--- title: "The Great Collapse: The Fall of Beingmate, Once the No.1 Domestic Milk Powder Brand" description: "Beingmate, once crowned as China's top domestic milk powder brand, held a top-three market share for years. However, by 2016, its sales plummeted and it suffered massive losses, with revenue dropping 39.02% year-on-year to 2.764 billion yuan and net profit attributable to shareholders falling 853.24% to -781 million yuan. This article explores the reasons behind Beingmate's decline from glory to ruin." author: "维尼熊" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2017-09-24" language: "en" canonical: "https://xinjignxiao.com/en/articles/the-great-collapse-the-fall-of-beingmate-once-the-no-1-domestic-milk-pow-b31484d9/" markdown: "https://xinjignxiao.com/en/articles/the-great-collapse-the-fall-of-beingmate-once-the-no-1-domestic-milk-pow-b31484d9.md" original_source: "https://mp.weixin.qq.com/s/VTAYlXT2J9ogz6FTAOozDg" translation: "https://xinjignxiao.com/zh/articles/%E5%A4%A7%E8%B4%A5%E5%B1%80-%E5%9B%BD%E4%BA%A7%E5%A5%B6%E7%B2%89%E7%AC%AC%E4%B8%80%E5%93%81%E7%89%8C-%E8%B4%9D%E5%9B%A0%E7%BE%8E%E9%99%A8%E8%90%BD%E8%AE%B0-b31484d9.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/the-great-collapse-the-fall-of-beingmate-once-the-no-1-domestic-milk-pow-b31484d9/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # The Great Collapse: The Fall of Beingmate, Once the No.1 Domestic Milk Powder Brand > Beingmate, once crowned as China's top domestic milk powder brand, held a top-three market share for years. However, by 2016, its sales plummeted and it suffered massive losses, with revenue dropping 39.02% year-on-year to 2.764 billion yuan and net profit attributable to shareholders falling 853.24% to -781 million yuan. This article explores the reasons behind Beingmate's decline from glory to ruin. Beingmate, once crowned as China's top domestic milk powder brand, held a top-three market share for years, enjoying great success and prestige. However, by 2016, the company's sales performance plummeted, and its operating results showed huge losses. That year, its revenue was 2.764 billion yuan, a year-on-year decrease of 39.02%; **net profit attributable to shareholders of the listed company was -781 million yuan, a year-on-year decrease of 853.24%**. So why did Beingmate go from being a former king to a loss-maker? And how did it fall from glory to decline? Today, Fengyun Jun will talk about Beingmate's twists and turns. **1. Initial Success** In November 1992, Beingmate was founded in Hangzhou, Zhejiang. The founder, Xie Hong, was a genius. At 15, he was admitted to Hangzhou Business School (the predecessor of Zhejiang Gongshang University) to study food hygiene. In 1987, he entered Zhejiang University to study philosophy. While pondering the universe and everything, he developed an interest in infants. Combining infants with food, he created a new instant rice cereal for infants—Beingmate started with instant rice cereal. At that time, the domestic infant instant rice cereal market was dominated by American Heinz, which held a near-monopoly, leaving domestic brands on the sidelines. For Beingmate to develop, challenging Heinz was inevitable. But you need to be strong yourself first; product quality had to be excellent. Xie's product was smooth, melted in the mouth, and of top quality, meeting the basic conditions to challenge Heinz. Besides the product, strategy was also important. After all, Heinz was wealthy and powerful, so a head-on clash was not an option. Xie's philosophy studies were not in vain; they came in handy at a critical moment. He adopted a "rural包围city" strategy: > Strategically, first attack the rural market, then second- and third-tier cities, then the edges of first-tier cities, and finally the heart of first-tier cities; > > Tactically, combine special dealerships with agency models, focus on franchisees, concentrate forces on mom-and-pop stores in county-level cities and first-tier fringe areas, quickly build a national sales network, encircle Heinz, and then annihilate them. In just over two years, Beingmate swept the Chinese infant rice cereal market, with an annual market growth of 70%, dethroning Heinz and becoming the dark horse champion in China's infant rice cereal market. **2. Rising Prominence** After succeeding in the infant rice cereal market, Beingmate was ambitious and ready to expand further, extending its industry chain. Founder Xie Hong then formulated a "concentric diversification" strategy, with the next target being infant formula. > First, milk powder is a necessity; China has a large population and a vast market; > > Second, with rapid economic development, national purchasing power has increased, and the infant formula market is growing rapidly; > > Third, Beingmate had already established a good sales network for infant rice cereal, providing good channels; > > Finally, Beingmate had accumulated rich experience in infant food, making it a natural step to enter the milk powder industry. In 2001, Beingmate launched its milk powder with the slogan "International Quality, Chinese Formula," introducing "more suitable for Chinese babies' constitution" Beingmate milk powder, sounding the horn for its entry into the milk powder market. With the strong sales network established earlier, Beingmate quickly opened up the infant formula market. That year, Beingmate's total sales exceeded 100 million yuan. In 2004, the "big-headed doll" incident caused by inferior milk powder in Fuyang triggered nationwide concern about infant food safety, plunging the entire industry into a deep freeze. Beingmate, which had always adhered to high standards and strict requirements in product quality, benefited from the industry's "reshuffle" and further expanded its market share. In 2008, the "melamine incident" broke out, causing nationwide uproar and a serious credibility crisis for domestic milk powder. Sanlu, the big brother of China's milk powder industry and the sales leader for 17 consecutive years, collapsed in an instant. Beingmate was one of the few companies that avoided the melamine incident and subsequently faced major development opportunities. Due to excellent product quality, Beingmate quickly rose to become the leader of domestic milk powder enterprises. **3. Era of Chaos** After the melamine incident, foreign brands became hot commodities. To ensure their babies had safe milk, Chinese parents "cleaned out" foreign milk powder, with many going to Hong Kong to stock up, and some even flying to New Zealand, Australia, Europe, etc., to buy milk powder. At the same time, foreign milk powder companies quickly swept through China's mid-to-high-end milk powder market, holding an absolute monopoly in the high-end segment. The sudden market changes brought unprecedented disaster to domestic milk powder brands, plunging the entire domestic industry into an unprecedented crisis, with the whole sector in a gloomy state. Against this backdrop, a price war broke out in the milk powder industry to compete for market share. In early 2009, several domestic dairy companies launched the most intense price war in history to grab market share. Beingmate could not stand by and quickly followed suit, engaging in a fierce price war. After several years of price war, they found that although sales revenue grew well, net profit was not optimistic. **But the most terrifying thing was the unfavorable change in the overall market structure.** **First, their bargaining power in the industry chain was greatly weakened.** Previously, milk powder manufacturers were relatively strong and had some bargaining power over downstream channels. Later, channels became dominant, able to demand greater concessions from milk powder companies, eroding their profits. **Second, the industry status of domestic milk powder companies plummeted.** Previously, they were leaders in China's milk powder industry, especially when Sanlu was the leader, foreign brands basically did not dare to cross the line. Later, foreign milk powder was fervently pursued by Chinese people, its value soared, prices rose rapidly, and it became the industry leader. Domestic milk powder companies became market followers. **At that time, Beingmate, the No.1 domestic brand in sales, and Yili, the No.2, both failed to integrate the market as industry leaders or take up the banner of revitalizing China's national milk powder industry. Instead, they unanimously adopted a follower posture, eagerly imitating foreign brands, and ceded market dominance.** If it could not gain market dominance, even if Beingmate won the halo of "No.1 Domestic Milk Powder Brand," it was destined not to become a great company. Because it lost the leadership qualities that a great company should possess. **4. From Glory to Decline** As early as 2008, Beingmate sought to list on the capital market to leverage capital for development, but due to its overly complex shareholding structure, its first IPO was shelved quickly. After further efforts, Beingmate was finally listed on the Shenzhen Stock Exchange in April 2011. Beingmate's earliest financial data can be traced back to 2007. Let's take 2007 as the starting point to look at Beingmate's revenue, net profit attributable to parent, and net operating cash flow over the past decade (2007-2016): First, from a revenue perspective, the watershed appeared in 2013. From 2007 to 2013, Beingmate's revenue grew from 1.2 billion to 6.117 billion yuan, more than quintupling, with a compound annual growth rate of 31.18%. After 2013, Beingmate's revenue turned downward, declining from 6.117 billion to 2.764 billion yuan, with a compound annual growth rate of -23.26%. Next, looking at net profit and operating cash flow, their trends are roughly consistent, with the watershed around 2012-2013. **Net profit** basically followed the same trend as revenue, maintaining rapid growth from 2007 to 2013, then diving sharply after 2013, from a profit of 720 million in 2013 to a loss of 780 million in 2016, almost in "free fall." **Cash flow** was generally on an upward trend before 2012, despite minor fluctuations. After 2012, Beingmate's operating cash flow began to deteriorate, falling from 1 billion in 2012 to -420 million in 2016. So, from the above key operating data, the watershed for Beingmate appeared around 2013. 2013 was its most glorious year, with revenue of 6.117 billion and net profit of 720 million, both hitting historical highs. After that, it began to decline, with performance rapidly deteriorating, and by 2016 it suffered a huge loss of 780 million, becoming the "loss king" among domestic milk powder companies. **5. Great Defeat, Great Reflection** So, what caused Beingmate to go from glory to decline? Fengyun Jun believes it may be due to the following factors: **1. Frequent Changes of Leadership** In July 2011, three months after Beingmate went public, founder Xie Hong resigned due to "personal health" reasons, **setting a record for the fastest resignation of a founder of a Chinese listed company, a record that remains unbroken to this day.** Xie Hong had always been the soul of Beingmate. Once he left, Beingmate lost its "soul." Subsequently, the company's leadership changed frequently: > Succeeding Xie Hong as chairman was Executive Vice President Zhu Deyu. Lao Zhu was the company's power broker and was expected to do well, but unfortunately, he quit after nine months. > > In April 2011, Huang Xiaoqiang took over as Beingmate's third chairman, but in January 2014, Huang Xiaoqiang resigned due to "personal reasons." > > In February 2014, former General Manager Wang Zhentai became Beingmate's fourth chairman. With the change of leadership, the company's strategy also changed. As early as 2001, Beingmate was ambitious, aiming to be a full-industry-chain company covering "food, clothing, use, and travel" for infants aged 0-6. After Xie Hong resigned, Beingmate announced in November 2012 the sale of its infant products business, marking the failure of the full-industry-chain strategy. Afterwards, although it focused on milk powder, it did not achieve much, and instead fell into crisis multiple times due to food safety issues. **2. Food Safety** Excellent Chinese companies often rely on heroic founders. Xie Hong's departure had a significant impact on Beingmate. Subsequently, Beingmate not only lost its "high-tech enterprise" status but also fell into one food safety crisis after another. > For example, in July 2012, Beingmate's rice cereal was found to have illegally added pork bone powder, causing an uproar and a storm of public opinion. > > In February 2014, Beingmate's black sesame nutritional noodles were found to have excessive nitrite. > > In the same year, Beingmate's main product—milk powder—also had problems, as imported whey protein powder was found to contain Cronobacter sakazakii, putting it on the blacklist of the General Administration of Quality Supervision, Inspection and Quarantine. These incidents invisibly damaged Beingmate's brand image. As we know, in the food industry, reputation is life. Remember how Sanlu dominated China's milk powder market for over a decade, only to collapse instantly due to the melamine incident? **Although Beingmate successfully avoided the melamine incident and rose rapidly afterward, it later fell into utilitarianism. The essence of its "formula upgrades" was to raise product prices and increase gross margins.** But this strategy of drinking poison to quench thirst not only failed to gain benefits but also affected the reputation it had painstakingly built over the years. **3. Channel Woes** In Xie Hong's era, Beingmate stood out in the infant food sector thanks to high-quality products and a strong sales network. Product quality and sales channels were like Beingmate's two legs; both had to be strong to move forward smoothly. As mentioned earlier, Beingmate had negative news about product quality. At the same time, its sales channels also began to have problems. As mentioned earlier, after the large-scale price war in the milk powder industry in 2009, channel providers' bargaining power increased. **After 2013, Beingmate cut prices across the board and passed the loss onto channel providers, which worsened its relationship with them.** At the same time, **Beingmate became less rigorous in its franchise standards. It only cared about the amount of goods channel providers purchased, not their business area, or even whether they sold competing products.** Because the gross margin on Beingmate products was low, some franchisees secretly sold competing products, which not only seriously disrupted Beingmate's sales channels but also weakened its brand image. **4. Crazy Price Wars** The most direct reason for Beingmate's turnaround from profit to loss was its continuous participation in price wars. Price wars are a favorite competitive tactic among Chinese merchants, but they are also a very low-level competitive strategy. In 2016, due to the dual impact of the fake milk powder incident and the new formula registration system for milk powder, Beingmate launched a crazy "buy one get one free" sales campaign. This ridiculous policy not only failed to increase sales but also led to a surge in selling expenses. From 2007 to 2015, Beingmate's selling expense ratio fluctuated around 40%, never exceeding 45%. In 2016, its selling expense ratio soared to 62.13%! That means selling 100 yuan of products required 62 yuan in selling expenses. Beingmate's gross margin was relatively high in the industry, but it did not exceed 60%. If your selling expense ratio exceeds 60%, how can you not lose money? Below, we compare Beingmate's gross and net margins over the past three years with competitors Feihe and Yashili: We can see that in terms of gross margin, Beingmate is better than competitors Feihe and Yashili, meaning its gross margin is not a problem. However, in terms of selling expense ratio, Beingmate is generally higher than its two competitors, especially in 2016, when its selling expense ratio was nearly 9% higher than Yashili's and 25.35% higher than Feihe's! It was precisely because of the crazy promotions that Beingmate suffered huge losses in 2016. In addition, in 2016, Beingmate's revenue scale was surpassed by competitor Feihe for the first time. That year, Feihe's revenue was 3.724 billion yuan, nearly 1 billion more than Beingmate. Beingmate's crown as "No.1 Domestic Milk Powder Brand" also fell off. Source: Market Value Fengyun **The 3rd (CFIC) China FMCG + Internet Conference** will be held in Chongqing in November 2017. 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