Tao Huabi set the principles of "no loans, no shareholding, no financing" for Lao Gan Ma, but her eldest son is keen on investments with mediocre results and a negative real estate project, while the younger son's succession led to declining performance. Can the 5 billion yuan chili sauce "kingdom" be successfully passed down? There is a local saying in Guizhou: Guizhou has two bottles, one is Moutai, the other is Lao Gan Ma chili sauce. One has been floating in the capital market for twenty years and now shines brilliantly on the A-share market; the other has built a hidden "kingdom" in a corner, but has repeatedly seen negative news since the founder stepped down. Starting in October 2020, several Kunming citizens reported to local media that the "Yunrun Tianyang" real estate project they purchased on Chuanjin Road in Panlong District had not been delivered on time, suspecting the project was unfinished. Nearly 700 households complained bitterly. Media investigation revealed that behind the developer of this project stands Li Guishan, son of Lao Gan Ma founder Tao Huabi. And what troubles Tao Huabi is not just her son's investment failure. On November 23, Zhongjing Food (300908.SZ), which claimed to "challenge Lao Gan Ma alone," was listed on the ChiNext board with a market value exceeding 1.1 billion yuan. Although it cannot pose a major threat to Lao Gan Ma in the short term, the obvious decline in performance after the "second generation" took over, requiring Tao Huabi to come back to improve things, clearly shows Lao Gan Ma's predicament. For the 73-year-old Tao Huabi, enjoying a peaceful retirement is not easy. -01- Eldest Son "Fond of" Investments, Frequent Failures The real estate project "Yunrun Tianyang" that caused Li Guishan to stumble is located in one of Kunming's five main urban districts, adjacent to Kunming World Horticultural Expo Garden, with very convenient transportation. Besides two high-rise residential buildings, the rest are townhouses, accommodating over 900 households in total, with an average reference price of 12,000 yuan per square meter. As of now, over 700 households have moved into "Yunrun Tianyang," but none have completed the household registration procedures. According to "Metro Times," many owners reported, "We can't help it. The pressure of mortgage payments plus rent is unbearable, so we had to move in first. The houses should have been delivered in the first half of 2016, but it has been delayed until now, and children's schooling is also a problem." The reason behind this is not complicated: the developer refused to pay the final construction payment, citing quality issues by the builder, and was subsequently sued by the builder. Since then, the two parties have been in litigation, preventing the project from passing acceptance, ultimately affecting hundreds of owners. ▲Unfinished real estate project, image from China Business Journal Public information shows that the developer behind "Yunrun Tianyang" is Kunming Guishan Tianyang Real Estate Development Co., Ltd. (hereinafter referred to as "Guishan Tianyang"), established in December 2012, with Li Guishan contributing 29.49 million yuan and being the second largest shareholder. The month after establishment, the company acquired the development plot for 421 million yuan, covering about 93 mu. As a project invested in and developed by Tao Huabi's son, this relationship once became a major selling point after "Yunrun Tianyang" was launched for sale in 2014. Leveraging the national recognition of the Lao Gan Ma brand, "Yunrun Tianyang" indeed won the trust of many owners, but they did not expect to fall into a big pit. Even with repeated delays in delivery, the sales of "Yunrun Tianyang" were not bad, but Guishan Tianyang suffered heavy losses. From 2013 to 2017, the company accumulated losses of 60 million yuan, and its debt ratio soared from 68% to 95%, with total liabilities reaching 950 million yuan. Starting in 2018, Guishan Tianyang simply chose not to disclose operating data, but its frequent appearances on the list of dishonest judgment debtors and involvement in nearly a hundred judicial cases are enough to show its poor operating condition. Now, although the lawsuit between Guishan Tianyang and the builder has not yet had a clear result, the judicial auction process for a total of 54 properties and 293 parking spaces in "Yunrun Tianyang" applied for by the latter has begun. Meanwhile, all equity held by Li Guishan's partner legal person and the largest shareholder of Guishan Tianyang, Kunming Tianyang Enterprise Group Co., Ltd. (hereinafter referred to as "Kunming Tianyang Group"), has been fully pledged. According to the China Business Journal, Hui Huangcheng, the actual controller of Kunming Tianyang Group, once revealed that Li Guishan's total investment in the entire "Yunrun Tianyang" development project was about 100 million yuan. It can be seen that this investment tuition was not cheap, and Li Guishan has been jokingly called by netizens "Lao Gan Ma's silly son, not worried about going bankrupt." As Tao Huabi's eldest son, Li Guishan, after graduating from high school, could not bear his mother bearing the burden of raising two children alone, so he voluntarily gave up the college entrance examination and joined the army. After being transferred to civilian work, he entered the 206 Geological Engineering Team where his father had worked. Not staying long in the system, seeing Lao Gan Ma growing day by day and his mother increasingly busy, he resigned from the iron rice bowl despite opposition to help in the enterprise, becoming his mother's right-hand man. As the first general manager of the enterprise, Li Guishan was both opinionated and hardworking in his mother's eyes. He not only helped the company establish rules and regulations and streamline processes, but also taught the illiterate Tao Huabi how to sign her name neatly on documents. Only one thing: regarding his mother's consistently publicly stated principle of "no loans, no shareholding, no financing, no listing," Li Guishan had his own thoughts. As early as 2005, Li Guishan invested in and opened Kunming Jintai Hotel in Kunming, which has been operating to this day, and it is one of Li Guishan's few successful investment cases. In contrast, Li Guishan's younger brother Li Miaoxing (formerly known as "Li Hui") is much more obedient. Since gradually moving to the forefront in 2008, replacing Li Guishan as the chairman's assistant and general manager, he has focused his attention within the family business. Although Lao Gan Ma publicly states that Tao Huabi's two sons, "Li Guishan is mainly responsible for external affairs, including sales and marketing, while Li Miaoxing is mainly responsible for internal affairs, mainly production, with a division of labor," it is not difficult to see Tao Huabi's "partiality" from the equity distribution. Before June 2014, Lao Gan Ma's equity distribution was Li Guishan 49%, Li Miaoxing 50%, and Tao Huabi 1%. After that, Tao Huabi completely stepped back and transferred her 1% stake to Li Miaoxing, undoubtedly showing more reliance on Li Miaoxing as the successor. Seeing his brother gradually becoming independent, Li Guishan also gradually started his investment life, but with little impact, let alone typical failures like Guishan Tianyang. In 2014, Li Guishan specifically established an investment company, which has long been deregistered. But he did not give up. According to public information, Li Guishan has held shares in 14 companies in total, with subscribed capital exceeding 200 million yuan. As of now, through complex equity relationships, he holds shares in private equity institution Houyang Investment, and indirectly holds shares in A-share and NEEQ-listed companies such as Tianhao Environment, Fuling Precision, Baixing.com, and Weihe Pharmaceutical. -02- Younger Son Takes Over, Performance Declines for Two Consecutive Years Compared to Li Guishan's solitary ventures in the capital market with setbacks everywhere, Li Miaoxing, although guided and sheltered by his mother all the way, feels the heavy responsibility and treads carefully. A seemingly ordinary chili sauce, from 1996 when production was insufficient and even negotiating for glass bottles required soft and hard tactics with manufacturers, to annual sales of 4 billion yuan, with output value increasing nearly 80 times in 18 years, becoming one of Guiyang's top taxpayers. This is all inseparable from Lao Gan Ma's unique taste and Tao Huabi's business philosophy. ▲Tao Huabi, founder of Lao Gan Ma Despite being illiterate, Tao Huabi possesses the most important integrity and diligence of a businessperson. At first, Tao Huabi did not understand fancy marketing methods, but ran her business step by step on foot in villages and towns. Once, to make shops and canteens accept the initially unknown chili sauce, Tao Huabi patted her chest and guaranteed, "Settle accounts after sale; if you can't sell, you can return them all." In over 20 years of business, "no debts, no credit" is Tao Huabi's principle, and "not short of money, not listing" is the boast that Lao Gan Ma has never broken. In 2014, Tao Huabi stepped back, leaving Li Miaoxing with nearly 4 billion yuan in assets and Lao Gan Ma with annual sales of 4 billion yuan. But since then, Lao Gan Ma has frequently been exposed to management problems. Around 2016, Lao Gan Ma was exposed for abandoning Guizhou peppers and using cheaper Henan peppers. Suppliers who previously valued Lao Gan Ma's integrity and reputation also gave up cooperation after Lao Gan Ma chose to "change taste." "There are too many contradictions; cooperating with Lao Gan Ma is very scary. For major pepper-producing areas like Xizi, Xinzhou, and Suiyang, those who have cooperated with them now basically have no contact." In 2015, Wu Rong, secretary-general of the Zunyi Pepper Chamber of Commerce, said in an interview with "Business World." In this regard, consumers may not immediately taste much difference, but after the news was exposed, they also said, "Lao Gan Ma chili sauce is indeed not as fragrant as before." According to distributors, the price difference between Henan peppers and Guizhou peppers is about 5 yuan per jin. Based on Lao Gan Ma using 50,000 tons of dried peppers annually, it can save about 500 million yuan per year on average. However, being too smart backfired, and Lao Gan Ma's performance began to decline. Public data shows that after Lao Gan Ma's sales revenue reached 4.549 billion yuan in 2014, it was not disclosed in 2015, began to decline after 2016, and revenues in 2017 and 2018 were 4.447 billion yuan and 4.389 billion yuan, respectively. In addition, in 2016, Lao Gan Ma also experienced a major trade secret leak where a departing employee took the technical formula. It can be seen that under Li Miaoxing's management, employees have lost the loyalty that once made them affectionately call Tao Huabi "Lao Gan Ma." In addition to internal troubles, there are external threats. With changes in the business environment and marketing channels, many internet-famous chili sauce brands have emerged in recent years, trying to challenge Lao Gan Ma's position in the industry. Now, although it is just "an egg hitting a stone," the decline in Lao Gan Ma's performance is indeed an urgent matter. In 2019, the over-70-year-old Tao Huabi came back to "correct" the enterprise's operations. After returning, she first reinstated Guizhou peppers, then innovated Lao Gan Ma's production formula. As the embodiment of the "Lao Gan Ma" IP, Tao Huabi's strong return effectively drove Lao Gan Ma's growth. ▲Lao Gan Ma sales situation According to publicly released information from Lao Gan Ma, the company completed sales revenue of 5.023 billion yuan in 2019, a year-on-year increase of 14.43%, and paid taxes of 636 million yuan, a year-on-year increase of 16.82%. At the same time, consumers have also noticed that Lao Gan Ma, which never advertised in the past, has more brand exposure, such as appearing on Weibo hot search topics, and as a trendy brand producing hoodies at New York Fashion Week, refreshing Lao Gan Ma's presence again. After two consecutive years of declining performance, the first stop in decline is largely due to Tao Huabi, but whether growth can continue has become the biggest question for Lao Gan Ma in the market. In August 2019, the Lao Gan Ma factory area caught fire twice, once due to burning pepper waste and once due to spontaneous combustion of the warehouse roof caused by high temperatures. Fortunately, there were no casualties, but it again sounded an alarm for Lao Gan Ma's internal management. "Thanks to Tao Huabi's return, Lao Gan Ma has returned to a growth track, but an enterprise cannot sustain development by relying on one person alone. Lao Gan Ma needs to establish a sound corporate system, adjust to the different business philosophies of the two generations, and meet challenges," said Zhu Danpeng, a food industry analyst, to Wumian Finance researcher. Tao Huabi is already 73 years old this year. How can her sons bear to let their mother, who has worked hard all her life, continue to worry about the enterprise? Source: Wumian Finance (ID: wumiancaijing) Author: Zhang Kexin Tips will be paid 400-2000 yuan once adopted.