From a small-town preserved fruit factory director to Fujian's richest family with a net worth of nearly 60 billion yuan, the Xu family built Dali Foods through a 'copycat strategy'. In Dali Foods' portfolio, there are many examples of latecomers overtaking through imitation, such as Daliyuan imitating Oriong, Capico imitating Pringles, and Lehu imitating Red Bull. After Dali Foods' successful IPO in 2015 and the family's wealth surge, 2020 marked a different phase: the first revenue decline since listing and record-low net profit growth. In 2021, Xu Shihui was 64, and his daughter Xu Yangyang, the sole heir to the family fortune, had been with the company for 12 years. The question is whether the declining performance is an 'opportunity' for the heir to showcase her skills or a sign of Dali Foods' deep-rooted troubles.
**-01-
Preparation for 'Takeoff'
Dali Foods originated in Hui'an, Quanzhou, Fujian. As a county under Quanzhou, Hui'an is located on the southeastern coast of Fujian, with a 192-kilometer golden coastline. Besides being known as 'Seaside Zou Lu' and 'Fishery Strong County', it is also rated as a 'Food Industry Strong County' and ranks third in comprehensive county competitiveness in Fujian. In 2017, Hui'an's GDP was 68.876 billion yuan, while listed Dali Foods' annual revenue reached 19.852 billion yuan, accounting for 28.82%. In other words, four Dali Foods would equal Hui'an's GDP. In 1980, 23-year-old Xu Shihui began working in leisure food production. By 1987, at age 30, he became the director of the township collective enterprise Hui'an Preserved Fruit Factory. In 1989, Hui'an Minzheng Meili Food Factory (hereinafter 'Meili Food') was officially established. As a typical small collective enterprise of that era, Meili Food initially had only one production line for bulk biscuits, with unclear production and management systems. At that time, 32-year-old Xu Shihui, with years of food production and management experience in Hui'an, joined as the legal representative. After establishment, Meili Food and a Hong Kong company called Jiada Limited jointly invested to establish Fujian Hui'an Dali Food Co., Ltd. (hereinafter 'Fujian Hui'an Dali'), with a registered capital of 1.5 million yuan. Meili Food and Jiada held 60% and 40% equity respectively. Dali's first product was a biscuit named 'Dali'. A regional brand began to take shape. In 1997, Fujian Hui'an Dali Food Co., Ltd. removed 'Hui'an' from its name, deciding to go national. In July of the following year, Fujian Dali established its first subsidiary in Chengdu - Chengdu Dali Food Co., Ltd. But until then, Dali Foods was still a collective enterprise. While vigorously developing Dali Foods, Xu Shihui was also conducting a series of equity operations to privatize it. In 1984, 55 veteran factory directors and managers in Fujian jointly 'appealed' by publishing an article titled 'Please Give Us 'Unbinding'' in Fuzhou Daily, considered a landmark event in economic system reform at the time. After more than a decade of brewing, the trend of converting collective enterprises to private ones gradually rose. In 2000, Meili Food completed its transformation into a private joint-stock enterprise, actually controlled by several members of the Xu family - owning Meili Food meant owning control of Fujian Dali. But that wasn't enough. At that time, after a series of capital increases and equity changes, Meili Food and Jiada held 58% and 42% of Fujian Hui'an Dali respectively. A 58% stake meant nearly half of the profits still had to be shared. So the Xu family acquired the 42% stake held by Jiada in Fujian Dali for 8.4 million yuan. (Xu Shihui) From then on, Fujian Dali was completely privatized by the Xu family, and the company's development began to undergo qualitative changes around this time. At that time, Xu Shihui couldn't imagine that more than a decade later, he would live in an '800 million yuan mansion' and become Fujian's richest man.
-02-
Building the Empire by Imitation
Around 2000, the well-known Korean leisure food brand 'Orion' entered China. 'Orion Pie', an egg yolk pie, gradually became known and accepted by Chinese consumers, but its price was relatively high. So in 2002, Fujian Dali began its first imitation and follow-up strategy, launching the 'Daliyuan' brand. The Daliyuan egg yolk pie still on supermarket shelves today was launched at that time. Conceptually, both focus on 'pies', but Daliyuan's cake texture is harder. In price, Daliyuan egg yolk pie is one-third cheaper than Orion Pie. In other words, Daliyuan Pie is a 'domestic affordable alternative' to Orion Pie. Cheaper price and similar taste made Daliyuan egg yolk pie a 'hit', capturing the largest market share in pastry products at that time, and it still maintains a certain market today. More importantly, the success of Daliyuan egg yolk pie opened Xu Shihui's imagination. 'Imitation' and follow-up gradually became Fujian Dali's repeatedly successful winning strategy. For example, when Pringles and Lay's potato chips were booming, Fujian Dali launched Capico in 2003; when JDB and Wanglaoji were extremely popular, Fujian Dali launched Heqizheng herbal tea in 2007; when energy drink Red Bull dominated, Fujian Dali launched Lehu in 2013. In this process, besides identifying a leading brand in a niche as an imitation target, maintaining lower prices than competitors, using all-round celebrity endorsement 'bombardment', and strong control over terminal channels were all important marketing strategies for Fujian Dali. In those years, from Xu Qing for Daliyuan to Jay Chou for Capico, from Zhao Wei for Haochidian to Chen Daoming for Heqizheng, Fujian Dali's endorsement lineup included more than ten first-line celebrities, precisely matching different celebrity styles with different promotions, leaving many catchy advertising slogans. Even today, advertising images like 'Eat more if it's delicious', 'You bring, I bring, every family loves it', 'Clear heat, nourish vitality' still occupy many consumers' memories. From the revenue structure, Dali Foods' food and beverage businesses have long been stable at a certain ratio. Although food revenue has a larger share, beverages have higher gross margins, contributing over 50% of gross profit since 2015. Despite having multiple blockbuster products and a market value that once surpassed Master Kong and Uni-President China, Dali Foods has always been under the evaluation of 'imitation' and 'copycat' due to its follow-up strategy. From a business perspective, this shortcut not only saves product development costs but also reduces trial-and-error costs, allowing Dali Foods' net profit margin to remain much higher than food consumer companies like Uni-President, Master Kong, and Taoli Bread. The real question is: can Dali Foods' 'imitation' strategy continue to work? After listing on the capital market, Dali Foods' actual controller Xu Shihui and his family held 85% of its equity. Xu Shihui, Chen Liling (Xu Shihui's wife), and Xu Yangyang held 42.5%, 8.5%, and 34% respectively. Based on the closing price of 5.04 HKD on the listing day, the family of three became Fujian's new richest family with wealth of 72.4 billion HKD (approximately 60.3 billion yuan). This should be Dali Foods' most glorious moment. Looking at the net profits of several food companies in recent years, Dali Foods led competitors by an absolute advantage before 2016. Starting in 2017, the gap gradually narrowed, and in 2020, it was even overtaken by Master Kong. The past strategy of emphasizing cost-effectiveness is gradually losing its advantage. To maintain its industry position, Dali Foods must find new drivers. The founders of Master Kong and Uni-President have already passed the baton. It's not easy for 64-year-old veteran Fujian businessman Xu Shihui to innovate. Whether the heir can revitalize the Dali brand is crucial. In 2012, Xu Shihui's son Xu Liangliang died in a car accident on the eve of his wedding. His daughter Xu Yangyang, known as the 'Egg Yolk Pie Princess', became the new successor. On November 20, 2015, Xu Shihui took Xu Yangyang to ring the bell at the Hong Kong Stock Exchange for the IPO.
**-03-
The 'Princess's' Troubles
In 2015, Dali Foods' revenue and net profit growth began to decline significantly. Full-year revenue and net profit were 16.865 billion yuan and 2.912 billion yuan respectively, with year-on-year growth of 13.2% and 40.24%, down 3 percentage points and 34 percentage points respectively. Behind this is the dilemma that many old products under Dali Foods lack momentum, and new products have limited competitiveness. To this day, veteran brands like Daliyuan, Capico, and Haochidian have entered a stage of very slow growth or even decline. The year-on-year growth of Dali Foods' 'food' and 'leisure food' segments dropped from 12.05% in 2015 to -2.44% in 2019, with a slight recovery to 0.59% in 2020. Beverage product growth also fell from 14.8% in 2015 to -2.09% in 2019, and under the pandemic in 2020, it decreased by 13.53% year-on-year. Xu Yangyang also wanted to innovate, but whether it was imitating Ambrosial's Doudouben plant-based yogurt or the newly launched soy milk tea, none escaped the 'imitation' framework. The only product promoted heavily in recent years without obvious imitation genes is Doudouben, a soy milk product. At the 2019 performance press conference, Xu Shihui said that Doudouben targets mid-to-high-end milk, with a 250ml pack priced at 3.5 yuan, and invited Sun Li as spokesperson. (Sun Li) However, the highly anticipated new brand Doudouben, due to unsatisfactory sales and channel management issues, sparked conflicts between Dali Foods and its distributors. In 2017, Dali Foods launched the new product Doudouben, still using celebrity endorsement and strong channels for full rollout, but Doudouben's sales were not ideal. Starting in 2018, many Doudouben distributors revealed that Dali Foods had problems such as not reimbursing fees, verbal and written promises not honored when soliciting business, and inability to handle expired food. Distributors who suffered large amounts of unsold goods due to distributing Doudouben, even falling into debt or bankruptcy, became 'typical examples' in the industry. A Dali Foods distributor told Shijie that based on his experience with different FMCG brands, Dali Foods' problem lies in a lack of regional market protection, with severe cross-region channel flow, causing heavy losses for distributors in the inflow areas and making them easy to lose. At the same time, Dali Foods continuously replenishes its distributor team, but the new members lack experience and awareness, creating new problems. After returning from studying in the UK in 2008, Xu Yangyang successively held positions such as union chairman, workshop director, and deputy factory director, and also served as an assistant to her father Xu Shihui. In 2014, Xu Yangyang officially joined Dali Foods. After that, she first entered the board of Dali Group, then became executive director and vice president, accompanying the entire IPO process in 2015. After the initial success, Xu Yangyang faced her second major test two years later. In June 2017, two Fujian businesses, 'sofa first stock' Man Wah Holdings and Dali Foods, were shorted. Daniel David, chief investment officer of the short-selling institution FGA (F.G. Alpha Management), announced short-selling views on Dali Foods at an event held by the Asia Society that day. Daniel David pointed out several most problematic aspects of Dali, including: advertising and promotion costs were too low before 2015; operating costs were only one-third of mature competitors in the same industry, with average employee wages only half of Want Want; from 2013 to 2014, capital expenditure was about 1 billion yuan higher than industry experts estimated; and the tax amount registered with tax authorities did not match the company's tax payment information. On the afternoon of June 8 and the early morning of June 9, Dali Foods issued two clarification announcements to counterattack, explaining everything from sales expenses to tax payment information. In terms of results, Dali Foods has not been targeted by short-sellers since then. This emergency also became another important challenge for Xu Yangyang after the IPO. Unlike the previous two challenges, Dali Foods' problem in 2020 was more 'systemic' than accidental. Full-year revenue was 20.962 billion yuan, the first year-on-year decline in a decade; non-GAAP net profit attributable to parent decreased for the second consecutive year. This 'giant elephant' Dali Foods urgently needs self-rescue. Shijie noted that besides the bottleneck in the main business, the Xu family's real estate ventures were also not smooth. Tianyancha shows that Hubei Dali Real Estate Co., Ltd., originally actually controlled by the Xu family, was renamed Hubei Tianyuhu Ecological Culture Tourism Co., Ltd. in 2019. After two business registration changes, the Xu family's stake was reduced to only 16.28%. Since 2018, this company has been involved in multiple lawsuits, especially since 2021, with 10 new lawsuits added. The Dali Century Hotel in Hui'an County, which was rumored to be built for Xu Liangliang, also underwent a 100% shareholding change on May 28, 2021. From 2016 to 2019, the Xu Shihui family of Dali Foods maintained the position of Fujian's richest family. But by 2020, the richest person in Fujian on the Hurun Rich List had changed to Zeng Yuqun of CATL. The reason behind this is not hard to understand: the new energy vehicle industry is booming, CATL is rising like a rainbow, and changes in socio-economic structure are also the law of wealth transfer. Source: Shijie (ID: ishijie2018) Author: Lin Xiaxi Tips will be paid 400-2000 yuan once the tip is adopted.