---
title: "Selling 490 Tons of Spicy Strips Daily: How Profitable Is Weilong?"
description: "Foodies have spawned another listed company: Weilong, the internet-famous spicy strip maker, is preparing for an IPO. In 2020, Weilong sold 179,500 tons of spicy strips, generating revenue of 4.1 billion yuan. Riding the wave of new consumption, Weilong attracted Tencent, Yunfeng Capital, and Hillhouse Capital before its listing, securing $549 million in funding and a valuation of 60 billion yuan. Is spicy strips a good business?"
author: "秦海清 刘霞"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-05-23"
language: "en"
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# Selling 490 Tons of Spicy Strips Daily: How Profitable Is Weilong?

> Foodies have spawned another listed company: Weilong, the internet-famous spicy strip maker, is preparing for an IPO. In 2020, Weilong sold 179,500 tons of spicy strips, generating revenue of 4.1 billion yuan. Riding the wave of new consumption, Weilong attracted Tencent, Yunfeng Capital, and Hillhouse Capital before its listing, securing $549 million in funding and a valuation of 60 billion yuan. Is spicy strips a good business?

Foodies have spawned another listed company: Weilong, the internet-famous spicy strip maker, is preparing for an IPO. In 2020, Weilong sold 179,500 tons of spicy strips, generating revenue of 4.1 billion yuan. Riding the wave of new consumption, Weilong attracted Tencent, Yunfeng Capital, and Hillhouse Capital before its listing, securing $549 million in funding and a valuation of 60 billion yuan. Is spicy strips a good business?

The most popular spicy strips online, Weilong is about to go public.

On May 12, Weilong submitted its prospectus to the Hong Kong Stock Exchange. What started as an unremarkable workshop in Luohe now earns 800 million yuan annually from selling spicy strips. Founder Liu Weiping's family holds 92% of the company's shares, and after the listing, he is expected to become a billionaire from selling spicy strips—every penny of it earned by foodies one pack at a time. After the IPO, Weilong's market value is expected to surpass that of Liangpin Shop, Three Squirrels, and Yanjin Shop, making it the first spicy strip stock.

How does its performance look? Is spicy strips a good business?

**-01- Selling 490 Tons of Spicy Strips Daily, 20% Consumed by East China**

Weilong's product line is not extensive, divided into three categories: (1) seasoned flour products, i.e., spicy strips, including gluten, spicy sticks, and Qinqin Shao; (2) vegetable products, including Konjac Shuang and Wind Eats Seaweed; (3) soy products and others. In terms of sales volume, from 2018 to 2020, Weilong sold 155,500 tons, 173,300 tons, and 179,500 tons of spicy strips respectively. That means in 2020, Weilong sold an average of about 490 tons of spicy strips per day.

These spicy strips are sold nationwide, with Weilong dividing its sales regions into East China, Central China, North China, South China, Southwest, and Northwest. Interestingly, Weilong sells better in East China, where tastes are lighter. In 2020, sales in Anhui, Jiangsu, Zhejiang, and Shanghai accounted for 20% of Weilong's annual revenue. The traditionally spicy Southwest region contributed only 12% of revenue, possibly because Southwest consumers are more discerning about spicy strips—after all, hotpot and Bobo chicken are more "fragrant" than spicy strips.

Although Weilong sells a lot of spicy strips daily, the growth rate of its spicy strip sales is declining. In 2019, Weilong's spicy strip sales grew 11.4% year-on-year, but in 2020, growth fell to about 3.6%, partly due to the pandemic, but the declining sales growth is a warning sign for investors.

**-02- Spicy Strips Getting More Expensive**

In the three years before the IPO, Weilong focused on improving performance. From 2018 to 2020, Weilong's total revenue was 2.752 billion yuan, 3.385 billion yuan, and 4.12 billion yuan respectively, with a compound annual growth rate of 22.4% over the three years. During the same period, net profit was 476 million yuan, 658 million yuan, and 819 million yuan, with gross margins of 34.7%, 37.1%, and 38%.

The increase in revenue and net profit was partly driven by sales volume, but also because Weilong raised prices for both spicy strips and soy products. In 2018, the average selling price of Weilong spicy strips was 13.9 yuan per kilogram, rising to 15 yuan per kilogram in 2020, an increase of 1.1 yuan per kilogram over two years. Soy products rose from 22.4 yuan per kilogram in 2018 to 25.8 yuan per kilogram in 2020, though soy products account for a relatively small share of revenue.

Spicy strips are Weilong's main revenue source, with revenue of 2.162 billion yuan, 2.475 billion yuan, and 2.69 billion yuan from 2018 to 2020, accounting for about 70% of total revenue. Therefore, price increases for spicy strips directly drive Weilong's revenue growth.

However, the proportion of spicy strips in total revenue is declining, from 78.6% in 2018 to 65.3% in 2020. Correspondingly, the share of vegetable products in revenue is rising. From 2018 to 2020, annual revenue from vegetable products was 298 million yuan, 665 million yuan, and 1.168 billion yuan, with the share rising from 10.8% in 2018 to 28.3% in 2020. Vegetable products are priced higher, with an average selling price about twice that of spicy strips, and they have the highest gross margin among the three categories, reaching 39.3% in 2020. By increasing the proportion of vegetable products in sales, Weilong improved its overall gross margin to 38% by 2020, higher than peers Liangpin Shop and Three Squirrels, which had gross margins of 30% and 23.9% respectively.

In terms of both revenue and gross profit, spicy strips are Weilong's absolute pillar, but over-reliance on the spicy strip business is also a source of risk. If a crisis hits spicy strips, the entire company could face a major crisis. Weilong's response is to adjust its product mix and increase the proportion of vegetable products, but it has not developed more product lines, making its product range more limited than Liangpin Shop and Three Squirrels, which also means its overall revenue scale is not on the same level as theirs.

**-03- 90% of Sales Rely on Distributors**

Since 2018, Weilong's good performance can be attributed to its distributors. The prospectus shows that from 2018 to 2020, revenue from offline distributors accounted for 91.6%, 92.6%, and 90.7% of total revenue.

Weilong revealed that in 2018, it adopted a relatively aggressive distributor strategy, broadly expanding its distribution network. From 2018 to 2020, Weilong added 1,297, 1,297, and 1,490 new distributors respectively, while terminating cooperation with 430, 554, and 2,132 distributors in the same years. Weilong first develops new distributors, then screens out high-quality ones based on performance, maintaining market reach. Relying on offline channels has made Weilong's online channel development less smooth. As of the end of 2020, Weilong had 1,950 distributors, covering over 570,000 retail terminals, with about 70% of retail terminals in lower-tier markets. As of the end of 2020, Weilong had only 22 online distributors.

The large share of offline distributors makes Weilong cautious about their opinions when developing online channels. At the beginning of 2020, Weilong had 56 online distributors, but by the end of the year, it cut 59, added only 25, resulting in a net decrease of 34 online distributors. Weilong stated that it terminated cooperation with many online distributors because most of them had potential competition with Weilong's online self-operated stores on third-party platforms under the direct sales model.

Simply put, Weilong may want to sell online itself, but its online sales reform has not been effective. Data shows that in 2019, Weilong's online distribution and direct sales revenue accounted for 4.2% and 3.2% of total revenue respectively, and by 2020, the gap widened to 5.6% and 3.7%. According to Frost & Sullivan data, 95.0% of Weilong's consumers are aged 35 and under, and 55.0% are young people aged 25 and under, meaning Weilong's main buyers are young people.

Generally, young people today prefer online shopping, but Weilong's products are mainly sold offline, with online revenue never exceeding 10%. To capture the youth market, Weilong may need to break away from distributors, but doing so now would be like self-harm.

**-04- Advertising Expenses Up 50%**

In the new consumption era, becoming an "internet celebrity in the food industry" is the goal for practitioners, and Weilong has its own insights. The prospectus details its marketing and promotion efforts.

The prospectus shows that from 2018 to 2020, Weilong's selling expenses were 235 million yuan, 281 million yuan, and 371 million yuan respectively, with promotion and advertising expenses of 26.809 million yuan, 30.82 million yuan, and 46.658 million yuan. In 2020, Weilong's advertising expenses grew 51.4% year-on-year, significantly exceeding the 15% growth in 2019. Weilong stated that as it continues to build online platforms, it expects marketing related to online channel cooperation to continue increasing.

Weilong claims to use e-commerce and social media channels, through interactive marketing activities, to build a trendy and fun brand image. Weilong believes the best marketing strategy is to make customers natural brand advocates. How to turn consumers into "organic traffic"? Weilong's approach is to increase consumer participation in brand building, enhance interaction with consumers, and strengthen communication through packaging design and copywriting.

When Weilong learned that its customers are typically young people aged 35 and under, it adopted highly targeted marketing methods. For example, for Generation Z, Weilong's strategy is to cultivate their memories, stimulate their craving for the taste of their teenage years, and extend their attachment to the Weilong brand. To this end, Weilong specifically chose Bilibili as a marketing content platform to cater to Generation Z's media preferences.

Additionally, Weilong listed some representative marketing activities, such as the "Double 11 Wei Ni Cou Dan" themed marketing, the "Everything Can Be Spicy" themed product marketing, and the Excel-style store interface hunger marketing.

Weilong stated that its operating performance depends on the effectiveness of marketing and promotional plans, and inappropriate marketing activities may adversely affect Weilong's brand image. If marketing and advertising plans fail to continue succeeding, Weilong's business and operating results may be materially adversely affected.

**-05- The Original Sin of "Junk" Food**

In 2015, Weilong began experimenting with "Apple-style" packaging to shed the image of "inferior, cheap, unhealthy" and become more upscale, but no matter how the packaging changes, the "junk food" label remains.

According to Beijing News statistics, from 2015 to mid-2017, 195 batches of spicy strips from over 100 manufacturers nationwide were blacklisted by the food and drug administration. After the 315 Gala exposed chaos in the spicy strip industry, spicy strips became even more inseparable from the "junk food" label. A search for Weilong on Black Cat Complaint shows that from January 11, 2019, to May 11, 2020, Weilong Food received 100 complaints, mainly about foreign objects, spoilage, and other food safety issues. In the past month alone, there have been over a dozen consecutive complaints about food safety issues. On the complaint page, although Weilong officials promptly arranged for special handling, this cannot hide Weilong's food safety problems.

As early as 2016, the Ningxia Food and Drug Administration reported that sodium cyclamate (a sweetener) was detected in Weilong seasoned flour products, which should not be present. In 2018, in a random inspection by the Shandong Food and Drug Administration, Weilong's large gluten was found to contain sorbic acid (calculated as sorbic acid) at 0.3g/kg and dehydroacetic acid (calculated as dehydroacetic acid) at 0.2g/kg, while the standard stipulates they should not be used. In the same year, the Hubei Food and Drug Administration also reported that Weilong's Qinqin Shao and small gluten were "unqualified" because they contained sorbic acid and its potassium salt, and dehydroacetic acid and its sodium salt.

For the food industry, food safety is a red line that cannot be crossed, and a small product issue can be fatal to a brand. The prospectus warns that failure to maintain food safety and consistent quality could have a material adverse effect on Weilong's brand, business, and financial performance.

Weilong's main customers are mostly young people, a group known for being "seeking novelty, fickle, and valuing life." How long they will continue to love spicy strips is something Weilong must consider.

**-06- Is It Worth the 60 Billion Yuan Valuation?**

Whose Weilong is it? Of course, it belongs to the Liu Weiping family.

Before the IPO, Weilong's equity structure showed that Hehe Global Capital, controlled by the Liu Weiping family, held 92.17% of Weilong's shares.

Of Weilong's six senior executives, five come from the Liu Weiping family. President Liu Fuping is Chairman Liu Weiping's younger brother, Vice President Liu Zhongsi is Liu Weiping's cousin, CFO Peng Hongzhi and Vice President Chen Lin are Liu Zhongsi's older and younger cousins, respectively. Only Vice President Zhang Xiaosan is unrelated to Liu Weiping.

Interestingly, the educational backgrounds of Weilong's executives are quite mismatched with the food industry. Liu Fuping and Liu Weiping never attended university before starting their business; only in 2017 did the brothers complete an online administrative management course from Southwest University. Liu Zhongsi graduated from Hunan University with a degree in physical education; Peng Hongzhi's undergraduate degree was in geography, and his master's was in cartography and geographic information systems; Zhang Xiaosan majored in law at Anhui Radio and Television University; Chen Lin graduated from Yueyang Foreign Trade Vocational Technical School.

Yet, it is this group of people, seemingly with low education or little knowledge of the food industry, who made Weilong the leader in China's spicy strip industry.

Additionally, the prospectus disclosed Weilong's only financing in history, which introduced eight external shareholders, including CITIC Industrial Fund, Hillhouse, Tencent, Yunfeng Capital, and Sequoia Capital, collectively holding about 5.85% of Weilong's shares. Based on the investment amount of these eight shareholders, totaling $549 million, Weilong's post-investment valuation is approximately $9.385 billion, or about 60 billion yuan. Generally, after listing, a company's valuation will be further pushed up.

However, even at the pre-IPO valuation of 60 billion yuan, it is higher than the combined market value of the "three snack giants" on the A-share market (Three Squirrels, Liangpin Shop, and Qiaqia). As of the close on May 13, the market values of Three Squirrels, Liangpin Shop, and Qiaqia Food were 19.6 billion yuan, 19.7 billion yuan, and 27.1 billion yuan respectively.

Based on Weilong's 2020 net profit, this round of financing gives Weilong a PE of about 75 times, while the latest annual report PEs of Three Squirrels, Yanjin Shop, and Liangpin Shop are all below 70 times.

According to Frost & Sullivan, although Weilong ranks first in market share in China's spicy snack food industry, its market share is only 5.7%, indicating that China's spicy snack food is a highly competitive track.

Is Weilong overvalued?

Source: Baobian (ID: baobiannews) Authors: Qin Haiqing, Liu Xia

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