Source: 市界 (ID: sparklelive)
Want Want, which carries the childhood memories of a generation, has seen its main business decline for years, and its market value has shrunk by over 100 billion Hong Kong dollars. The 'national snack' seems to have entered a midlife crisis prematurely. With weak new products and poor distribution channels, Want Want is no longer thriving.
Does anyone still remember Li Ziming from the Want Want milk advertisement?
Twenty years later, Li Ziming from Class 6, Grade 3, has grown up and reappeared in front of the audience with 8 liters of Want Want milk, thanks to a sequel to the advertisement.
Want Want, along with Uni-President and Master Kong, once supported the landscape of Taiwanese food companies and was also rated as a 'national snack.'
Since its listing on the Hong Kong Stock Exchange in 2008, China Want Want (00151.HK), this 'national snack' brand, has repeatedly crossed peaks, with its total market value rising from less than 30 billion Hong Kong dollars at its lowest to a peak of 170 billion Hong Kong dollars.
Prosperity and decline have their times.
Starting from 2014, Want Want's main business declined year after year. According to the 2016 annual report of China Want Want, over three years, revenue cumulatively decreased by about 16.6%, and market value shrank by over 100 billion Hong Kong dollars.
What is even more regrettable is that Want Want, once popular across the country, now only exists in the most inconspicuous places on the shelves of traditional supermarkets, and it is hard to evoke consumers' memories.
Facing the tremendous changes in the consumer market and the shrinking category cycle, Want Want, a children's food brand carrying a generation's memories, has prematurely encountered a midlife crisis.
01 'Want Want isn't selling well'
'Want Want isn't selling well.'
A researcher who has been in the FMCG industry for many years told 市界. There are mainly three reasons: first, many peers no longer cooperate; second, the food health concept is outdated; third, the channels are backward, the company does not give dealers much support, and its internal direct sales are still in the trial stage.
In recent years, Taiwanese FMCG foods such as Want Want, Master Kong, and Uni-President have been declining.
A few days ago, Credit Suisse issued a research report, downgrading its rating on China Want Want from 'Outperform' to 'Neutral' due to expectations that the company's gross profit recovery in the first half might be disappointing, and lowering the target price from 8.96 yuan to 6.2 yuan.
In August last year, China Want Want suddenly decided to change its fiscal year-end, modifying the new fiscal year of 2017 to start from April 1 of that year to March 31 of the following year. The company stated that this move would more accurately reflect its operating conditions.
Despite this, the financial report for the new fiscal year 2017 showed that in the past 15 months (January 1, 2017, to March 31, 2018), Want Want achieved total revenue of 24.9 billion RMB, with operating profit down 7.4% to 4.19 billion yuan, net profit of 3.116 billion yuan, a year-on-year decrease of 6.6%, and gross profit margin dropping from 47.2% in the same period last year to 43.1%.
It is a fact that Want Want is not thriving.
From its revenue structure, dairy products revenue was approximately 9.615 billion yuan, accounting for 47.6%, of which Want Want milk accounted for over 90% of dairy sales, with sales of about 8.7 billion yuan. In 2013, Want Want milk achieved revenue of 10.8 billion yuan, reaching its sales peak, accounting for 46% of China Want Want's total revenue that year. That is to say, Want Want still relies on a single hit product from twenty years ago to support the entire enterprise.
A former employee of China Want Want's product R&D team told 市界, 'After Want Want milk became popular, the company developed many dairy products internally, but when launched to the market, they were not satisfactory. Not to mention overturning Want Want milk, they couldn't even match a fraction of its sales. Worse, Want Want milk's sales are declining day by day.'
Subsequently, the capital market also 'trimmed its sails,' and Want Want's market value fell from its peak for several years, nearly halving. It is hard to say why this brand, which accompanied the childhood of the post-80s and post-90s generations, was 'abandoned' by people overnight.
02 Falling from the Cloud
Want Want first entered the mainland Chinese market in 1992, with its business traceable back to Taiwan's Yilan Food. Through 'nonsensical' advertising bombardment, Want Want quickly captured the domestic children's food market and rapidly became popular. In 1994, it established its first factory in Hunan. In 2007, China Want Want Holdings Limited was established.
This enterprise is controlled by the Tsai family, known as the 'richest in Taiwan.' China Want Want currently has five executive directors, including Tsai Eng-meng and his son Tsai Wang-chia, and among the three non-executive directors, Tsai Eng-meng's eldest son Tsai Shao-chung and relative Cheng Wen-hsien occupy two seats. Five people hold 55.4% of China Want Want's equity.
After listing on the Hong Kong Stock Exchange in 2008, China Want Want showed a crazy growth trend in the following six years. However, starting from April 2014, Want Want began to decline from its high point. By January 2016, in less than two years, Want Want's stock price fell from 12.54 Hong Kong dollars to 4.538 Hong Kong dollars, losing 64% of its market value. In 2016, revenue was only 1.971 billion yuan, a year-on-year decrease of 7.9%.
Unexpectedly, Want Want's 'fatigue' was completely opposite to the market trend. In recent years, China's snack market has undergone new changes. Online leisure snack brands represented by Three Squirrels and Bestore were established and entered a rapid growth period. In 2014 alone, the average annual growth rate of China's food e-commerce transaction volume reached 45%.
Starting to fall from the 'cloud' in 2014, this can also be seen from the inventory cycle. China Want Want's financial report for the new fiscal year 2017 shows that its inventory turnover days were 81 days. Although this is an improvement compared to last year's 94 days, it is still far from the industry's basic 60-day turnover days, indicating that product sell-through is slow, confirming the fact that Want Want is not selling well.
03 Internal Crisis
If demographic changes and competitive pressure are external factors causing Want Want to be fully passive, then internal crises have also dealt a heavy blow to Want Want.
Zhou Tong has been cooperating with China Want Want since 2009, responsible for agency work in a certain region of Guangdong. He told 市界: 'In 2014, many old dealers terminated their cooperation. On one hand, it was really hard to sell; on the other hand, Want Want's channel conflict problem was too serious.'
The so-called channel conflict refers to distributors at various levels and branches selling across regions due to profit motives, causing price chaos. 'There's no way. The goods are all pressed on us dealers, and there's no profit in channel conflict,' Zhou Tong said.
Multiple practitioners in the FMCG industry told 市界, the reason Want Want's channel conflict problem is serious is mainly due to the chaotic internal organizational structure. Want Want re-divides departments every year based on products, so products and corresponding dealers change accordingly. There are even rumors that many senior company executives left because they were dissatisfied with such job adjustments.
The termination of dealer cooperation is one of the key factors affecting Want Want's sales.
According to Zhou Tong's recollection, Want Want is very 'tough' with dealers, using both carrot and stick methods to force dealers to pay and stock up, which made dealers very resentful. Want Want's settlement method adopts 'payment before delivery,' and after forming brand effects, it no longer clears the market. 'Combining multiple reasons, I had no choice but to terminate the contract,' Zhou Tong said helplessly.
From China Want Want's 2017 financial report, 市界 saw that Want Want indeed sells products to most customers in China on a payment-before-delivery basis, and emphasized that credit sales are only provided to customers in modern distribution channels and some emerging channels.
In recent years, emerging business forms have been rising, and Want Want has followed the trend to establish its own direct sales offices. But the 'arrogant' Want Want has not balanced its relationship with terminal partners.
According to the new 2017 financial report, Want Want's e-commerce and maternal and infant offline store channels saw revenue growth of over 50% compared to last year, but traditional channels remain the main force. Optimistic industry insiders believe that the maternal and infant market Want Want has entered has large capacity and high profits, but competition is fierce, and the market is basically monopolized by foreign brands. Want Want's products still need a process of cultivating a consumer group.
Want Want's internal direct sales are still in the trial stage, and at this stage, it has no choice but to pick up the dealer market again. Retail expert Bao Yuezhong told 市界 that for FMCG, the importance of channels is no longer what it used to be; innovative products that can sustain growth are the core competitiveness. For an enterprise to maintain vitality, its products must be able to keep up with consumers' consumption needs.
An expert focusing on the retail industry revealed to 市界, Want Want has not established good communication with consumers for many years, relying on year-end promotions to boost performance, which leads to low gross margins.
A former head of Want Want's sales department also told 市界 that when facing sluggish growth, Want Want adopts various measures, such as purchase discounts, and when products are near expiration or unsold, it conducts some display and bundling sales. In addition, it also cuts promotion expenses and major raw material costs, and adjusts organizational structure.
But cost control has not brought 'pleasing' results for Want Want. In the new fiscal year 2017, group revenue increased by 6.6% year-on-year, while gross margin fell 4.1 percentage points to 43.1%, reaching 8.735 billion RMB. Want Want attributed this to rising costs of raw materials such as packaging materials, sugar, and whole milk powder.
04 Is the Thinking Too Outdated?
Facing the embarrassing situation of declining revenue and evaporating market value of 100 billion, Want Want has embarked on a path of diversification, launching a series of new brands such as Heipi, Aiyo, Naduoli, Laren, etc., covering many categories including jelly, plum wine, and instant noodles. In addition, this year Want Want also entered the skincare industry, launching Want Want milk facial cleanser, toothpaste, masks, and more. However, the diversified layout has had little effect.
Although new brands and new products are emerging in an endless stream, their market performance is not outstanding, with no well-known or viral products.
Liu Hui, chief consultant of Beijing Zhaoyi Retail Management Consulting, believes that China Want Want's biggest current problem is product thinking. It uses traditional production-oriented thinking to cope with the consumer market under the internet environment, and its product upgrades are not as fast as competitors, and among new products, there is nothing impressive.
On October 17, 市界 randomly visited several supermarkets in Chaoyang District, Beijing. The newly launched dairy drinks were only seen in traditional supermarkets, and in inconspicuous positions on the shelves. In community convenience stores and small and medium-sized supermarkets, traditional foods such as Want Want milk and Want Want mini steamed buns are still the main sales.
Innovation not only increases R&D costs but also becomes a stumbling block to performance.
In its new product R&D strategy, Want Want strives to expand the specifications and types of its 'soul' product, Want Want milk, but the large 'reconstituted milk' label also confuses old consumers.
The so-called reconstituted milk is made by concentrating and drying milk into milk powder, then adding an appropriate amount of water to make a liquid with a ratio of water and solids similar to original milk. In layman's terms, it is milk powder mixed with water and then restored to milk.
But consumers' health concepts have undergone tremendous changes in recent years. In the dairy industry, companies like Yili and Mengniu are attracting consumers with fresh milk as raw material; Nestlé has reduced sugar in chocolate drinks; Kraft Heinz has removed artificial dyes from macaroni and cheese, while reconstituted milk has remained unchanged for 20 years.
Zhou Tong told 市界 that this is one of the reasons why Want Want isn't selling well. And Dali launched Doudouben soy milk, with revenue exceeding 200 million yuan within two months of listing.
On one hand, Want Want has lost sensitivity to changes in consumer preferences; on the other hand, it has lost the wolf-like nature of cutting off its own arm, clinging to hit products to survive.
According to Stock Exchange information, since August this year, Chairman Tsai Eng-meng has been increasing his holdings in the company. Data shows that from August 15 to August 27, Want Want Group Chairman Tsai Eng-meng increased his holdings for nine consecutive trading days, with a total value of 165.98 million Hong Kong dollars. In early September, Tsai Eng-meng increased his holdings again, with a total of 8.52 million shares at prices of 6.3953 yuan and 6.4638 yuan per share, totaling 54.73 million yuan, increasing his latest shareholding to 50.59%.
As for the reason for the chairman's increase in holdings, China Want Want has not given a clear response, but it is foreseeable that Want Want's self-redemption is very urgent.
Having lived on its old laurels for twenty years, can China Want Want successfully survive its midlife crisis amid numerous competitors and changes in the domestic FMCG market? The problem of insufficient product innovation is imminent, and diversification attempts are only auxiliary. In the future, it is unknown where this lost old brand will go.
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