's metal cans come from ORIGIN, and ORIGIN's selling price for three-piece cans to Red Bull is 27% higher than the market average. In 2016, Red Bull's purchases from ORIGIN increased from 4.722 billion yuan in 2015 to 4.975 billion yuan. In 2016, Red Bull contributed 4.975 billion yuan in sales to ORIGIN, accounting for 65.47% of ORIGIN's total annual sales.

However, for ORIGIN, everything is built on the foundation of Red Bull's stability; they rise and fall together. In 2017, the Red Bull trademark dispute erupted, with Thai Tiansi, the trademark holder, and Hua Bin Group, the Chinese operator, arguing over their respective interests. ORIGIN was caught in the crossfire. In July 2017, Thai Tiansi sued ORIGIN, demanding it stop producing products with Red Bull-related trademarks and pay 30 million yuan in economic damages, throwing ORIGIN's core business into great uncertainty and directly impacting its revenue.

According to reports from Blue Whale Industry and Economy reporters, since its listing in 2012, ORIGIN's revenue and net profit had been on a straight upward trend, but in 2017, this growth abruptly halted, with both revenue and net profit declining by 3.37% and 38.98%, respectively.

After smooth sailing, the drawbacks of heavy client dependence finally emerged.

-02- Self-Rescue

In fact, ORIGIN itself has been aware of this drawback and has been committed to improving its business layout to reduce dependence on Red Bull. However, the results have been minimal so far.

As early as 2014, ORIGIN ventured into filling services. At the end of 2014, ORIGIN signed an agreement with the Management Committee of Xianning Economic Development Zone in Hubei to establish a wholly-owned subsidiary, Hubei ORIGIN Beverage Company, primarily engaged in processing and sales of carbonated beverages (soda), protein beverages, and other beverages. Prior to this, 100% of ORIGIN's revenue came from metal can sales.

Recently, according to Beijing Business Today, Genki Forest's "Alien" functional beverage, War Horse, Mizone, Zhengda Banlanhua, and Rijiaman are all contract-manufactured by Hubei ORIGIN Beverage Company. According to ORIGIN founder Guan Yuxiang's vision, transitioning to integrated services is an attempt to break through the manufacturing growth bottleneck and reduce dependence on major clients.

However, the prospectus shows that from 2008, 2009, 2010, and January-September 2011, revenue from the top five clients accounted for 93.04%, 90.63%, 92.11%, and 94.54% of total revenue, respectively. From 2014 to 2019, filling business revenue was 93.05 million yuan, 96.27 million yuan, 110.7 million yuan, 106 million yuan, 130.4 million yuan, and 150.2 million yuan, respectively. It can be seen that although filling business revenue has increased year by year, its proportion of total revenue has never exceeded 2%, far smaller compared to ORIGIN's can sales revenue.

In addition to expanding filling business, in December 2018, ORIGIN announced that it would use self-raised funds of $205 million to acquire Ball Asia Pacific Ltd's equity in China packaging business-related companies, to enhance competitiveness in the two-piece can sector, reshape the domestic two-piece can industry capacity landscape, and expand more clients.

ORIGIN's acquisition includes 100% equity of Ball Asia Pacific (Foshan) Metal Containers Co., Ltd., 100% equity of Ball Asia Pacific (Beijing) Metal Containers Co., Ltd., 100% equity of Ball Asia Pacific (Qingdao) Metal Containers Co., Ltd., and 95.69% equity of Ball Asia Pacific (Hubei) Metal Containers Co., Ltd.

According to ORIGIN Chairman Zhou Yunjie, currently, ORIGIN has formed a cornerstone tier of three major categories: functional beverages, beer, and milk powder. Clients include Red Bull, Dongpeng Special Drink, Tsingtao Beer, Budweiser, Snow Beer, Yanjing Beer, Feihe, Junlebao, and Yili, among other milk powder companies.

Industry insiders generally believe that ORIGIN, as the largest supplier of Red Bull beverage cans, hopes to reduce its dependence on Red Bull through this acquisition.

However, according to ORIGIN's latest financial report, revenue from the top five clients still accounts for 73.74% of total revenue.

-03- Conclusion

In fact, the metal packaging industry is characterized by high investment and high technical barriers, with companies highly bound to clients and no threat of new entrants. Compared to glass packaging, which has poor safety and recyclability, and plastic packaging, which is highly polluting, metal packaging has natural advantages.

However, ORIGIN's weak internal capabilities and complete reliance on Red Bull for survival are destined to become a shortcoming. Moreover, the "big tree" that ORIGIN relies on is currently unstable itself. Until the final outcome is determined, there will be unease. Yan Bin's China Red Bull will no longer have the right to continue producing Red Bull. If Red Bull fails, ORIGIN's smooth path will essentially come to an end.

As for ORIGIN's layout in filling services, the 2% proportion mentioned above shows limited effectiveness. Although providing integrated contract manufacturing services for beverage companies increases revenue, the profit margins are not high and require significant additional effort.