No enterprise lasts forever, and the once-renowned Southern Black Sesame Paste is no exception. Crowned as the "leading enterprise in the paste food industry" and "best-selling for over 30 years," Southern Black Sesame Paste has hit a bottleneck in the past two years, with declining sales and sluggish growth. Attempts to reverse the trend by expanding into beverages and acquiring an e-commerce company have shown little effect. Amid the broader trend of consumption upgrading, where does the former "paste king" go from here? Performance Winter, Compounded by Food Safety Issues "Black sesame paste! When I was a child, hearing the vendor's cry for black sesame paste, I couldn't sit still..." Flashback to 30 years ago: In 1984, Wei Qingwen founded Guangxi Southern Children's Food Factory. In 1989, Southern recruited seven food experts and professors from across the country to develop black sesame paste, which was successfully developed six months later. Currently, there are about 50-60 companies operating in the domestic paste market, but apart from Southern Black Sesame, other companies' sales hover between 30 million and 50 million yuan. Southern Black Sesame Paste's sales have exceeded 2 billion yuan, with a market share of 40% in the paste food market, consistently ranking first. However, after 30 years of selling, Southern Black Sesame Paste still cannot avoid a development bottleneck and declining sales. In 2015, sales of black sesame paste reached 9.0067 million units, a year-on-year decrease of 5.39%; inventory was 215,500 units, a year-on-year increase of 19.19%. In 2016, paste sales were 6.3791 million units, a year-on-year decrease of 29.17%; inventory during the same period was 276,600 units, a year-on-year increase of 28.35%. According to Southern Black Sesame Paste's financial reports, in 2015, Black Sesame achieved revenue of 1.888 billion yuan and net profit of 149 million yuan. In 2016, revenue was 2.314 billion yuan, with net profit of 16.32 million yuan, a year-on-year decline of 89.06%. In the first half of 2017, Black Sesame's revenue was 930 million yuan, with net profit of 27.58 million yuan. Although this was an increase compared to the previous year, it still lags behind the 2015 performance. In the first half of 2015, Black Sesame achieved a net profit of 40.26 million yuan, about 1.5 times that of the same period this year. Along with the cliff-like decline in profits, Southern Black Sesame has repeatedly been exposed to food safety issues; in 2016 alone, Southern Black Sesame Paste failed two random inspections. In early 2016, five batches of Black Sesame products were listed on the Beijing Food and Drug Administration's quality blacklist due to excessive coliform bacteria. On September 29, 2016, the Jiangxi Provincial Food and Drug Administration reported that three batches of Southern Black Sesame Paste exceeded limits for coliforms and total bacterial count. Zhu Danpeng, a researcher at the China Brand Research Institute's Food and Beverage Industry, believes that the successive quality problems indicate that Southern Black Sesame Group, as an established company, has a low operational level. From production management to internal management and marketing innovation, there is little novelty, and the overall aging of the enterprise inevitably leads to loopholes. "Not Focusing on Core Business," Expanding into Beverages for Growth Facing the pressure of brand aging and market contraction, Southern Black Sesame is transforming by entering the beverage market to find new profit growth points. Wei Qingwen, chairman of Southern Black Sesame, once stated that the company places great importance on the beverage market, which is currently in a stage of consumption upgrading. According to earlier reports from The Beijing News, in 2011, Southern Black Sesame launched a new product, Black Sesame Dew, but it quickly disappeared from the market. In 2013, Southern Black Sesame established a beverage division, successively launching products such as Black Sesame Milk and canned beverages, but these are now hard to find on the market. Starting in 2015, Southern Black Sesame hoped to capture market share through brand marketing by sponsoring variety shows. In the fourth quarter, Southern Black Sesame sponsored Zhejiang TV's "Journey to the West Adventures" and simultaneously customized commemorative series products worth over 200 million yuan. However, contrary to expectations, the show's ratings did not meet expectations, leading to severe sluggish sales of peripheral products, dragging down Southern Black Sesame's performance. To find new profit growth points, in 2016, Southern Black Sesame heavily invested in launching a new plant protein beverage, Heihei Milk, attempting to create another major product. When Heihei Milk was launched, Southern Black Sesame used all-black advertisements to build momentum. Subsequently, it sponsored multiple variety shows under the Heihei Milk name. This year, Southern Black Sesame secured the naming rights for Jiangsu TV's "Lose My Life" and Shenzhen TV's "The Amazing Race," inviting Fan Bingbing as spokesperson. At the same time, to demonstrate determination, Southern Black Sesame invested in building a beverage production base in Chuzhou. The first phase of the project was completed at the end of August 2017. It is understood that the Chuzhou production base covers 350 mu and, when fully completed, will achieve an annual output of 150,000 tons of black sesame beverages. Despite high expectations, Heihei Milk's performance has been less than satisfactory. According to reports, Chuzhou Southern, the subsidiary responsible for producing and selling Heihei Milk, had revenue of 16.92 million yuan in the first half of this year, with a loss of 16.08 million yuan. Marketing expert Lu Shengzhen believes that Southern Black Sesame has not yet found a clear positioning for Heihei Milk. "Initially, it was positioned as a hunger reliever, then later as a light-fat product. The hesitation in positioning can create uncertainty among consumers." Zhu Danpeng also pointed out that Southern Black Sesame may want to make Heihei Milk another major product, "walking on two legs," but in the red ocean of the plant protein beverage market, where growth has slowed, breaking through is not easy. Southern Black Sesame's positioning of Heihei Milk has already deviated, and the strategy lacks precise medium- and long-term planning, which may ultimately lead to futile efforts. Can Acquiring Liduoduo Solve the Urgent Problem? In recent years, there have been many cases of listed food companies acquiring e-commerce companies, such as Haoxiangni acquiring Haomusi, Qingdao Kingking acquiring Hangzhou Youke, and Guanfu Co., Ltd. acquiring Sumi Information. This approach seems to have become another important means for Southern Black Sesame Paste to seek transformation. On May 9, 2017, Southern Black Sesame announced its intention to acquire 100% of Shanghai Liduoduo E-commerce Co., Ltd. (hereinafter referred to as "Liduoduo") by issuing 81.5708 million shares at 6.88 yuan per share and paying 139 million yuan in cash. However, the impact was not optimistic. Due to suspected benefit transfer, Southern Black Sesame was questioned by the Shenzhen Stock Exchange and suspended. After resuming trading on August 15, Southern Black Sesame hit the daily limit down, followed by three consecutive declines, with the stock price falling from 8.06 yuan to 6.78 yuan. According to China Business News, Wei Qingwen stated that the reason for acquiring Liduoduo was strategic needs. "The future trend in the food market is small batches, multiple specifications, and personalization. Our black sesame is a traditional enterprise. To adapt to this market change, it is necessary to combine with logistics and e-commerce. How to combine? Should we build our own team or merge with an established company? We chose the latter." In fact, since 2012, through cooperation with Liduoduo, Southern Black Sesame Paste has covered e-commerce platforms such as Yihaodian, JD.com, and Tmall Supermarket, which are self-purchasing distribution platforms. The acquisition of Liduoduo by Southern Black Sesame Paste seems more like finding an e-commerce sales channel agent for itself. After the transaction is completed, Black Sesame can further achieve synergies and scale effects with Liduoduo in sales channel sharing, production support, brand promotion, and other aspects, thereby enhancing the overall competitiveness of Black Sesame's food business and strengthening its overall profitability and risk resistance. On the one hand, Black Sesame can leverage the short transmission chain and fast speed of e-commerce channels to understand consumer needs more quickly and effectively, develop products that meet consumer needs, and improve the company's return on assets. On the other hand, the lower trial-and-error cost of e-commerce channels is conducive to Black Sesame's development of new products and market promotion. At the same time, Liduoduo will be included in Black Sesame's consolidated financial statements, and its business revenue and profit scale will also achieve rapid growth. For Liduoduo, it can leverage Black Sesame's offline channel advantages to accelerate the integration of online and offline. It can also utilize Black Sesame's production advantages to ensure the quality of its own brand products. It is understood that Liduoduo was established in March 2012, providing one-stop e-commerce solutions, with online sales mainly of food and beverages. It holds online agency rights for food brands including Bright, Mengniu, and Ferrero, and currently covers e-commerce platforms such as JD.com, Tmall Supermarket, and Yihaodian. In the first half of 2017, its revenue reached 445 million yuan, a year-on-year increase of 130.22%; net profit was 21.55 million yuan, a year-on-year increase of 357%. The question arises: Can Black Sesame's acquisition of Liduoduo solve the problem? Source: Pintu Business Review -END-