---
title: "Who 'Killed' Chengde Lulu?"
description: "Chengde Lulu, once a pioneer in the plant-based protein beverage market, has seen declining sales and profits due to neglect by its major shareholder Wanxiang, a failed expansion into southern China, and intense competition from rival Yangyuan. The article explores the factors behind Lulu's stagnation and its recent attempts to revitalize."
author: "读懂君002"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-07-13"
language: "en"
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---

# Who 'Killed' Chengde Lulu?

> Chengde Lulu, once a pioneer in the plant-based protein beverage market, has seen declining sales and profits due to neglect by its major shareholder Wanxiang, a failed expansion into southern China, and intense competition from rival Yangyuan. The article explores the factors behind Lulu's stagnation and its recent attempts to revitalize.

**Do you still drink Chengde Lulu?**
**If you ask a middle-aged person, they might say they haven't had it in a long time. If you ask a young person, they may have never tried it. Unless you ask Xu Qing, who will tell you she's been drinking it for 18 years.**
**Once a 'prodigy,' Lulu single-handedly created the plant-based protein beverage category, holding over 90% of the almond milk market share. Based in the north, it stood as a counterpart to Coconut Palm in the south. It went public 21 years before Yangyuan, and once stood shoulder to shoulder with dairy giant Yili.**
**But while Yangyuan expanded nationally, fewer people were drinking Lulu. In 2018, Lulu sold only 210,000 tons, down 130,000 tons from 340,000 tons in 2014. Reflecting on its performance, 2018 revenue was only 2.12 billion yuan, less than the 2.14 billion yuan in 2012, and net profit declined for three consecutive years.**
**At the same time, it was no longer favored by investors. Compared to the 2015 bull market peak, Moutai has risen 3.2 times, Haitian 1.8 times, and Yili 66%. Almost all well-known consumer stocks have climbed to higher peaks, but Lulu remains stuck halfway up the mountain, 'avoiding the heat.'**
**So, who exactly killed Lulu?**
**Wanxiang's Lack of Commitment**
Lulu's birth was 'legitimate and upright.' But its current decline is closely tied to its 'foster father,' Wanxiang.
In 1997, Lulu was listed on the Shenzhen Stock Exchange. In terms of scale, in 1996, Lulu's revenue and net profit were 276 million and 42 million yuan respectively, while Yili, listed in 1996, had revenue and net profit of 355 million and 33 million yuan. They were almost at the same starting line.
After listing, unlike Yili's rapid growth, Lulu's development was exceptionally slow. By 2006, Lulu's revenue was still only 1.1 billion yuan. But this didn't stop this 'cash cow,' which generated tens of millions in profit annually, from attracting capital.
From 2003 to 2006, Wanxiang made two moves, leveraging the share reform, to become Lulu's largest shareholder with 42.55% stake. The 'biological father' Lulu Group was out, and the 'foster father' took control.
At that time, coinciding with the share reform, A-shares experienced the biggest bull market in history, with the Shanghai Composite Index's 6124 high still unsurpassed. **Lulu also rose 25 times from early 2006 to its peak in June 2015.**
Alongside the bull market, China's plant-based protein beverage industry experienced a golden decade of high growth.
According to data from Qianzhan Industry Research Institute, from 2007 to 2016, the market size of plant-based protein beverages grew at a compound annual rate of 24.5%, ranking first among all beverage sub-sectors, and its share of the entire beverage industry rose from 9.9% to 18.69%. But Lulu's revenue compound growth rate was only 8.5%.
Clearly, Wanxiang's entry did not bring the 'vigorous development' investors imagined. The only thing that comforted investors was its dividends. From 2006 to 2018, Lulu accumulated net profit of 3.8 billion yuan, with cumulative cash dividends of 2.4 billion yuan, a payout ratio of 63%. The Wanxiang system took away 1 billion yuan of that.
Lulu's massive cash reserves were also 'activated' by Wanxiang. In the past two years, Lulu's over 1.7 billion yuan in cash was deposited with Wanxiang Finance at an annual interest rate of less than 1.5%.
In 2016, **an investor questioned why Lulu wasn't increasing investment. Then-chairman Guan Dayuan explained, 'We thought good wine needs no bush.'** Even Moutai might shudder at that.
At an age when it should have been striving, Lulu was forced to choose comfort, wasting its prime years. Meanwhile, its fellow townsman, Six Walnuts, started from scratch during that period and grew to over 9 billion yuan. Lulu only reached 2 billion yuan.
Some say, 'Chengde Lulu is a good child, with strong profitability, sound financials, and high dividends. It's quiet and doesn't cause trouble. But the adults watching over it don't care, so it never grows.' That hits the nail on the head.
**The Unconquerable Northern Market**
The plant-based protein beverage segment, where almond milk resides, has very low market concentration, with a regional competitive landscape: 'Coconut Palm in the south, Lulu in the north, Weiyi in the west, and Yinlu in the east.' Yangyuan is the only national brand, precisely because it broke regional barriers, so its revenue is much higher than its peers.
**In other words, as long as it can achieve national expansion, the revenue ceiling for almond milk will be lifted.** But Chengde Lulu has walked this path for 20 years and still lost badly.
The story begins 20 years ago. In 1996, Lulu Group, with its main sales in the north, decided to establish Shantou Lulu as a joint venture with Hong Kong Feida to open the southern market, with each holding 51% and 49% respectively.
In 1997, during the restructuring of state-owned enterprises, Lulu Group established the listed company Chengde Lulu. To avoid competition and facilitate listing, Lulu Group injected its 51% stake in Shantou Lulu into Chengde Lulu.
But the pattern of 'Coconut Palm in the south, Lulu in the north' had already formed. In the southern market, Shantou Lulu faced issues like taste differences and low brand awareness, leading to significant losses. Around 2000, Tetra Pak technology from Sweden was introduced to China. Chengde Lulu considered the investment too large and gave up, leaving Shantou Lulu to introduce it alone. To avoid affecting its financials, in 2001, Chengde Lulu divested its stake in Shantou Lulu back to Lulu Group.
At the same time, a 'division' occurred. The four parties involved—Lulu Group, Chengde Lulu, Shantou Lulu, and Hong Kong Feida—signed the 'Memorandum' and 'Supplementary Memorandum' at the end of 2001 and early 2002.
These stipulated that Shantou Lulu could continue to use the 'Lulu' trademark and related patents, responsible for the production and sale of canned Lulu in eight southern provinces including Guangdong, Fujian, and Guangxi, as well as Tetra Pak Lulu nationwide.
Wanxiang was initially unaware of these entanglements. It wasn't until 2010, when Guan Dayuan of Wanxiang took over as chairman of Chengde Lulu from Wang Baolin, who came from Lulu Group, that many previously buried disputes were brought to light.
Moreover, Shantou Lulu, which had been losing money, had grown over a decade to a certain scale, with revenue exceeding 300 million yuan, and its products even penetrated the northern market, sold in supermarkets like Walmart in Beijing.
I hadn't noticed this issue offline before, but just now I searched on JD.com and indeed found Tetra Pak Lulu produced by Shantou Lulu.
Starting in 2015, Chengde Lulu began frequently suing Shantou Lulu. In 2018, Shantou Lulu countersued. Chengde Lulu argued that the 'Memorandum' was signed by former chairman Wang Baolin and others without shareholder approval, violating the Company Law and Securities Law, and should be invalid. Shantou Lulu insisted that its use of the 'Lulu' trademark was a legitimate right.
To this day, this protracted 'civil war' remains unresolved. But it's certain that Chengde Lulu has been significantly impacted.
On one hand, Shantou Lulu's existence has begun to erode Chengde Lulu's market. On the other hand, 2016-2018 was a critical period for Chengde Lulu's reforms, and the fight with Shantou Lulu consumed too much energy.
**More painfully, even if it ultimately wins against Shantou Lulu, the lost southern market will be hard to reclaim.** During Lulu's 'Buddhist-style' management years, Coconut Palm's coconut juice revenue in the south exceeded 4 billion yuan, and the rising Six Walnuts had already achieved over 4.3 billion yuan in revenue in East China, Southwest, and South China.
As the saying goes, 'Strike early, or it's gone.'
**The Unbeatable Six Walnuts**
Speaking of Chengde Lulu, one must mention Yangyuan.
**Also from Hebei and also making plant-based protein beverages, Yangyuan is like a mirror. The Yangyuan in the mirror is what investors imagined Chengde Lulu's future to be.** In other words, the secret to Yangyuan's rise is the reason for Chengde Lulu's failure.
Yangyuan's predecessor was Hebei Yuanyuan Health Beverage, which was on the brink of bankruptcy in 1999 and was transferred to Hengshui Laobaigan, but the decline continued. It wasn't until 2005 that 58 employees led by Yao Kuizhang invested 3.1 million yuan to take over this 'mess.' Under Yao's leadership, Yangyuan executed a 'triple strike' to reverse the situation and claim victory.
First, Yangyuan made walnut milk its flagship product, establishing a clear big single-product strategy.
**The biggest advantage of a flagship product is that it can capture consumer mindshare through differentiated positioning.** General FMCG products target basic needs, with low prices, many varieties, and severe homogeneity, leading to low brand loyalty and easy switching among similar products.
Looking at other domestic plant-based protein beverage companies, they often have a leading product, such as Lulu's almond milk or Coconut Palm's coconut juice. With this, Yangyuan stood out with walnut milk.
Second, instead of focusing on 'nutrition and moisturizing' like other plant-based beverages, Yangyuan innovatively positioned itself as 'brain-boosting.' With aggressive CCTV advertising, the slogan 'Use your brain often, drink Six Walnuts' became widely known.
For Yangyuan, whether consumers actually get brain benefits from Six Walnuts doesn't matter. What matters is that **'brain-boosting' completely differentiated walnut milk from other plant-based beverages, giving it the power to carve out a market segment from the start.**
In 2017, the walnut milk market exceeded 10 billion yuan, far surpassing other plant-based protein beverages. During the same period, the coconut juice and almond milk markets were only around 5 billion and 3 billion yuan respectively.
After clarifying its brand positioning, Yangyuan also emphasized brand marketing. Besides airing Six Walnuts ads during CCTV prime time, Yangyuan sponsored various educational programs like 'The Brain,' 'Everlasting Classics,' and 'Impossible Challenge,' and conducted offline tasting promotions during the high school and college entrance exam periods for more targeted marketing.
In contrast, Chengde Lulu has achieved nothing in brand promotion. The only impression consumers have of its product is the ageless goddess Xu Qing. As for what the ads said or product features, there's basically no impression.
Lulu's audience was originally women, the elderly, and children. Under Yangyuan's impact, women and children are increasingly fewer, leaving only the elderly.
In terms of channels, Yangyuan, born from Laobaigan, established a complete distribution system. It divided sales areas by region and then by distribution channels, such as circulation and supermarket channels. Within a distribution area or channel, only one distributor is appointed for exclusive distribution, with clear rights and responsibilities.
At the same time, Yangyuan won channel trust and reputation through strategies like 'star-assisted sales,' distributor shareholding, and 'unconditional' return and exchange policies.
**While mainstream beverage brands were fighting in urban markets, channels became Yangyuan's biggest advantage.** According to Nielsen data, from January to October 2017, Yangyuan's cumulative sales in county-level cities, counties, and townships accounted for about 75%. Yangyuan's market share below the county level was nearly 90%, far higher than industry follower Yili Walnut Milk.
The establishment of Yangyuan's distribution system owes much to one person: Yangyuan's general manager Fan Zhaolin, a former sales champion at Laobaigan, who knows FMCG distribution well. In contrast, Wanxiang had never been involved in FMCG, let alone building a channel system. This is also an important reason for Lulu's failure.
When Six Walnuts was growing rapidly, Lulu also launched a walnut milk product to counter it.
The strategy was simple: increase channel profits for walnut milk, with distributors earning 8-9 yuan per case, and offer 'buy four get one free' promotions for retailers. However, due to low sales staff motivation and poor distributor management, issues like cross-region selling arose, leading to losses in the walnut milk business. Eventually, the effort fizzled out.
As cases of Six Walnuts were carried into student dormitories, Yangyuan's performance exploded. From 2010 to 2015, Yangyuan's revenue grew from 1 billion to over 9 billion yuan, with net profit exceeding 2.6 billion yuan, significantly widening the gap with Lulu. Since then, Yangyuan has been far ahead, and Chengde Lulu has made little splash.
**Lulu's 'Strategic Shift'**
After years of 'Buddhist-style management,' Lulu, standing on the edge of a cliff, seems to have finally awakened and has been actively seeking change in recent years.
In 2016, Lulu launched a new packaging product 'Little Lulu' to recapture the children's market. In 2017, Lulu adjusted its organizational structure, optimizing from 14 departments to 7 departments plus 1 marketing center, emphasizing the core position of the marketing center.
In 2018, after Lu Yongming took over as chairman, actions were further upgraded. Lulu launched a new product 'Hot Drink Lulu,' filmed a beautiful promotional video 'Good Morning City,' and proposed the advertising positioning 'Good nutrition for breakfast, drink hot Lulu,' targeting urban white-collar workers who skip breakfast. After the children's market, it attempted to win back the youth market.
At the same time, old rival Yangyuan is no longer as fierce. After reaching a peak of 9.12 billion yuan in revenue in 2015, it has been declining, falling to 8.14 billion yuan in 2018. After listing, previously hidden flaws were exposed: a 4-yuan can of Six Walnuts has raw material costs of only 1 yuan, with the largest portion being the iron can, and walnut kernels only 0.25 yuan. Six Walnuts doesn't actually boost the brain; it's more like a 'stupidity tax' on consumers.
This gives Lulu a chance to make a comeback, but winning the turnaround won't be easy.
In terms of product, the new 'Hot Lulu' has no significant nutritional upgrades except for the removal of Xu Qing from the can. But the price has risen from 80 yuan per case (20 cans) to 120 yuan per case (24 cans), a 25% increase. Whether consumers will accept the price increase remains to be seen.
In terms of marketing, although Lulu's sales expenses in 2018 increased significantly year-on-year, from 380 million yuan in 2017 to 480 million yuan, it's still not on the same level as Yangyuan's over 1 billion yuan in each of the past three years.
In terms of operational efficiency, in 2018, Lulu had 1,250 employees, generating 1.7 million yuan per capita, while Yangyuan had 2,307 employees, generating 3.53 million yuan per capita—more than double Lulu's.
Lulu, which has been used to hiding in the mountains to 'avoid the heat,' seems unlikely to face the fierce competition head-on.
Source: Duzheng Finance (ID: dudongcj)


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