Recently, Qiaqia Food released its Q1 2017 performance report. During the reporting period, the company achieved operating revenue of 799 million yuan, a year-on-year decrease of 7.13%; net profit was 77 million yuan, down 17.35% year-on-year. This marks the first double decline in recent years and the second consecutive decline following the net profit drop in the previous annual report.

However, amidst the bleak news, there are bright spots. Qiaqia Food's investment of 347 million yuan in an e-commerce logistics center project and a nut processing plant project in Hefei is expected to commence production this year, which will effectively address the company's shortcomings in e-commerce operations. Additionally, Qiaqia Food will continue to focus on promoting its blue-bag product series this year. As one of the company's best-selling products in 2016, the blue-bag series generated approximately 200 million yuan in revenue last year, becoming a key performance pillar for the "sunflower seed king."

Weak Revenue and Declining Gross Margin: Qiaqia's Performance Below Expectations

In Q1 2017, Qiaqia Food achieved revenue of 799 million yuan, a year-on-year decrease of 7.13%. Analysis suggests that the revenue decline is mainly due to the sales system reform in Q4 2016, which led to early year-end closing, resulting in a relatively high revenue base in Q1 2016. Additionally, the earlier Chinese New Year in 2017 meant that distributors' stockpiling was mainly concentrated in Q4 of last year, also contributing to the decline in Q1 revenue growth.

In terms of gross margin, the level further declined due to the upgrade of raw material specifications. Industry insiders expect that Qiaqia Food's proactive upgrade of raw material specifications for its traditional sunflower seed products will put pressure on gross margin as raw material costs gradually replace. Amidst Qiaqia's generally below-expectation performance, the stock price also fell. On the day of the earnings release, Qiaqia Food's stock price dropped significantly by 5.05%, hitting a one-year low.

Vigorously Deploying E-commerce Business: Late but Still Opportunity

Just a few days before the report release, on April 21, Qiaqia Food held its 2016 annual shareholders' meeting. Chairman Chen Xianbao stated that in the coming year, Qiaqia will focus on expanding its e-commerce business to achieve positive interaction between online and offline. It is reported that Qiaqia Food's investment of 347 million yuan in the e-commerce logistics center project and nut processing plant project in Hefei is expected to commence production this year, which will address shortcomings in e-commerce warehousing, sorting and distribution centers, and shipping platforms, and support the development and production of online products.

Chen Xianbao, Chairman of Qiaqia Food

Vice General Manager Liang Yong, responsible for e-commerce and marketing, stated that online channels can promptly transmit timely data and feedback on consumer research to offline channels, greatly benefiting the market promotion and improvement of new product categories. In e-commerce operations, the biggest pain point is traffic, but Qiaqia has accumulated advantages in offline channels and products over the years. In the future, it will assist offline-to-online traffic diversion in various aspects such as product packaging, achieving reasonable integration of various resources.

Although Qiaqia Food has begun deploying e-commerce, it still lags far behind emerging internet nut and snack players like Three Squirrels and Baicaowei in terms of e-commerce development speed. According to data, Three Squirrels' revenue exceeded 4.4 billion yuan last year, with net profit soaring 2535%, and a compound annual growth rate of 119% since 2014. Although Qiaqia Food entered e-commerce much later than the former two, it still holds long-term advantages in brand, technology, talent, and market accumulation. As long as it plays these cards perfectly, Qiaqia Food is not without opportunity. The real challenge facing Qiaqia Food is how to integrate online and offline resources to achieve mutual integration and promotion.

New Blockbuster Product as Performance Pillar, Continued Channel Deepening This Year

The lackluster performance cannot overshadow some bright spots, and this highlight is the blockbuster product successfully created by Qiaqia Food last year—the blue-bag product series. According to data, Qiaqia's blue-bag products achieved sales revenue of approximately 200 million yuan last year, becoming an important support for the "sunflower seed king's" performance growth. Although there is some substitution effect on original sunflower seed products, it remains the most successful new product last year and a key promotion focus this year. Starting this year, the distribution channels for blue-bag products will expand from large and medium cities to townships, further refining channel penetration.

A successful blockbuster product relies on excellent promotion models. Recently, in the hit iQiyi drama "In the Name of the People," Qiaqia Food tested "band-aid" style interactive ads, cleverly embedding fun copy with elements of Qiaqia's pecan sunflower seeds (blue-bag products) during plot development, presented to users in the form of bullet comments. The campaign was effective, attracting the attention of many young consumers.

Promoting New Products + Expanding Overseas: What Other Cards Does Qiaqia Have?

In addition to the blue-bag blockbuster series, Qiaqia Food launched a small-pack mixed nut product "Daily Nuts" online this year to seize market share. Chairman Chen Xianbao stated that in 2017, the company will continue to deepen the implementation of the business unit mechanism reform. The internal organizational restructuring has effectively improved company efficiency. For example, in new product development, business units such as sunflower seeds, baking, and nuts have seen a large number of new products emerge since last year.

Qiaqia Food is also making unremitting efforts to expand overseas markets. Recently, the company announced plans to establish wholly-owned subsidiaries in the United States and Thailand to integrate global upstream resources and further explore overseas markets. According to data, in 2016, Qiaqia Food's overseas market revenue growth mainly came from Southeast Asia, while profit growth came from European and American markets. Qiaqia Food stated that in 2017, it will focus on promoting new products in overseas markets, such as pumpkin seed series products targeting overseas Chinese communities. At the same time, it will deepen its presence in the Southeast Asian market through industrial bases, establish local factories to introduce overseas products, and expand raw material supply layout.

Qiaqia Thailand promotional poster

In recent years, due to the strong rise of internet snack e-commerce, there have been many voices predicting the decline of traditional brands like Qiaqia. With changing marketing methods and declining brand recognition, Qiaqia Food faces increasing challenges. How many cards remain in hand, and how to improve core competitiveness, are issues that this sunflower seed giant must confront. Here, Brother Shen borrows a famous saying: Time is running out for Qiaqia.

Source: Snack Reference -END-