30+ industry experts, 100+ B2B platform founders, 800+ manufacturer and distributor friends, gathering in Fuzhou to jointly explore the path of Internet transformation for the FMCG industry. Money or survival?! This is the harshest choice Chen Nan faces in leading Sanquan's transformation! On June 24, media reported that all vending machines for the O2O project Sanquan Fresh Food were temporarily suspended. It is understood that this is the second upgrade since the inception of the Sanquan Fresh Food vending machine plan, and the deployment schedule for the second-generation machines has been repeatedly delayed. Whether the third-generation machines will arrive as scheduled remains to be seen. Sanquan Fresh Food is a catering O2O project launched by Sanquan Food. Consumers can order meals through the app and pick them up at nearby fresh food vending machines. In mid-October 2014, Sanquan Fresh Food vending machines began trial operations in Shanghai. The most prominent feature of O2O projects is burning money, as can be seen from Sanquan Food's response to the Shenzhen Stock Exchange inquiry on June 3. In its response, Sanquan Food stated that in the 2015 annual report, the company's revenue increased by 3.49% year-on-year, while net profit attributable to listed company shareholders decreased by 56.83% year-on-year, mainly due to the large initial investment in the innovative project "Sanquan Fresh Food." In 2015, Sanquan Fresh Food achieved operating revenue of 14.9366 million yuan and a net loss of -74.008 million yuan. Sanquan stated that Sanquan Fresh Food is in the testing and cultivation period, with early-stage product development, technology investment, team building, low capacity utilization, and significant market development costs. Chen Nan said in an interview with Investor Daily that Sanquan Fresh Food has not been taken offline; it is currently undergoing equipment upgrades, replacing the original 2.0 equipment with new 3.0 equipment. At that time, the supply of breakfast, fruits, beverages, snacks, and other items will be increased. From a national perspective, O2O losing money is not news; making money is news. By the way, are there any O2O projects currently making money? At the launch of Sanquan Fresh Food, Chen Nan admitted that relying on the "Internet" to achieve profitability is unrealistic for now. After all, even BAT burned investors' money for over a decade before gradually establishing clear profit models in recent years. But not doing it is even more fatal! Traditional consumer groups are shifting online, and a large number of PEs are supporting entrepreneurs in continuous trial and error, encroaching on traditional enterprises' territory. Burning money or waiting to die—this choice is almost a nightmare for all traditional entrepreneurs, but they have to make a decision. For example, Haoxiangni acquired Baicaowei, Zhongpin renamed itself Xianyi Holdings and tested the "Internet + cold chain logistics" model, but so far, no one has achieved a breakthrough in "profit." Shuanghui Development, on the other hand, has been highly cautious in "touching the Internet." Although it has always said it would focus on developing e-commerce, it has not made large-scale attempts, so its profits have not been dragged down much. However, is it about short-term profit increase or sacrificing profits for continuous trial and error to occupy the future market? This is not a multiple-choice question with a standard answer. Chen Nan's choice is: "The company currently values two aspects most: one is industry position, i.e., whether market share remains the industry leader; the other is whether current cash flow can safely get the company through the economic downturn. As long as the enterprise meets these two conditions, it should invest in innovative projects to find a suitable path for future development and lay the foundation for the future." "If we don't invest in innovation and trial and error, then in the next round of economic acceleration when peers are growing, we may not find a direction." In 2016, Sanquan clearly tilted toward children's food. The company contracted all four subway lines to Disney and sponsored the popular Anhui TV variety show "Our Rules." The secret in children's products is "60% gross margin." From attacking white-collar lunch to creating a single children's hit product, Sanquan's paths are different but the thinking is the same: leading consumption upgrades in vertical markets. Sanquan Food's transformation to e-commerce platform suffers setbacks; second-generation leader CEO Chen Nan says to "bravely trial and error." In the face of the Internet wave, not all traditional enterprises can successfully transform. Chen Nan, chairman of traditional food manufacturer Sanquan Food, despite leading the company's transformation to an e-commerce platform with bold moves as early as two years ago, with the goal of building a vertical e-commerce platform centered around the dining table, has not achieved the expected results so far, but has encountered continuous setbacks. On June 24, all vending machines for the O2O project Sanquan Fresh Food, initiated personally by Chen Nan, were temporarily suspended. Since its trial operation in Shanghai in October 2014, the project has been in losses of tens of millions. However, Chen Nan said in an interview with Investor Daily that Sanquan Fresh Food has not been taken offline; it is currently undergoing equipment upgrades, replacing the original 2.0 equipment with new 3.0 equipment. At that time, the supply of breakfast, fruits, beverages, snacks, and other items will be increased. It is commendable that Chen Nan did not avoid the difficult issues but frankly accepted a telephone interview. Facing continuous losses, the naturally unyielding Chen Nan did not retreat. He told Investor Daily: "If we don't invest in innovation and trial and error, then in the next round of economic acceleration when peers are growing, we may not find a direction." During Chen Nan's seven years at the helm of Sanquan Food, the company expanded capacity extensively on the original basis, launched a series of innovative products, acquired former industry leader Longfeng Food and integrated it to profitability, making Sanquan Food the leader in the frozen food industry. Now, can the Internet "trend" that Chen Nan and his team are pursuing bring sustainable new growth points for the company? The Forger of the Frozen Food Leader Chen Nan is 47 years old and has been in charge of Sanquan Food for seven years since taking over from his father. However, he is not a parachuted executive, nor is he a traditional successor inheriting the family business. He is the successor of Sanquan Food and also an entrepreneur of Sanquan Food. Before being promoted to chairman of Sanquan Food in July 2009, he had been working in the company for 10 years. In 1994, the third year after Sanquan Food was founded, he resigned from Zhengzhou Hualian Shopping Mall in Henan and joined Sanquan Food. After that, he started as a salesperson and worked his way up to general manager. He personally experienced major decisions of Sanquan Food over the past decade or more. After he took over the company, Sanquan Food developed rapidly, becoming the leader in the domestic frozen food industry, occupying nearly 30% of the national market share. However, in recent years, due to the impact of macroeconomic downturn on the overall growth rate of the FMCG industry, Sanquan Food's development trend has not been very good. Chen Nan admitted to reporters that due to factors such as increased operating costs, fluctuations in gross margin of main business, and huge investment in innovative projects, the company's net profit has been declining in recent years. Annual report data shows that Sanquan Food's net profit from 2012 to 2015 was 140 million yuan, 118 million yuan, 81 million yuan, and 35 million yuan, respectively, showing a year-by-year decreasing trend starting from 2013, with a decline of as much as 57% in 2015. Despite this, Chen Nan remains very optimistic about the future development prospects of frozen food. "In some developed countries, per capita consumption of frozen food reaches dozens of kilograms, while in China it is only a few kilograms, indicating that the undeveloped market is still huge." This view also leads Chen Nan to continue investing funds in product research and development, increasing product categories and flavors to cover different classes, regions, and age groups, even when the macroeconomic downturn and negative net profit growth. Expanding into Fresh Food New Territory For enterprises, if they don't advance, they retreat. Since Chen Nan and his team have achieved a significant advantage in -18°C frozen food, their attention has turned to fresh food above zero degrees. According to Chen Nan, Sanquan Food's products are almost all in the -18°C temperature zone, with a long shelf life, usually half a year to a year, suitable for the lower freezer compartment of refrigerators. As frozen food highly overlaps with family consumption habits, fresh food above zero degrees suitable for the upper refrigerator compartment is still a huge market in China. Currently, Sanquan Fresh Food mainly provides consumers with fresh food at temperatures above zero. However, because fresh food in the above-zero temperature zone has a short shelf life, generally between two days and half a month, this poses great challenges to the logistics and operations of the traditional food industry. Currently, Sanquan Food is also laying out production capacity nationwide to bring production and supply locations closer to consumers, preparing for the development of fresh food in the above-zero temperature zone. It is understood that in April this year, Sanquan Food's private placement plan of no more than 690 million yuan was approved, planned to be used for new production capacity of 178,000 tons in the South China and Southwest bases. After completion, the company's production capacity layout across the country will be improved. In addition, the private placement project also includes the layout of 20,000 tons of fresh food production capacity in the South China base, and the fresh food project will be launched in the Guangzhou-Shenzhen area. O2O Project Transformation Incurs Losses Sanquan Fresh Food, as Sanquan Food's O2O project, is not only an important part of Chen Nan's layout for product innovation and channel innovation but also a reflection of his Internet thinking. Chen Nan believes that the Internet mainly brings changes in business models to enterprises, but the products are still traditional. How to use advanced Internet technology and existing supply chains to deliver traditional products more quickly and directly to consumers is the primary issue Chen Nan considers in his current innovation projects. Traditional large shopping malls and hypermarkets can no longer meet the sales of short-shelf-life fresh food. "To develop fresh food, we must find a new sales channel," Chen Nan said. The Sanquan Fresh Food vending machine was born out of this "channel" demand. However, Sanquan Fresh Food's loss of up to 70 million yuan in 2015 severely dragged down the company's profits, but Chen Nan called it the cost of "trial and error." He explained to Investor Daily that the company currently values two aspects most: one is industry position, i.e., whether market share remains the industry leader; the other is whether current cash flow can safely get the company through the economic downturn. As long as the enterprise meets these two conditions, it should invest in innovative projects to find a suitable path for future development and lay the foundation for the future. "If we don't invest in innovation and trial and error, then in the next round of economic acceleration when peers are growing, we may not find a direction." However, Chen Nan also admitted that this year the company will control the development of innovative businesses. "Last year, when the innovation project was not yet mature in terms of model, we pushed forward a bit too fast. This year, we are also moderately adjusting the pace and reducing the scale of innovation expenses." Acquisition of Longfeng Food Increases Market Share This time, Chen Nan's decision to lead Sanquan Food into the O2O industry put him in the spotlight. The last time Chen Nan received such attention was in 2013 when the company formally acquired Longfeng Food, the former giant in the frozen food industry. Public information shows that Longfeng Food was founded in Taiwan in 1977 and later entered the mainland market, once holding the top position in the frozen food industry. In 2007, the American H.J. Heinz Company acquired and integrated Longfeng Food, but the integration was not effective, and Longfeng Food quickly declined. In February 2013, Buffett, together with Brazilian investment company 3G Capital, bought Heinz Group and first sold off Longfeng Food. Sanquan Food, led by Chen Nan, eventually became the successor of Longfeng Food for 200 million yuan. After nearly two years of integration, Longfeng Food turned from initial losses to profitability. Relevant annual report data shows that Longfeng Food's loss in the first half of 2014 was 13.7 million yuan, and by 2015, the net profit of the four Longfeng Food companies in Zhejiang, Chengdu, Shanghai, and Tianjin exceeded 100 million yuan. For Chen Nan, acquiring Longfeng Food was a win-win decision to increase market share and brand influence. Sanquan Food has attached great importance to industry concentration since the first-generation leader Chen Zemin. To strengthen industry concentration, one can rely on endogenous growth on the one hand, and on the other hand, on mergers and acquisitions in the capital market. As Longfeng Food turns from losses to profits, it will continue to bring positive benefits to Sanquan Food. How to Pass on the Family Business Under the impact of the Internet wave and macroeconomic downturn, for a "second-generation entrepreneur," how to lead the family business to sustainable development is Chen Nan's most important proposition. The company's full transformation to a fresh food e-commerce platform is his heavy punch. Although the project has been implemented for two years without success, it cannot be arbitrarily concluded that Sanquan Food's Internet transformation has failed. After all, in the past nearly 20 years, this family business has achieved tremendous success in the frozen food market. For example, in terms of corporate governance, although Sanquan Food is a family business, Chen Nan strictly operates according to standardized corporate governance models internally. It is understood that the company has about 400 managers, but only two family members, and does not have the management ills common in family businesses. For more than a decade, Sanquan Food has adhered to its main business, insisting on food, and has not sought diversification to reduce the pressure of focusing on frozen food. Chen Nan said, "In China, more enterprises die from overexpansion than from starvation." He believes that there is still huge market space in China's consumer industry. "As long as you believe in urbanization, you can see that the potential of frozen food space is far from being released." Compared with many traditional entrepreneurs, Chen Nan places more emphasis on brand building. Even during the economic downturn, Sanquan Food's exposure remains at a high level. This is also in line with Chen Nan's thinking on brand promotion. He told reporters that the more everyone is reluctant to invest in advertising, the more we should persist in investing, because then advertising interference rates decrease and advertising efficiency increases. In recent years, Sanquan Food has invited famous film and television actress Jiang Wenli as spokesperson and sponsored "Chef Nic" and the recent popular Anhui TV variety show "Our Rules." According to Chen Nan, the company also reached a cooperation with Shanghai Metro Group to contract all four subway lines to Disney, mainly promoting new children's products. Currently, Chen Nan is no longer directly involved in the company's daily management, mainly participating in the group's innovative projects. Unlike Chen Nan at work, Chen Nan, without the chairman identity, likes to travel with netizens in private. He has been "lurking" in a travel forum on a website for years and has shared travel anecdotes with the media, saying he has been to Songshan, Baligou, Jiulianshan, and Zhenzhutan in Henan Province. Chen Nan feels that travel brings him closer to ordinary life, and traveling with netizens allows him to meet all kinds of people and not become disconnected from society. "Actually, everyone is ordinary. If you take yourself too seriously, you will lose a lot of the joy of being human," Chen Nan said. But not doing it is even more fatal! Burning money or dying—this choice is really enough! "Entering the lunch market is only a one-sided understanding of Sanquan Fresh Food. Moreover, there is no need to require instant profitability for convenience meals," Chen Nan said. At this stage, "entering Beijing and going south" will be the core work for the second half of the year. As an open vertical e-commerce platform, it will in the future enter categories such as breakfast, dinner, ingredients, clean vegetables, and fruits. Reprinted from: Investor Daily, Internet, Comprehensive New Food Era · New Distribution —— 2016 China "FMCG + Internet" Summit Forum —— This is a grand event focused on how the FMCG industry's channels will transform under the general trend of Internet+ transformation Conference Agenda 09:00-09:30 Registration 09:30-09:35 Host opening 09:35-10:05 2016 China FMCG Industry Trend Analysis Report - Zhao Bo 10:05-10:25 FMCG Enterprise Transformation Strategy and Path - Liu Chunxiong 10:25-10:45 Opportunities and Challenges Brought by FMCG Channel Transformation - Liu Zhao, CEO of Waiqin 365 10:45-11:25 Alibaba Retail Link All-Around Empowerment - Guo Kunkun, Alibaba Retail Link 11:25-12:00 Roundtable Forum - Brand Transformation: Improvement vs. Reconstruction? (Guests to be confirmed) 12:00-13:30 Lunch 13:30-14:00 Distributor Transformation: Urban Distribution Trends - Wang Qi, CEO of Weijie City Distribution 14:00-14:30 Roundtable Forum - Why Should Distributors Transform into Logistics? 14:30-15:00 Detailed Explanation of Zhongshang Huimin's One Machine, Two Wings Strategy - Su Xiaoxin, Vice President of Zhongshang Huimin 15:00-15:30 Detailed Explanation of Zhanghe Cloud Factory Strategy - Yang Lixiang, Zhanghe Tianxia (speech content to be confirmed) 15:30-16:00 Supply Chain Finance as a Lubricant for B2B to Drive Traditional Business - Chen Xian, CEO of 51 Order 16:00-16:30 2B Investment Principles and Thinking - Xu Xiaoping, Founder of ZhenFund (guest to be confirmed) 16:30-17:00 Small Retail, Big Business Opportunities: China's Retail Transformation and Upgrade - Wang Jianfeng, General Manager of E-commerce Division, Yurun Group 17:00-17:30 Roundtable Forum - Who is the King of FMCG B2B Models? (Guests to be confirmed) 18:00-20:00 Dinner For manufacturer and distributor friends who want to transform, this grand event is not to be missed. Interested friends can long-press the QR code below or click "Read Original" to register. Registration: Long-press the QR code below or click "Read Original" ↓↓↓ Click "Read Original" [Register]