Click image for details Recently, Crayon Shin-chan announced that its net loss for last year is expected to widen to approximately 602 million yuan, compared with a net loss of 338 million yuan in 2015. Total sales during the period were about 893 million yuan, a year-on-year decline of nearly 15%. In fact, this is not the first time Crayon Shin-chan has experienced a decline in performance. Since the 'gelatin scandal' in 2014, Crayon Shin-chan's performance has declined year after year.
Declining performance year after year after the 'gelatin scandal' Regarding the net loss of 600 million yuan last year, Crayon Shin-chan Food stated that the main reasons include: the market demand for the group's traditional snack products continued to be weak; due to business performance being worse than expected, an impairment of approximately 242 million yuan was recognized for property, plant, and equipment; due to a borrower's default, an impairment provision of approximately 91.5 million yuan was recognized for receivables under entrusted loan agreements; to boost consumer sentiment and further promote the group's brand image, marketing and promotional expenses increased by about 70%; in addition, some of Crayon Shin-chan's goods were returned by customers, and due to changes in China's food additive disclosure regulations, raw materials and finished goods were written off by 33.9 million yuan.
In fact, this is not the first time Crayon Shin-chan has experienced a decline in performance. Let's go back two years. In March 2014, CCTV exposed that more than a dozen domestic gelatin companies used waste leather contaminated with various industrial raw materials to produce pharmaceutical and edible gelatin, which was then sold to pharmaceutical companies and candy factories. Among the more than a dozen gelatin companies exposed by CCTV, Zhejiang Jialida Gelatin Co., Ltd. was listed. At that point, Crayon Shin-chan, which happened to be a customer of this company, became involved in the 'gelatin scandal'.
"Although in the gelatin scandal, Crayon Shin-chan's products were tested by relevant departments and clarified as qualified, Crayon Shin-chan's performance was affected," said Zhu Danpeng, a researcher at the China Brand Research Institute. The financial reports released by Crayon Shin-chan over the years support Zhu Danpeng's statement. In 2013, Crayon Shin-chan's performance reached its peak, with revenue of 1,833.8 million yuan and net profit of 326.4 million yuan. In 2014, Crayon Shin-chan's performance fell off a cliff, with revenue of 1,128.9 million yuan, a year-on-year decline of 38.44% from 2013; net profit was 11.1 million yuan, a year-on-year decline of 96.6% from 2013. In 2015, Crayon Shin-chan turned from profit to loss, with revenue of 1,047.4 million yuan and a net loss of 338.2 million yuan.
"Due to the lingering negative impact of the toxic gelatin incident, 2015 was a challenging year for us," said Zheng Yuhuan, chairman of Crayon Shin-chan, in the 2015 financial report regarding the turn from profit to loss. "In addition, due to the slowdown in China's GDP growth, Chinese consumer confidence was weak. To build consumer confidence, our management team vigorously promoted our products, such as launching new promotional activities for jelly products and introducing new fruit and vegetable beverages. However, the impact of these measures was mixed."
However, Crayon Shin-chan's loss-making state did not end. In the first half of 2016, Crayon Shin-chan again experienced losses. "Affected by the toxic gelatin incident, the brand image of the Crayon Shin-chan group has been greatly impacted. It is expected that Crayon Shin-chan Food's performance will still not turn losses into profits this year, but it will gradually improve in the coming years," said Le Yao, a researcher at Zhongyan Puhua, to reporters.
The dimming jelly business However, in the view of many industry insiders interviewed by reporters, Crayon Shin-chan's performance predicament is far more than just the impact of the 'toxic gelatin incident'. "In fact, the growth space for the jelly business is already very small," said Zhu Danpeng. "Nowadays, parents do not advocate children eating jelly from a safety perspective, which means the consumer dividend for the jelly industry is decreasing; on the contrary, consumers have more and more alternatives to choose from. In this context, Crayon Shin-chan's jelly business has actually lost to other categories in terms of category upgrading."
Xu Xiongjun, an expert in food and beverage strategic positioning, expressed the same view to reporters. "In recent years, the FMCG industry has entered a saturation period, and the jelly industry is no exception," said Xu Xiongjun. "Along with this, there is also consumer concern about jelly food safety. In this context, Crayon Shin-chan's jelly business actually faces great market pressure."
However, the jelly business accounts for a large proportion of Crayon Shin-chan's business segments. According to Crayon Shin-chan's financial reports, in terms of product revenue, the jelly business accounted for 71.3% of total revenue in 2015; in 2014, the jelly business accounted for 68.4% of total revenue; in 2013, the jelly business accounted for 70.4% of total revenue.
On the other hand, Crayon Shin-chan's jelly business revenue has been declining year after year. According to financial reports, in 2013, Crayon Shin-chan's jelly business sales were 1.292 billion yuan, while in 2014, sales fell to 773 million yuan, a year-on-year decline of 40.2%; in 2015, sales were 747 million yuan, a year-on-year decline of 3.3%. At the same time, Crayon Shin-chan's sales in the first half of 2016 were 295 million yuan, a year-on-year decline of 33.4%.
"Jelly revenue accounts for more than 70% of the company, and the risks hidden in its product structure are very high. If the jelly business segment experiences sluggish sales or category decline, it could be a disaster for Crayon Shin-chan," Xu Xiongjun said bluntly.
In fact, the jelly business is not the only headache for Crayon Shin-chan. Its confectionery products and beverage products also performed poorly. In 2015, Crayon Shin-chan's confectionery product sales were 128 million yuan, a year-on-year decline of 26%. In addition, Crayon Shin-chan's beverage product sales were 95 million yuan, a year-on-year increase of 91.4%, but Crayon Shin-chan admitted in its financial report that although sales increased, gross profit continued to deteriorate, "with higher fixed overhead amortization."
"The jelly business has dimmed, and the diversified beverage business has also shown no improvement. Both of Crayon Shin-chan's major business segments performed poorly, so its losses are very normal," said Zhu Danpeng.
Expert advice: Crayon Shin-chan can develop towards leisure food in the future Speaking of Crayon Shin-chan's future performance, Zhu Danpeng believes that the future of Crayon Shin-chan Food is difficult. "Xizhilang, the big brother of the jelly industry, realized the decline of the jelly industry a few years ago and began to diversify, establishing its own weighted brands, such as Youlemei milk tea and Meihaoshiguang seaweed," Xu Xiongjun also believes. "However, Crayon Shin-chan missed the opportunity."
Under the crisis, how should Crayon Shin-chan save itself? The reporter consulted Crayon Shin-chan by email, but as of press time, no reply was received.
"In the future, if Crayon Shin-chan wants to develop, it should not go into the beverage industry, but towards leisure food," Zhu Danpeng suggested. "Leisure food requires relatively less investment, and the input-output ratio will be better. On the contrary, the beverage business is like gambling; for example, companies like Master Kong and Uni-President have launched so many new products, but the survival rate is actually not high. In this context, there is not much opportunity for Crayon Shin-chan to expand its beverage business."
In Zhu Danpeng's view, Crayon Shin-chan should combine some leisure food with its jelly to form a product group advantage. "Jelly has its peak season, and leisure food has its peak season. This way, they can have a separate display cabinet; otherwise, it will be difficult to highlight their bulk advantage in supermarkets."
At the same time, in Xu Xiongjun's view, Crayon Shin-chan's jelly products should undergo innovative development. "Launch a new generation of safe jelly, continuously keep up with the times and create hit products; at the same time, cater to the new tastes and needs of the new generation of consumers."
"Actively promote its brand image and products, including airing advertisements through different media channels; at the same time, launch new jelly and beverage products to provide consumers with better choices," Le Yao expressed the same view.
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