Uni-President, which has long hoped to drive performance through new product launches and distribution channel reforms, seems to have encountered a small predicament. Recently, Uni-President China (00220.HK) released its 2017 interim results, which were not optimistic, with both revenue and profit declining. Among them, the beverage business declined significantly. Uni-President attributed this to the negative effects of adjusting sales pace and reforming traditional operating models since the second half of 2016. Zhu Danpeng, a researcher at China Food Industry, told Yicai that Uni-President's performance decline was expected. In 2015, some new products rose, such as Hai Zhi Yan and Xiao Ming Tong Xue, which added points to the Uni-President brand, thereby driving improvements in other categories. But entering 2016, Hai Zhi Yan and Xiao Ming Tong Xue both declined, and the sales channel reform has not yet shown results. It will not be easy for Uni-President to reverse the decline. Uni-President's Revenue and Profit Both Decline In the first half of this year, Uni-President's revenue was 10.886 billion yuan, down 7.1% year-on-year; gross profit was 3.659 billion yuan, down 15.38%; net profit was 570 million yuan, down 26.52%. Among them, the beverage business, which accounts for the largest share, saw a further increase in decline this year. Compared with a 9.9% decline in the same period last year, Uni-President's beverage revenue in the first half of 2017 was 6.598 billion yuan, down 11.4% year-on-year. Uni-President attributed this to the negative effects of adjusting sales pace and reforming traditional operating models since the second half of 2016. In its financial report, Uni-President pointed out that the decline in revenue during the period was mainly due to the continued promotion of operational reforms in the beverage business since the second half of 2016, adjusting sales pace according to seasonal demand for beverages, resulting in a large gap compared with the same period in 2016; at the same time, affected by rising prices of bulk raw materials and other factors, gross margin also declined. According to the announcement, Uni-President's performance has been declining for the past three years. After reaching a record high of 23.329 billion yuan in 2013, its performance has been on a decline for the past three years. To cope with the annual decline in performance, in June 2016, Uni-President issued a major personnel change announcement: Chairman Lo Chih-cheng announced that he would no longer serve as General Manager, and Hou Ronglong, General Manager of Uni-President China, would take over. After Hou left, Liu Xinhua succeeded as General Manager. However, judging from current performance, there has been no improvement. Zhu Danpeng pointed out that after Liu Xinhua took office, he implemented some new policies, including not stocking up and inventory control, which also damaged overall performance. The recent organizational restructuring, such as personnel consolidation, has hit grassroots employees hard, thereby adversely affecting business. At the same time, Uni-President's overall sales have not effectively recovered. As for Uni-President attributing the decline in performance to rising raw material costs, Zhu Danpeng believes that although there is some truth to it, the entire industry is facing similar situations, so Uni-President's reasoning is somewhat evasive. Compared with Master Kong, Uni-President's marketing area and sales outlets are much smaller. Affected by internal and external factors, as well as its own product line construction, these combined factors have affected Uni-President's performance. New Products Still in Cultivation Period, Distribution Channels "Not Adapted to Local Conditions"? In the past two years, the beverage business, the most important business for Uni-President, has been sluggish. Previously, Uni-President launched new products such as Hai Zhi Yan and Xiao Ming Tong Xue, which once made the financial reports look better. Uni-President also increased its efforts to continuously launch new products, but failed to replicate the success of Xiao Ming Tong Xue, directly affecting its performance. In the past two years, Uni-President has also been making efforts in the high-end beverage and carbonated beverage markets: this summer, Uni-President launched a plant-based energy drink "Gou Ran" (Enough Burn), priced at 6 yuan for 300 ml. Another new product is "Da Qi" (Cheer Up), a beverage with juice, bubbles, and multivitamins, priced at 4-5 yuan per bottle, but this product still belongs to the carbonated beverage category. Zhu Yue, Executive Director of CIC Consulting, told Yicai that traditional carbonated beverages will maintain a certain market position in the future due to their unique taste, but this advantage will be impacted by the growing concept of healthy beverages. How to launch sugar-free, low-calorie, or even functional health-effect carbonated beverages to attract consumers will become the most important topic for major beverage companies. Uni-President's new product "Da Qi" is a new type of carbonated beverage that conforms to this trend, emphasizing juice and multivitamin features, weakening the concept of carbonated beverages itself. However, whether consumers will pay for it still needs market testing. On the other hand, while launching "Da Qi", Uni-President also launched "Jia You" (Add Oil), an upgraded version of its "Fresh Orange Duo" product. Through the concepts of "Add Oil" and "Cheer Up", supplemented by the positioning of juice products, it can be seen that although Uni-President seems to be focusing on carbonated beverages, it is still breaking through the market with its traditional strength in compound juice beverages. Moreover, at a time when Coca-Cola's performance is declining and the carbonated beverage industry urgently needs fresh blood and upgrades, launching this juice-based carbonated beverage can be said to be a highly targeted key move. Similarly, whether consumers will pay will also depend on the product's taste appeal and the coordination of sales channels. However, at present, Uni-President's sales channels seem to have encountered some trouble. Lo Chih-cheng, Chairman of Uni-President Group, proposed promoting the difficult "zero inventory" policy in mainland China. Zhu Yue said that the "zero-based budgeting, channel reform, and food and beverage merger" policies are essentially aimed at reducing costs, including operating costs and channel costs. However, for distributors, because Uni-President has set a "no growth" target for shipment volume, controlling supply, distributors lack the motivation to further expand their operations. This policy currently seems to be "not adapted to local conditions" in mainland China. Although achieving "zero inventory" is difficult for distributors, pursuing the goal of "zero inventory" and changing corporate channels and business methods around zero inventory will greatly promote changes in distributors' product structure and business models. In the long run, this measure is conducive to large distributors regaining competitiveness. As for the implementation of the "food and beverage merger," in Zhu Yue's view, although it may cause greater operational pressure on some distributors in the short term, in the long run, it can indirectly help distributors broaden their product categories. Moreover, in recent years, instant noodle products including Uni-President's "Tang Daren" have shown good growth momentum. After the merger, larger new distributors can better adapt to market demand through different product combinations. It can be seen that for Uni-President, whose new products have not yet shown their power and whose sales channel reform has encountered local adaptation issues, even if the strategy is theoretically feasible, there are still many uncertainties before it can take effect. Uni-President, already deeply mired in performance decline, bears considerable pressure. Source: Yicai Daily -END-