Click to read the original article for details. This article is republished with permission from Financial World Weekly (ID: cjtxzk); Author: Wu Xiaoyu, Editor: Liang Ye. Industry insiders believe that Yuxiang Food's takeover of Golden Monkey is driven by the latter's sales network in second- and third-tier markets and the high profit margins of the confectionery industry. The local milk candy brand Golden Monkey, acquired by American chocolate giant Hershey, has returned to its hometown in Henan. On July 25, Hershey issued a "Letter from the General Manager" confirming this: "In response to changes in the Chinese market, Hershey has decided to sell Golden Monkey to Henan Yuxiang Food Technology Co., Ltd." On the same day, Henan Yuxiang Food also announced that it had "fully acquired the Golden Monkey enterprise and brand that was acquired by Hershey four years ago." Golden Monkey's new chairman, Li Yang, stated: "In the future, Golden Monkey will focus on the leisure food sector. The Golden Monkey brand targets the wedding candy market, Chan Zui Hou focuses on leisure foods, and Youshi focuses on the baking sector." Industry insiders believe that Yuxiang Food's takeover of Golden Monkey is driven by the latter's sales network in second- and third-tier markets and the high profit margins of the confectionery industry. The Birth of Golden Monkey For many born in the 1970s and 1980s, the taste of Golden Monkey milk candy is the taste of childhood. "Three Golden Monkey milk candies make a cup of good milk," the advertising slogan of that era was once widely popular. This local candy brand was founded in 1992 in Shenqiu County, Zhoukou, Henan, starting from a small community factory that was formerly an electrical appliance factory. In 1979, when 31-year-old Zhao Qisan was appointed factory director, the factory had only 37 employees and owed 1.12 million yuan in debt. After taking office, Zhao Qisan went to Shanghai for inspection and was deeply inspired. "In an era of scarce daily necessities, producing food is more profitable." Upon his return, he took down the electrical appliance factory sign and hung up "Shenqiu County General Food Factory." In the 13 years before 1992, Zhao Qisan followed trends and produced products such as pastries, beef, and dried bean curd sticks. At the end of 1991, while people were busy preparing New Year goods, Zhao Qisan went on another inspection to seek business opportunities. He discovered a new pillow-shaped milk candy developed by the Shanghai Food Research Institute and bought the technology. 1992 was the Year of the Monkey, so Zhao Qisan named the candy "Golden Monkey." That year, Golden Monkey's sales exceeded 20 million yuan. With good development momentum, the small candy marched toward the big city. In 1994, Golden Monkey fully acquired Shanghai Penglai Food Factory and established Shanghai Golden Monkey Food Co., Ltd. In 2004, when Golden Monkey's candies and chocolates were recognized as Chinese brand products, the company's headquarters also moved from Henan to Shanghai. In 2008, to cope with low sales during the off-season in the candy industry, Golden Monkey launched "Chan Zui Hou" dried tofu, attempting to leverage Golden Monkey's marketing channels. In November of the same year, Zhao Qisan stepped down as chairman of Golden Monkey, and his son Zhao Dongwang took over. When Zhao Dongwang took over, Golden Monkey had only about 30 offices but had to manage sales nationwide. "One person had to be responsible for one or several provinces, and while running ahead, the rear was neglected." So, he thought of "adding offices." According to Alibaba Cloud Consulting Network reports, Golden Monkey formed a hierarchical channel management system from headquarters to regional offices and then to local distributors. By 2014, the company had over 130 offices and more than 4,000 contracted distributors. In 2008, Golden Monkey completed its corporate restructuring, increasing capital and expanding shares from "Shanghai Golden Monkey Food Co., Ltd." to become "Shanghai Golden Monkey Co., Ltd.," preparing for an IPO. A year later, three private equity funds—New Horizon Capital, BOC International, and Beijing Keqiao—injected 240 million yuan into Golden Monkey, acquiring a 20% stake. That same year, Golden Monkey's sales approached 2 billion yuan. 2010 was designated as the year of leap for Golden Monkey. In January, Golden Monkey told reporters from National Business Daily that the preliminary preparations for listing had been completed and it planned to list on the A-share market. In 2012, just when Golden Monkey's listing seemed imminent, the listing plan was shelved. Due to poor business performance, 67-year-old Zhao Qisan came out of retirement and reflected on the "push for listing" approach. At a meeting, he said: "Without adequate preparation, expecting high growth and high profits every year will only drain the little vitality we currently have." In April of that year, at a distributor meeting, Zhao Qisan stated, "In the past two years, the company blindly invested and introduced marketing policies unsuitable for development, causing huge losses." At that time, Zhao Qisan announced a series of corrective measures, including adjusting inflated prices, compensating distributors for losses in the form of goods, and emotionally "apologized and expressed regret" to the distributors. Around 2012, Golden Monkey's candy business ranked third among domestic brands, only behind Hsu Fu Chi and Ma Dajie. But by then, Golden Monkey had passed its golden period. According to public reports, in 2006, Golden Monkey's sales were 980 million yuan; in 2007, sales surged to 1.5 billion yuan. However, by 2012, sales had fallen to around 1 billion yuan. Hershey's Takeover Brings Troubles Perhaps the correction process was too difficult, so Zhao Qisan decided to cash out and leave. On December 19, 2014, Hershey, the largest chocolate manufacturer in North America, announced the acquisition of 80% of Shanghai Golden Monkey Company's shares. For this acquisition, Hershey's Dutch subsidiary would pay 3.021 billion yuan in cash and was expected to assume 522.2 million yuan in debt. Some analysts believed that Hershey was attracted to Golden Monkey's channels and market in China's third- and fourth-tier cities and towns, as well as its diversified product line. Perhaps because the deal's results were below expectations, Hershey delayed the acquisition of the remaining 20% stake. In February 2016, it acquired the remaining 20% of Golden Monkey for 235.3 million yuan. After the sweet union, the two did not advance triumphantly but instead both suffered losses. Hershey's fourth-quarter 2016 financial report showed its net profit fell from $228 million in the same period to $117 million, a decrease of nearly half year-on-year. Hershey's sales in China fell 4%, and the first two quarters also saw declines. The situation continued to deteriorate. In 2016, Hershey's revenue in China fell 11.8%, the only region globally with declining performance, with Golden Monkey suspected of being a drag. In 2017, Hershey's sales in the Chinese market fell 30%. For Golden Monkey, the situation was also dire. Euromonitor data showed that in 2014, when the two merged, Golden Monkey's market share in the candy industry was 1.7%. By 2016, its market share had fallen to 1%. It's not hard to understand Hershey's two goodwill impairments for Golden Monkey: In August 2015, Hershey found that Golden Monkey's sales and profitability were significantly below expectations and recorded a $280 million impairment on Golden Monkey's goodwill. In 2017, another impairment of 106 million yuan was recorded. The poor sales performance is not unrelated to Hershey's lack of understanding of the Chinese market. After taking over Golden Monkey, Hershey began drastic reforms and initiated layoffs. According to "New Investigation" reports, Hershey has always advocated strict corporate management systems to ensure standardized development. However, Golden Monkey's expense control was relatively arbitrary, with regional managers and office directors holding significant power, which ran counter to Hershey's philosophy. Hershey abandoned the original "office contracting and commission system" and replaced office directors with city managers. The change in the business model dissatisfied distributors, and Hershey found itself embroiled in disputes with employees and distributors. On May 7, 2017, 130 office directors and over 1,000 distributors of Golden Monkey issued a joint letter stating, "Hershey owes dismissed employees' commissions, bonuses, shares, and unresolved expenses and inventory for distributors nationwide, totaling approximately 270 million yuan." The letter also stated, "Since April 2016, Hershey has forced most office directors, business personnel, and grassroots employees nationwide to sign resignation agreements, and has already laid off up to 3,000 people." In an interview with The Beijing News, Hershey said: "During the management of the original shareholders, Shanghai Golden Monkey withheld some sales expense commissions for office directors with unrecovered loans from 2012 to 2014. This is because Shanghai Golden Monkey's policy stipulates that if due loans are not settled, sales expense commissions are suspended. After the corresponding loans are settled, the company will reimburse operating expenses according to that proportion." However, distributors and office directors believed Hershey was in violation first. "A large part of customer loans were generated after Hershey acquired Golden Monkey. Hershey forced offices and customers to take loans, then dismissed office staff without resolving the remaining issues, causing delays in product sales." At the same time, Hershey sued the former 130-plus office directors and nearly 1,000 distributors of Golden Monkey for illegal borrowing to inflate valuations. Hershey publicly stated: "We are trying to recover losses through legal channels and hope the responsible parties will bear their due responsibilities." In other words, the core of the dispute lies in the large amount of inventory hoarded by distributors, with both sides hoping to avoid the losses caused by the hoarding. Golden Monkey Returns to Henan After being mired in operational difficulties, rumors of Hershey selling Golden Monkey were rife. In 2017, Zhao Qisan publicly stated that he was "in buyback negotiations with Hershey." After Golden Monkey became foreign-owned, Zhao Qisan transformed from the "Candy King" to the "Salt King." He built a salt factory in Shenqiu County, Henan, attempting to do high-end salt business. He once told the media about his original intention: "Although the country has now liberalized the salt industry, some places still set obstacles to cross-regional salt sales. Some provinces and cities have serious local protectionism, often setting up barriers and obstructing 'foreign salt,' even deliberately seizing and confiscating it." But Hershey publicly denied the breakup rumors, using terms like "untrue statements" and "without any basis." In May 2018, New Financial Observer reported that COFCO Group might take over Golden Monkey. An insider told the aforementioned media: "Before the Spring Festival this year, COFCO Group commissioned a third-party company to conduct an audit and inventory." This time, Hershey's official response was more tactful: "According to company policy, we do not respond to rumors or speculation, nor will we disclose whether we will conduct mergers and acquisitions. We remain optimistic about China's market potential and Hershey's growth opportunities in China." Now, the acquisition rumors have come true. A relevant person revealed to China Business Journal that in June 2018, Hershey's asking price for Golden Monkey was 260 million yuan, and the final deal was actually around 200 million yuan. However, this claim was not confirmed by either party. Zhu Danpeng, a commentator on China's food industry, said in an interview with Beijing Business Today: "Golden Monkey has almost become Hershey's non-performing asset. Hershey may be more hoping to use Golden Monkey to gain higher bargaining chips." Compared with the high-profile "marriage" four years ago, the breakup between Hershey and Golden Monkey was notably low-key. On July 20, Golden Monkey's business registration information quietly changed. Qichacha showed that Hershey Netherlands B.V. and Hershey (China) Investment Management Co., Ltd. withdrew, and investors changed to Shanghai Zhao's Industrial Investment Co., Ltd. and Shanghai Huyu Investment Management Co., Ltd. The enterprise type also changed from a joint-stock company (Sino-foreign joint venture) to another joint-stock company. According to Qichacha information, the shareholders of Shanghai Zhao's Industrial Investment Co., Ltd. are Zhao Qisan, Zhao Dongming, and Zhao Dongwang, father and sons, but they do not hold shares; Shanghai Zhao's Industrial Investment Co., Ltd., which holds 100% of the shares, has now been renamed Shenqiu Huyu Investment Management Co., Ltd. Its legal representative and second-largest shareholder, Wang Baogen, was previously Golden Monkey's general manager and chief operating officer after restructuring, and had fought alongside Zhao Qisan; the largest shareholder is Shanghai Sanwang Investment Management Co., Ltd., with Cui Wenzhong holding 1.62% of the shares, and Cui was once Golden Monkey's marketing director. Ultimately, it was Yuxiang that brought Golden Monkey back. Qichacha shows that Henan Yuxiang Food Technology Co., Ltd. was established on March 30, 2018, less than half a year ago, with its legal representative being Zhao Ke. The company is 100% held by Zhengzhou Xiangying Venture Capital Fund (Limited Partnership), with limited public information. According to FMCG reports, Yuxiang Food was jointly initiated and founded by Henan Youshi Food Co., Ltd. and Tibet Cangying Venture Capital Management Co., Ltd., and is an emerging food technology enterprise. Cui Wenzhong is also a shareholder of Youshi Food. After years of twists and turns, Golden Monkey has finally returned to the Central Plains in this way. -END-