How to achieve a large market value in a small track? In just over a decade, Taoli, a small bakery founded by a retired teacher, has won the title of 'China's first bread stock'. Why could Wu Zhigang, who had an unremarkable early life, create a company with a market value of up to 40 billion yuan after retirement? **-01-**The Wind Comes from the Northeast In the 1980s, when many Chinese were tasting their first bite of bread, northeasterners had already been eating it for a full century. Bread was introduced to China on a large scale in the late Qing Dynasty, as foreign adventurers, with their warships and cannons, entered China and spread inland from the southeast and northeast. The Northeast, long influenced by Russia and Japan, was early to develop a unique bread industry. In the late 19th century, Qiulin's large rye bread (Daleba) became popular, becoming a shared memory for generations of Harbin residents and being traced as the origin of local Chinese bread. If China's bread industry were to produce a local powerhouse, the Northeast would be the strongest contender. However, after the reform and opening-up, despite the huge potential of the Northeast bread market, competition was far less intense than in the southern coastal areas. In Guangdong, Hong Kong's time-honored brand Garden had already opened its first mainland factory in Dongguan in 1985 and expanded to Jiangsu and Zhejiang in 1995; two other food giants, Dali and Panpan, were established in Fujian in 1989 and 1996 respectively. While competitors were vying for dominance in the 'inside the pass' (i.e., the central plains), Taoli, born in 1995, was quietly building its strength in the Northeast. **-02-**Precise Positioning The bread industry can be broadly divided into two business models: one is 'central factory + wholesale', and the other is chain bakery stores. When Taoli was founded, bakery stores were the absolute leaders in fresh bread, while the wholesale model mainly produced long-shelf-life pastry products. The two were like water and oil, not interfering with each other. But Wu Zhigang did not agree with this either-or landscape; he wanted to open the door for a completely new business model—wholesale short-shelf-life bread. The so-called 'short-shelf-life' refers to products with a shelf life of less than 30 days. Compared with 'long-shelf-life' and fresh bread, short-shelf-life bread offers both fresher taste and a moderately long shelf life, making it healthier to eat. At the time, this was absolutely a counter-intuitive innovation. Anyone with a bit of retail knowledge knows that wholesalers are extremely sensitive to product shelf life. For the same product, the market price of half-life inventory is often much lower than that of new-date products. Manufacturers rack their brains to extend shelf life to dispel wholesalers' concerns. But Wu Zhigang decided to go against the grain, directly cutting product shelf life to 5-7 days. The reason Wu Zhigang dared to take this risky step was first and foremost the huge retail traffic he saw. At that time in China, retail was arguably a top-tier trend. In 1990, China's total retail sales of consumer goods were only 825.5 billion yuan. By 2000, this figure had become 3.4153 trillion yuan, a 4.1-fold increase in 10 years. Behind these numbers was a massive flow of people, money, and goods. There was no e-commerce then, so the incremental growth naturally all went into the rapidly developing offline channels. Domestic offline retail giants such as Wumart, Walmart, Carrefour, RT-Mart, Suning, and Gome all entered and developed rapidly during this period. On one side were retailers with massive traffic, and on the other was a sizable fresh bread market, yet the two somehow missed each other. Because there were no professional fresh bread brands, large supermarkets often built their own in-store bakeries; small and medium supermarkets simply gave up on this business. For Wu Zhigang, this was as lamentable as the recent flood discharge from Qiandao Lake. Secondly, the chain bakery business model was too heavy. In his youth, Wu Zhigang was a 'hardcore fan' of Chairman Mao. When his eldest son was born, he named him 'Xuedong' (meaning 'learn from the East'), and he clearly understood the philosophy of 'annihilating the enemy in mobile warfare' when using the weak to defeat the strong. Bakery stores require large fixed costs, high labor costs, and a long product line. For a retired teacher, these were unbearable burdens for rapid expansion. Take Ganso as an example: in 2019, the company had over 648 stores, with rental expenses of 173 million yuan, total labor costs of 427 million yuan, and utilities and office expenses of 37.23 million yuan. Even excluding advertising and asset depreciation, the average annual sunk cost per store was nearly 1 million yuan. To this day, no bakery chain giant has emerged in the Chinese market. According to Orient Securities' 2019 statistics, the leading brand Holiland had 'nearly a thousand' stores, with BreadTalk and Ganso ranking second and third with 792 and 648 stores respectively. Compared with over 10,000 stores for Juewei Duck Neck, over 4,300 for Starbucks, and even the 672 cities at county level and above, the number of bakery stores is far from sufficient. Looking back, Taoli, by hitching a ride on the channel tailwind, indeed took a shortcut. **-03-**Taoli's Mastery In 1995, Wu Zhigang officially entered the bread industry and founded the brand 'Taoli'. This is a rather interesting name. 'Taoli' (literally 'peaches and plums') has traditionally meant youth and vitality, and peaches and plums are sweet and delicious, perfectly matching the product positioning of 'freshness'. However, in the contemporary context, 'Taoli' more often represents the students cultivated by teachers, symbolizing the fruits of long-term education. According to feedback from senior practitioners in the distribution field to Huashang Taolue, many retail store and distributor owners have heard the story behind Taoli, knowing that the brand was founded by a university teacher. This invisibly adds to the brand's storytelling appeal and business credibility. Of course, that came later. Before entering retail channels, Taoli's biggest challenge was solving the efficiency problem of short-shelf-life products. Since Taoli chose the wholesale channel, it had to settle for a price range generally accepted by the public. But the short shelf life meant that the margin for error in multiple links—production, marketing, logistics, and distribution—was very small. A slight mistake could cause a batch of goods to plummet in value or even become worthless. But Taoli's precision lies in providing an overall optimal solution to the efficiency problem. First, Taoli's channel system construction was closely planned around its factories. During the same period, competitors were advancing both short-shelf-life and long-shelf-life businesses simultaneously, eager to ship goods nationwide at once. But Taoli's channel system was laid out closely around the factory coverage radius, focusing on the short-shelf-life bread strategy. By reducing the distribution radius, it improved the sensitivity of store delivery. Taoli's factories operated on a 'day and night' two-shift model: during the day, they produced according to the sales forecast; at night, they focused on producing the difference between actual orders and the forecast. Both batches had to be on shelves by 6 a.m. the next day to maximize the morning peak sales period. This pursuit of efficiency is reflected in costs as high logistics expenses. In 2019, Taoli's delivery costs reached 710 million yuan, accounting for 57% of total sales expenses. Second, Taoli reduced the number of products and boldly adopted a hit-product strategy. According to Taoli's 2019 annual report, the company 'focuses on fewer but better products in the bread sub-category, not pursuing variety but the scale of single-product production and sales'. In product selection, Taoli preferred to improve popular categories that had been fully tested and accepted by the market. By reducing core SKUs offline, Taoli significantly lowered costs in raw material procurement, production processes, R&D investment, and store delivery. Especially in the early stages, even if market conditions changed, Taoli could quickly implement secondary adjustments and product promotions, greatly avoiding sales planning costs. According to a research report by Kaiyuan Securities, Taoli's multiple star products such as Chunshu (mature) and Natural Yeast each contributed over 10% of annual revenue. In brand investment strategy, Taoli strategically abandoned open media platforms and invested all sales expenses into channel marketing. In 2019, Taoli's 'advertising and promotion expenses' were only 47 million yuan, accounting for 0.8% of total revenue. Its board secretary stated on the SSE e-interaction platform, 'The company's advertising strategy has always been in-store display advertising'. On this basis, Taoli is promoting a series of capacity expansions. On November 12, 2019, the first phase of Wuhan Taoli's 20,000-ton capacity project was officially put into production. This was a delicate timing; two months later, Wuhan residents were able to stay home safely and stock up frantically. In February 2020, the Shandong Taoli project with 21,200 tons of capacity was put into production; in addition, Taoli is simultaneously advancing production bases in Shenyang, Jiangsu, and Zhejiang with a total capacity of over 100,000 tons. Such systematic operation successfully compressed the unit price of Taoli bread to below 9.9 yuan, achieving high cost-performance while leaving sufficient profit margins for channels and brands, ultimately bringing Taoli bread into ordinary households. In 2019, Taoli's revenue reached 5.6 billion yuan, with net profit of 680 million yuan; in the first quarter of 2020, despite the pandemic, Taoli achieved a net profit of 194 million yuan, a surge of 60%. **-04-**Challenges and Opportunities In April 2019, 84-year-old Wu Zhigang officially retired from Taoli Bread. His youngest son Wu Xueliang and second son Wu Xuequn took over as partners, serving as chairman and general manager respectively. In recent years, Taoli's growth has gradually shown signs of fatigue. Revenue growth fell from a peak of 28.95% to 16.77% over three consecutive years; net profit growth was even slower, dragging the net profit margin down by 1 percentage point over three years. From a regional market perspective, among the 19 regional subsidiaries registered after 2015 (excluding Shenyang), all recorded losses in 2019, with the Fujian market losing over 10 million yuan, and Shenzhen and Jiangsu losing 5 million and 8 million yuan respectively. Central China, due to new base construction, was the only region with negative gross margin. In 2018, Taoli recorded its first loss of 1.23 million yuan in the Shanghai market, where it had operated for nearly 20 years; in 2019, the loss expanded to 12.68 million yuan. Taoli's setbacks in leading markets have made many investors worry about its momentum, while also showing that Taoli's traditional approach is facing challenges. On the channel side, due to the fierce rise of online channels, the offline new retail revolution, and the trend of channel fragmentation, traditional supermarkets are no longer in the spotlight. RT-Mart, Carrefour, Metro, ParknShop, and other leading companies have sold out to cash in. Carrefour, once the top foreign retail brand, was sold to Suning for 6 billion yuan, less than 16% of Taoli's market value. Because Taoli is deeply tied to terminal channels and lacks direct communication with consumers, it is inevitably dragged down by traffic peaking or even declining. In product strategy, Taoli's high cost-performance, volume-driven approach has caused it to lose high-end customers seeking quality upgrades, making it difficult to enter high-margin consumption scenarios. Taoli's focus on regional market cultivation also missed the optimal window for national brand investment, resulting in low brand awareness in blank markets. This means Taoli must build awareness and reputation from scratch in new regions, making profitability in new markets difficult. What worries the outside world even more is its family-based corporate governance system. In 2015, when Taoli was listed on the Shanghai Stock Exchange, its family business characteristics became a major controversy. In the board of directors, besides Wu Zhigang's three sons and his wife Sheng Yali holding four seats, his direct and collateral relatives also participated in the company's operations. Take Wu Zhigang's younger brother Wu Zhidao as an example: the prospectus shows that Wu Zhidao was the company's HR manager, and his wife Sheng Yaping (Sheng Yali's sister) and their children Wu Xuefeng and Wu Jingyi were respectively the legal representative of the Shanghai company, marketing manager, and former accountant. At least 31 executives and close relatives held or had held shares at that time. According to calculations by Times Weekly, before the IPO, the Wu Zhigang family's shareholding ratio was as high as 96.77%. Now, the Wu Zhigang family holds approximately 67.84% of shares. Based on Taoli Bread's total market value of 39.46 billion yuan on August 14, the family's shareholding market value reaches 26.7 billion yuan. In the early days of the market economy, due to uneven quality of professional managers and chaotic property rights protection, the family model could indeed reduce internal management costs and help enterprise development. But as times evolve, family businesses often make it difficult for professional managers to advance, making it hard to attract and retain outstanding talent. Now, Taoli's management is aging, with the average age of the five board members reaching 59. However, while Taoli's 'internal troubles' are unresolved, 'external threats' have already surged in. Taoli Bread's demonstration effect has attracted domestic and foreign giants to enter the market. Bimbo, the world's largest baking giant, acquired Mankattan in 2018 and has become China's second-largest bread supplier after Taoli. As early as 1945, Bimbo used the 'central factory + wholesale' model to expand globally from Mexico and has grown into an industry giant with revenue in the hundreds of billions. China's largest local food company, Dali, also launched its short-shelf-life brand Meibeichen in 2018. Dali meaningfully chose to launch first in its headquarters Fujian and Taoli's backyard Northeast, targeting Taoli with lower prices. ▲ Bimbo and Dali attack Taoli on price Compared with strong challengers, Taoli's battle line appears too short. According to its 2019 financial report, 'bread + pastry' accounted for as much as 97.9% of revenue. Aircraft-carrier-level competitors often use their depth advantages in multi-category, multi-dimensional channels to drag Taoli down in channel purchasing policies and combined promotions. A fierce battle has already begun. The pressure of national expansion and the entry of giants have caused Taoli's channel costs to grow rapidly. According to its 2019 financial report, Taoli's store expenses reached 133 million yuan, a year-on-year increase of over 62%, far exceeding the growth rate of revenue and sales expenses. According to a research report by Dongxing Securities, per capita bread consumption in mainland China is only 24% of Japan's and 18% of Hong Kong's; the market size is only 46.3 billion yuan, indicating huge growth potential. It is certain that China's bread market is likely to become a hundred-billion-yuan consumer track in the future. With its unique market insight and strong team execution, Taoli has already gained a leading position, holding a 10% market share. But its current revenue of only 5.6 billion yuan is still far behind baking giants like Bimbo, which have revenues in the hundreds of billions. In the next 20 years, China's middle class will reach 800 million, roughly the total population of Europe. The Chinese market is bound to give birth to a hundred-billion-yuan baking giant. China's great rejuvenation is destined to be a fast-moving economic train. In the future bread industry, the outcome is far from decided. Source: Huashang Taolue (ID: hstl8888), Author: Guo Haiwei