Recently, Tianwei Food released its financial report for the first quarter of 2022. The data shows that Q1 operating revenue reached 629 million yuan, a year-on-year increase of 20.60%, and net profit reached 100 million yuan, a year-on-year increase of 25.27%, with business gradually recovering growth.

Tianwei Food was established in 2007 and has been focusing on the compound seasoning sector since its inception, known as the "leading enterprise in the compound seasoning industry." Its well-known brands include "Dahongpao," "Haorenjia," and "Tianche."

Since its listing in 2019, the company's revenue has continued to climb. In 2019, revenue was 1.727 billion yuan, a year-on-year increase of 22.26%; in 2020, revenue was 2.365 billion yuan, a year-on-year increase of 36.90%.

However, in 2021, performance suddenly began to decline. According to financial data, operating revenue in 2021 was 2.026 billion yuan, a year-on-year decrease of 14.34%, and profit was 185 million yuan, a year-on-year decrease of 49.32%.

As a leading enterprise in the compound seasoning industry, what were the reasons for Tianwei Food's sustained growth in the past? Why did performance decline in 2021? And how has it recovered growth this year?

Next, we will analyze these three questions one by one.

First, let's look at the reasons for Tianwei Food's past sustained growth.

Why did Tianwei Food grow in the past?

1. Dual-brand strategy

In 2020, Tianwei Food repositioned its "Haorenjia" and "Dahongpao" brands. "Haorenjia" targets the mid-to-high-end market, focusing on hot pot seasoning, Chinese dish seasoning, and ready-to-eat products. "Dahongpao" targets the mass market for hot pot seasoning and small B-end catering, focusing on hot pot seasoning and catering products.

This created a multi-level, differentiated sales strategy, carrying out targeted brand marketing and market promotion measures for different consumer groups and channel characteristics, achieving precise resource allocation and maximizing sales results.

2. Advertising investment

According to statistics, in the first half of 2021, Tianwei Food's sales expense ratio reached 23.18%, up 9.61 percentage points year-on-year.

Tianwei Food established a brand strategy centered on "four firsts," adhering to cooperation with "first-line stars, first-line variety shows, first-line media, and first-line advertising." It spent heavily on hiring popular film and television stars as brand ambassadors, sponsoring the innovative music variety show "Sing for Praise," and leveraging two top-tier traffic platforms, Douyin and Zhejiang Satellite TV, to enhance consumer brand awareness and attract young consumers.

3. Accelerating channel expansion

Tianwei Food has always adhered to seeking innovation while maintaining stability in channel development.

"Stability" refers to consolidating the offline channel foundation. In 2019, Tianwei Food cooperated with 1,221 distributors; by 2020, the number of distributors doubled to 3,001; and in 2021, it grew to 3,409, with a slowdown in growth.

The continuously expanding distributor channels laid a good foundation for Tianwei Food's sales growth. At the same time, based on the dual-brand strategy, distributors were split according to the two major brands, Haorenjia and Dahongpao, and national development outside the southwest was intensified, leading to significant revenue growth.

"Innovation" refers to expanding emerging channels, such as customized catering, e-commerce, and direct supermarket operations. From Tianwei Food's financial reports in recent years, channels like e-commerce and direct supermarket operations have continued to grow for three consecutive years. Customized catering grew 55.89% year-on-year in 2021 despite a poor overall environment.

A well-established marketing network plays an important role in consolidating and improving market share, quickly entering potential markets, and launching new products.

4. Product innovation

In product innovation, Tianwei Food has always been at the forefront of the industry. The company launches new products or formulas every year, with a 1-3 year cycle, selling one generation, developing one, and pre-researching one, continuously creating large single products with broad market demand.

Among them, the old pickle fish seasoning launched in 2010, green pepper fish seasoning in 2011, handmade old hot pot base in 2017, crayfish series in 2019, and non-spicy soup series in 2020 all achieved good revenue.

After years of continuous efforts, Tianwei Food has gained advertising awareness, making more people "see" it; with more distributor channels, making more people "buy" it.

When the most significant methods achieved revenue growth, by 2021, growth began to weaken, revenue declined, and a bottleneck period followed.

Stage-by-stage bottleneck arrives

1. Slowing distributor expansion

The growth rate of Tianwei Food's distributor numbers decreased significantly. In 2021, it added 400 distributors, compared to 1,800 in 2020, a clear decline. At the same time, the company began implementing a global sales network strategy, exporting to more than 30 countries by 2021. Currently, distributor expansion faces certain bottlenecks, but in the long run, future overseas sales may form new growth points.

△Image source: Tianwei Food official website

2. Weakening advertising effects

In 2020, heavy advertising investment had significant marketing effects, but over time, the effects have clearly diminished, entering a plateau period.

3. Channel inventory backlog

Affected by the 2020 pandemic, consumer demand for compound seasonings surged in the short term, creating a large base. In 2021, demand returned to rationality and gradually slowed, leading to a large backlog of inventory in channels, which in turn caused a decline in Tianwei Food's sales.

4. Capacity constraints

Tianwei Food's product sales have obvious seasonality, with the second half of each year being the peak season and other periods having relatively lower revenue. In this context, Tianwei Food has always had significant capacity bottlenecks during the peak season. In Q4 2019, the capacity utilization rate for hot pot base and Sichuan cuisine seasoning exceeded 100%. Insufficient capacity supply makes it difficult to support the company's rapid development.

The various problems encountered during the bottleneck period caught Tianwei Food off guard, but it quickly came up with countermeasures. So how exactly did it manage to break through the difficulties? Let's take a look.

How to break through the bottleneck?

1. Clearing inventory

To help the distributor channel enter a virtuous cycle and reduce inventory pressure, Tianwei Food fully assisted distributors.

During the 2021 online performance briefing, when interacting with investors, relevant personnel from Tianwei Food answered questions about how to improve inventory:

There are four main measures to improve inventory in the second half of the year:

  • Production side: produce according to sales to ensure product freshness;
  • R&D side: conduct product launch analysis in the second half, and accurately launch new products to the market;
  • Terminal: maintain reasonable promotional intensity, concentrate resources to digest products with relatively long shelf life;
  • Marketing side: further strengthen channel management, fully leverage the role of distributor alliances, empower distributors, and improve their operational capabilities and enthusiasm.

Currently, the effects of inventory clearing are beginning to show. The growth in Q1 2022 is inseparable from the efforts of last year's inventory clearing.

2. Capacity expansion

To solve the problem of insufficient supply during the peak season, Tianwei Food launched a non-public issuance fundraising project for capacity expansion.

According to the disclosure of relevant documents on fundraising investment in the financial report, the food and seasoning industrialization production base expansion project is under construction as planned and is expected to reach the intended usable state in November 2022. Once put into production, it will effectively alleviate the capacity gap.

3. Adjusting product structure

Tianwei Food's core products are hot pot base and Chinese compound seasonings. Previously, the two accounted for roughly equal proportions of total revenue, but compared to its main competitor Yihai International, Tianwei Food has higher market coverage for Chinese compound seasonings.

Currently, the hot pot seasoning track is crowded, especially with the emergence of self-heating pots, which have captured many young consumer groups. From this year's Q1 financial report, Tianwei Food's Chinese compound seasoning revenue grew 45%, accounting for 55.50% of total revenue, which is quite impressive. In the future, it can adjust its product structure and focus on promoting its more advantageous Chinese compound seasoning products.

Summary: Tianwei Food has a development history of 15 years. Although it is honored as a leading enterprise in the compound seasoning industry, its market share is not high. On April 26, after the Q1 financial report was released, Tianwei Food adjusted its shares, and as a result, its stock price experienced some fluctuations.

"Currently, in the compound seasoning industry, there is no single dominant brand. As the industry develops and grows, competition is becoming increasingly fierce. After emerging from the quagmire of difficulties, Tianwei Food should think more about how to navigate the future. "

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