Introduction: Facing fierce competition in the spicy stick market, Weilong must remain vigilant, defend its advantages, and explore new consumption scenarios.
Weilong Delicious Global Holdings Co., Ltd. (hereinafter referred to as Weilong) listed on the Hong Kong Stock Exchange on December 15, finally taking the last step to become the "first spicy stick stock." In May this year, Weilong submitted its listing application to the Hong Kong Stock Exchange for the third time, passed the listing hearing on June 27, updated its hearing materials on November 23, and issued a global offering announcement on December 5. Weilong has seen rapid revenue growth in recent years. According to the updated prospectus, from 2019 to 2021, Weilong generated revenues of RMB 3.385 billion, RMB 4.120 billion, and RMB 4.8 billion, respectively. However, in the first half of 2022, the company turned from profit to loss, with a loss of RMB 261 million. Weilong explained in the prospectus that the loss was mainly due to one-time share-based payments related to pre-IPO investments; excluding this factor, Weilong remained profitable. Weilong also stated in the prospectus that due to share-related matters, its profit for 2022 is expected to decline significantly. Previously, news of Weilong's loss sparked consumer discussions, with media questioning whether spicy sticks were no longer popular. But excluding share-related factors, the popularity of spicy sticks must be judged by the market. Weilong still holds the top position in the spicy stick market.
1) Penetrating China's offline market
Weilong has been in the spicy stick industry for over two decades. In its early days, it relied on ground promotion to occupy local supermarkets and retail stores, making offline its most important revenue channel. To this day, nearly 90% of Weilong's revenue still comes from offline. Why, in an era of highly developed e-commerce, does Weilong still succeed offline? Because offline channels still account for 90% of China's spicy snack market share, while e-commerce currently accounts for only 12.4% of the overall market. Moreover, as offline channels further penetrate lower-tier cities and supply efficiency improves, offline channels are expected to grow further. For this reason, Weilong has a strong offline distribution network. As of now, Weilong has over 1,830 offline distributors, deeply penetrating the Chinese market and covering approximately 735,000 retail terminals. Based on China's 2,856 counties and cities, on average, there are 257 terminal stores selling Weilong products in each county or city. In other words, when consumers want to eat Weilong spicy sticks, they can buy them just by stepping out, greatly reducing waiting time compared to online shopping. Additionally, despite intense competition in the spicy stick industry, Weilong currently holds the largest market share. Whether in the spicy snack market or the sub-segments of spicy seasoned flour products and spicy leisure vegetable products, Weilong's market share equals the combined share of the second to fifth largest companies. In an era of increasingly distinct sub-segments, Weilong performs excellently. Therefore, as long as Weilong's offline market remains unchallenged, it can continue to rely on its strong offline supply capability to maintain its leading position in the spicy stick industry.
2) Building a safe and hygienic brand image
Weilong has been very successful in building its brand image. Looking at Weilong's history, it took two correct steps: first, creating a safe and hygienic brand image, and second, strong marketing capabilities. Let's first look at Weilong's path to a safe and hygienic brand image.
For a long time, spicy sticks have been associated with "junk food." In 2005, CCTV and other media exposed serious safety issues in the spicy stick industry. According to media reports, the number of spicy stick companies dropped from 2,000 to 500 that year, and spicy sticks were labeled as "junk food" and "unhygienic." After the media exposure, the industry underwent a shakeout, but Weilong was not significantly affected. Before the CCTV exposure, Weilong had already introduced a new production line from Europe in 2004 to renovate its workshops, upgrading packaging machines from semi-automatic to fully automatic. This was not the beginning; Weilong continued to build standardized and normalized production workshops. In 2014, Weilong established a standardized sterile production workshop. That same year, Weilong invited a photography team to shoot promotional videos, showcasing its hygienic, standard, fully automated workshops to consumers. In 2016, Weilong invited internet celebrity Zhang Quandan to livestream from its food workshop, showing the entire production process and reinforcing its safe and hygienic brand image. By being the first to introduce standardized, automated production lines, Weilong ensured food safety. Currently, Weilong has established a comprehensive internal food control system covering all aspects from production to sales, achieving systematic management of food safety. Ultimately, Weilong has built a "safe and hygienic" brand perception in consumers' minds. In addition to shedding the "junk food" label through food safety, Weilong also keeps up with consumer trends, investing in marketing to create a "trendy" spicy stick image. If Weilong's first half was about hard power, the second half is about soft power, namely marketing.
3) Strong marketing creates the "national spicy stick"
The majority of Weilong's consumers are young people: 95% are aged 35 and under, and 55% are aged 25 and under. Tailoring its marketing style to this group has become Weilong's main strategy. Therefore, Weilong relies on its marketing capabilities to continuously expand its brand influence among young people. From imitating Apple's packaging to the anti-involution "lying flat" marketing, Weilong has precisely captured the zeitgeist of young people, generating plenty of buzz. As early as 2010, Weilong invited Zhao Wei to endorse its products, and later Yang Mi. Through celebrity endorsements, Weilong's brand image was further enhanced, but compared to later efforts, the effect of endorsements was not as significant. Weilong truly ramped up its marketing efforts starting in 2015. In terms of gameplay, Weilong always keeps up with youth trends, innovating through hot topics, crossovers, and imitation, earning a reputation as a "marketing genius." In 2015, "Running Man Spicy Sticks" and "Truant Weilong" were popular among young people. In 2016, Weilong imitated Apple's minimalist style and successfully went viral. Weilong tasted success with this "playful" marketing style and continued it, including collaborations with Baozou Manhua, imitating Xiaomi, and styles like Zhiyin, disco, and Excel. Even the northeastern cotton-padded jacket style—if Weilong wants to play, there's no field it won't explore. This Double 11, Weilong once again accurately captured young people's emotions. In today's involutionary society, it adopted an "anti-involution" marketing approach, with slogans like "Ordering is fate" and "Whether you buy or not, the spicy sticks are there, neither sad nor happy," which were well received by consumers. By continuously investing in marketing, Weilong has become the spicy stick of young people, a part of their spicy snack memories. From food safety to marketing, through a combination of hard and soft power, Weilong continuously consolidates its brand perception in consumers' minds, ultimately becoming the "national spicy stick."
The pressure Weilong faces
Although Weilong's position as the spicy stick leader is stable, the business market is ever-changing. There is no permanent leader, only permanent competition. To maintain its top position in the spicy stick market, Weilong needs to address two issues, which are also the main pressures it currently faces: internal pressure and external pressure.
Internal pressure:
1) New products need to improve their pulling power
Currently, Weilong's products mainly consist of seasoned flour products, vegetable products, and soy products. Among them, the large gluten, small gluten, and spicy stick series in the seasoned flour products category have always been the main source of revenue, accounting for as much as 73.1% of total revenue in 2019. In response, Weilong has been adjusting its revenue structure. The proportion of vegetable products in total revenue has been increasing year by year, from 19.3% in 2019 to 36.2% in the first half of 2022. However, as of June 2022, seasoned flour products still contributed more than half of total revenue, reaching 59.3%. On the other hand, due to rising prices of raw materials like soybeans, Weilong can no longer maintain its price advantage. Therefore, Weilong chose to raise prices, but the results show that price increases did not bring profit growth. The prospectus shows that sales of both seasoned flour products and vegetable products declined. Clearly, if Weilong wants to continue competing with similar brands in the leisure spicy snack market, new products need to step up quickly.
2) Low-fat trend: Weilong is catching up
Although Weilong has successfully built brand influence through safe and hygienic products, many consumers say that current spicy sticks are "too oily" and "too sweet." Behind these comments is a shift in consumer trends in China's leisure snack market. Consumers are no longer satisfied with just safety and hygiene; health has become an important reference standard when making purchases. According to the "2022 Panorama of China's Leisure Food Industry" by the Prospective Industry Research Institute, consumers will increasingly prefer low-calorie, low-fat, low-sugar healthy leisure foods. Additionally, according to the "2021-2022 Research Report on the Current Status and Consumer Behavior of China's Leisure Food Industry," besides taste, "ingredients and health" have become the second most important factor for consumers when purchasing leisure foods, accounting for as high as 63.8%. Weilong has also adjusted its products in response to changing consumer tastes. For example, in its seasoned flour product Qinsizui Shao, each 100 grams contains 3.3 grams of dietary fiber and no trans fatty acids or cholesterol. Furthermore, packaging now includes claims like "0 cyclamate" and "0 trans fatty acids." Weilong is catching up with this health trend.
3) Fierce competition: Everyone wants a piece of the spicy stick pie
The spicy stick market has low entry barriers and is growing, attracting many companies to enter. This huge market temptation is evident from the data. Data shows that the retail sales of China's spicy leisure food industry increased from RMB 113.9 billion in 2016 to RMB 172.9 billion in 2021. From 2021 to 2026, the spicy leisure market is expected to grow at a compound annual growth rate of 9.6%, with retail sales projected to reach RMB 273.7 billion by 2026. Meanwhile, according to a Frost & Sullivan report, China's spicy leisure food market is fragmented; in 2021, the top five companies accounted for only 11.5% of the market share by retail sales. The market size and low concentration make competition in the spicy stick industry extremely fierce. Major leisure snack companies have entered the market, trying to get a share, which inevitably puts Weilong on alert. In the leisure snack market, Three Squirrels, Yanjin Shop, Bestore, and Baicaowei have all launched spicy products. Three Squirrels launched its "Yue La Series" in 2017, achieving sales of 4.8 million units in just 7 months. In 2020, Yanjin Shop's spicy sticks generated revenue of RMB 50.53 million. In response to increasingly fierce competition, Weilong has also launched new products, including seaweed, stinky tofu, marinated eggs, rice crackers, and braised products, but the results have not been outstanding. The prospectus shows that Weilong's gluten series products still account for the majority of sales, and konjac snacks in the vegetable products category only account for 30% of revenue; together, they account for over 90% of revenue. As of the first half of 2022, soy products, including marinated eggs, only accounted for 4.5% of revenue. Therefore, with more players in the spicy stick market and more diverse consumer choices, Weilong needs to launch differentiated competitive products and timely introduce new products that drive growth based on consumer tastes. After all, the market changes rapidly, and with a slight misstep, it could be overtaken by competitors at any time.
Final thoughts:
Weilong has been "leveling up and fighting monsters" with its strong offline channels and marketing capabilities. From its current performance, Weilong remains the industry leader in the spicy stick market, and it is unlikely that other competitors will surpass it in the short term. However, in the long run, Weilong's new product pulling power needs improvement, and future consumer tastes are trending toward health. How to find new growth points in line with this trend has become a pressure for Weilong. At the same time, facing the fiercely competitive spicy stick market, Weilong must remain vigilant at all times, defend its advantages, and strive to expand new consumption scenarios to ensure it remains a memory for young people.