Source: Shenk New Consumption (ID: xinshangye2016) A generation of candy kings seems to have declined. Who still remembers Hsu Fu Chi? As a generation of candy king, Hsu Fu Chi's annual sales growth reached 20% at its peak, and it ranked first in the bulk and packaged New Year candy market for 17 consecutive years. Rumor has it that when Taiwan's richest man, Terry Gou, got married, he specifically requested Hsu Fu Chi candies. But in recent years, Hsu Fu Chi's business performance has been deteriorating, and it has been repeatedly rumored to have lost favor with Nestlé, becoming a capital castoff. On the market, fewer and fewer young people are buying Hsu Fu Chi. A generation of candy kings seems to have declined. The Rise of the Candy King In 1992, Deng Xiaoping's southern tour speeches sparked a wave of entrepreneurship. At that time, new companies in Beijing were increasing at a rate of 2,000 per month, and the Shenzhen International Trade Center building housed more than 300 companies. Stories of starting a business with just a desk were unfolding here. (Image source: Internet) Among them were the Xu brothers from Taiwan Province. As early as the 1970s, the four Xu brothers—Xu Pu, Xu Cheng, Xu Hang, and Xu Geng—sold candies and preserved fruits on the streets of Taiwan. At that time, they had no money for advertising, so they would bring a rag when delivering goods, and after delivering to stores, they would proactively wipe counters and organize shelves to promote their products. Over time, local shop owners came to recognize the four brothers and Xu Ji Food. After selling in Taiwan for 14 years, Xu Ji Food was gradually hailed as a "golden brand" in the industry. But in the late 1980s, Taiwan's economy stagnated, and rising raw material prices and labor costs led to shrinking profits for Xu Ji Food. In 1992, with policy support, the four brothers went to Liuhua Tower in Dongguan, rented land to build a factory, engaged in OEM candy processing, and exported products to other countries. Two years later, the four brothers registered the "Hsu Fu Chi" trademark and planned to shift from export to domestic sales. From the trademark, Hsu Fu Chi seemed to intentionally associate with the Spring Festival. Taking advantage of the festive Spring Festival season, Hsu Fu Chi launched New Year candies, emphasizing festivity and good fortune. (Hsu Fu Chi New Year candies, image source: Internet) With the New Year candies, Hsu Fu Chi became an instant hit. In 1997, Hsu Fu Chi's sales exceeded 100 million yuan. In 2000, Hsu Fu Chi established supply and marketing relationships with hypermarkets like Carrefour and Walmart, opening up China's bulk candy market. Since then, Hsu Fu Chi accelerated its growth. Not only did it list on the Singapore Exchange in 2006, but its annual sales also grew at a rate of 20% per year, ranking first in the market for many consecutive years. Even at Taiwan's richest man Terry Gou's wedding, he spent lavishly on over 660,000 packs of candies, specifically requesting Hsu Fu Chi. By 2007, Hsu Fu Chi had 88 sales branches in China and over 13,500 directly managed terminal retail points, making it one of China's largest candy and confectionery enterprises. Even in 2010, when raw sugar prices rose 100% and the entire candy industry faced cost pressures and had to raise prices, Hsu Fu Chi maintained its original prices and achieved double growth in revenue and profit that year. That year, Hsu Fu Chi's revenue and profit were 4.31 billion yuan and 602.2 million yuan, up 14% and 31% year-on-year. However, behind prosperity lies hardship. For a long time, Hsu Fu Chi's products were mainly concentrated in lower-margin candies and pastries. Although it attempted higher-margin chocolate products, it failed due to insufficient product R&D and innovation capabilities. Meanwhile, many domestic and foreign brands saw the candy industry as a trend and accelerated their candy strategies. With competitors everywhere, Hsu Fu Chi urgently needed a team with high R&D and technical expertise to innovate and seek higher profit margins. Having reached its peak, Hsu Fu Chi began seeking external partners. Marrying Nestlé Unexpectedly, Hsu Fu Chi chose to "marry" to gain external capabilities. In 2011, Hsu Fu Chi was sold to Nestlé for $1.7 billion. After that, Nestlé held 60% of Hsu Fu Chi's equity, with the remaining 40% indirectly held by the four brothers. (Image source: Internet) At the end of that year, Hsu Fu Chi, whose market value had expanded fivefold in five years, delisted from the Singapore Exchange. With Hsu Fu Chi's nationwide network of 128 distribution teams and 20,118 direct retail stores, Nestlé quickly completed its layout in China's second- and third-tier cities. In contrast, Hsu Fu Chi, after the marriage, repeatedly found itself in the spotlight. In 2012, just before the Spring Festival, Hsu Fu Chi's mango crisps, sesame crispy sachima, and peanut酥心糖 were found to contain TBHQ and BHT, which are explicitly prohibited. Although Hsu Fu Chi insisted it had not violated regulations, it still faced removal from shelves in some supermarkets in Beijing, Shanghai, Guangzhou, and other cities. The following year, Hsu Fu Chi's internal cafeteria was exposed for food safety issues, with employees suffering collective food poisoning, pushing it into the public eye again. (Image source: Internet) After multiple food safety incidents, Hsu Fu Chi's revenue growth gradually slowed. In 2014, Hsu Fu Chi's market share fell to third place domestically, losing the "candy king" throne. At that time, outsiders lamented that Hsu Fu Chi had "married poorly." But the truth is that Hsu Fu Chi had already reached the top of the S-curve but failed to find a second growth curve. Relying on New Year candies and bulk wholesale, Hsu Fu Chi became the leader in the candy industry. However, as the candy king, Hsu Fu Chi's market share was only 3.9%, not far ahead of the second-place competitor. This is because the candy industry has low technical content and low barriers, leading to numerous competitors. On the high end, foreign giants like Kraft occupy the premium market; on the low end, brands like Yake and Golden Monkey follow closely. Meanwhile, new categories like functional candies are rapidly rising, putting Hsu Fu Chi's market position in jeopardy. In this context, Hsu Fu Chi still adhered to a traditional cost-conscious strategy, occupying the market with over 400 candy categories rather than product innovation. Therefore, even though bulk candies accounted for 65% of New Year sales, Hsu Fu Chi could not escape the harsh reality of its lack of innovation. The lack of innovation stems from a weak organizational structure. Despite rapid early performance, Hsu Fu Chi's corporate management lagged far behind its business development. At that time, Hsu Fu Chi had provincial branches in almost every province, with multiple subsidiaries within each province, totaling over 120 companies. Most of the staff were old employees, with few young people. The bloated organizational structure could not support Hsu Fu Chi's growth and dragged down its management and R&D capabilities. As a former candy king, Hsu Fu Chi had reached the "peak" in traditional candy. But as Schumpeter said, "No matter how many carriages you add, you will never get a train." When reaching the top of the S-curve, even with multiple candy categories, it is difficult to once again achieve the "candy king" status of Hsu Fu Chi. Hsu Fu Chi's misfortune lies in its failure to cross the discontinuity. What's Wrong with the Traditional Candy Industry? Hsu Fu Chi's fall from the throne is a microcosm of the decline of the traditional candy industry in China. Especially in 2014, with Nestlé acquiring Hsu Fu Chi and Hershey acquiring Golden Monkey, foreign companies significantly strengthened their control over the Chinese market, severely squeezing the living space of domestic small and medium-sized candy enterprises. A batch of second- and third-tier candy brands were eliminated, and the entire traditional candy industry underwent a major reshuffle. At the same time, consumers' focus on weight and health management became a new trend, with reduced sugar and sugar-free becoming new demands. Traditional high-calorie candy products were no longer needed, leading to a significant decline in both production and sales of domestic candies. According to statistics, from 2014 to 2016, China's candy market share continued to shrink, falling to 85 billion yuan in 2016. In the subsequent 2016-2018 period, China's candy production was 3.52 million tons, 3.31 million tons, and 2.88 million tons, respectively, with the decline accelerating. (Image source: Internet) When consumer demand changed and traditional candies declined, traditional candy enterprises failed to stand out. Like Hsu Fu Chi, most traditional candy enterprises faced insufficient product innovation capabilities and over-reliance on Spring Festival sales. Their product structures remained in traditional and low-end markets, making it difficult to occupy the industry's top tier. Meanwhile, the high-end consumer market was firmly occupied by foreign brands. Taking chocolate as an example, although brands like Hsu Fu Chi, Ma Dajie, Yake, and Golden Monkey all attempted high-profit chocolate products, statistics show that Mars and Ferrero had already captured 36.7% and 14.3% of the market share, respectively. At the same time, international brands like Dove began to lower their prices and join the bulk wholesale ranks. Unable to break into the high-end market, traditional candy enterprises had to continuously launch new products to expand their tracks and find new growth points. To this end, Ma Dajie added jelly, baking, biscuit, and other businesses, and even entered the catering market in 2019, launching fresh soy products like tofu and tofu skin. Hsu Fu Chi, which had been overly reliant on the Spring Festival, pivoted to nuts. This is a rapidly growing snack category. Data shows that in 2019, revenue of nut and seed roasting enterprises above a certain scale reached 176.64 billion yuan, up 8.7% year-on-year, with total profits of 10.79 billion yuan, up 7.92%. But in the nut field, major brands like Three Squirrels, Qiaqia, and Be & Cheery had already established themselves. Hsu Fu Chi's difficulty in entering nuts was no less than in the candy industry. To this end, Hsu Fu Chi began experimenting with mixed gift boxes combining nuts and candy snacks to break through the market's standalone nut products and meet multi-level consumer demands. Additionally, to address its over-reliance on traditional supermarkets, Hsu Fu Chi began shifting to e-commerce, even partnering with JD Logistics this year. However, entering the online space faces numerous competitors on one hand, and on the other, the disappearance of e-commerce dividends means that Hsu Fu Chi, which was slow to react, has little advantage. An industry insider revealed that although Hsu Fu Chi's e-commerce revenue share is increasing, it has not changed its weak online channel status. The growth path of a generation of candy kings is still somewhat bumpy. _ -END- _