Six Walnuts, once praised for unifying the market across the country, has failed four consecutive attempts at an IPO. Seeing Xiang Piao Piao, which had been pursuing an IPO alongside it, succeed on its third attempt, one wonders what Six Walnuts must be feeling. Perhaps it thinks the next time should be its turn to succeed? However, after all the effort, the result was yet another failure. So why does Six Walnuts keep failing its IPO attempts, and where exactly does it fall short? Not Going Public Equals Death? In recent years, Six Walnuts has been remarkably frequent in its IPO attempts, so much so that one might think it would die immediately if it didn't go public. But there's no need for such worry. Sales data shows that in the first half of 2017, it achieved revenue of 3.666 billion yuan and net profit of 1 billion yuan, with a profit margin of about 27%—quite impressive figures. Moreover, there are many walnut enterprises in Hebei with sales under 100 million yuan, and they all live quite comfortably, so Six Walnuts shouldn't be in dire straits either. The first half of 2017 was the off-season for Six Walnuts, as the most important gift-giving peaks—Mid-Autumn Festival and Spring Festival—fall in the second half of the year, which also affects its annual report. (Although Spring Festival is in February, anyone in FMCG knows that stocking up is completed before December; January to February is only for distribution, with relatively small payment amounts.) So what makes Six Walnuts so desperate to go public? One possibility is a bet with investors; another is the consecutive decline in both sales and profits. In the first half of the year, sales fell 9.03% year-on-year, and profits fell 23.08%. Death by Marketing? Three years ago, Six Walnuts' online promotional rhetoric was still "In the south, there's Yeguo; in the north, there's Lulu; to unify north and south, look to Six Walnuts". At that time, Six Walnuts' actions were limited to occasional TV ads during holidays, with extensive offline terminal atmosphere and floor displays. This low-key approach contributed to Six Walnuts' glory. Six Walnuts became another mega single product exceeding 10 billion yuan after Want Want Milk, Nutrition Express, herbal tea, and cola. Although there were some doubts at the time about whether Six Walnuts truly unified the north and south, data showed that its best-selling cities were Shandong, Hebei, Anhui, and Henan—all north of the Yangtze River. Moreover, with Huiyuan in Shandong and Lulu in Hebei, could Six Walnuts really exceed 10 billion? But at the time, the doubts were still a minority, even negligible. However, with the advent of the self-media era, Six Walnuts fell into a sea of skepticism. Some questioned whether Six Walnuts really contains the equivalent of six walnuts. Others said its nutritional value doesn't match a glass of soy milk. Regarding the idea that walnuts boost the brain, this has always been the traditional Chinese medicine concept of "like nourishes like". Traditional Chinese medicine itself has many skeptics among Western medicine proponents, let alone a beverage seller? "Use your brain often, drink more Six Walnuts" is just a clever borrowed slogan; there's nothing wrong with it. But for some reason, Six Walnuts suddenly couldn't sit still; it didn't choose to gently deflect these doubts. Instead, it chose a hard confrontation—frenzied sponsorship of intellectual programs like "The Brain", "Challenge Impossible", "Study Hard", and "Tonight's 80s Talk Show". The implication was: You doubt me? I'll show you through these programs that I can boost intelligence. What can you do about it? Bite me? Previously, when others questioned you, consumers just thought you were clever at borrowing trends; self-media thought, "Come advertise with us, write a few pieces about your good marketing and good products, and the matter is settled." But this was a hard confrontation. What are consumers supposed to think? Don't the viewers of these shows know that intelligence is cultivated through training? Do you really think consumers are stupid? If your earlier approach was soft borrowing, these sponsorships are an insult to consumers' intelligence. Most importantly, what do media professionals think? A company that was originally low-key, thought to have no substance, and not worth writing about. But then, you suddenly sponsor so many TV programs, becoming even more high-profile than before. That gives everyone a chance to find your problems. So we saw doubts about Six Walnuts: "marketing costs are 103 times R&D costs", "a can costs 2.1 yuan, packaging costs 1.6 yuan, and contents cost 0.5 yuan. That 0.5 yuan isn't enough for six walnuts, not even six drops of walnut." Originally intending to respond well to doubts, this only amplified them. Even media that had no ill will toward Six Walnuts suddenly swarmed in. These doubters all look at data. As industry insiders know, for a beverage company, as a single-product enterprise, investing over 4 million yuan annually in R&D is already sufficient. After all, your technology is already at that level; further R&D won't turn Six Walnuts into Six Hericium mushrooms, right? Impossible. As for marketing costs being 103 times R&D costs, look at Red Bull, the world's largest single product—what's its R&D? It's been that white and silver can for years. How many times its marketing costs are compared to R&D? How many of those big single-product players have developed new products? To put it bluntly, those who play with big single products don't want to run multi-brand operations; they simply can't sell multiple items well, okay? Look at China Red Bull: it has VITA COCO, Capri-Sun, Warrior, and VIOSS water, but which product sells well? To be blunt, the combined sales of those items might not even match Zhongwo Tizhi Energy. Wang Laoji is aggressive, but besides herbal tea, what else sells well? Sugar-free, black herbal tea, and the many brands it promised to other companies—together they don't even match the old green-box herbal tea. Since I can't sell multiple brands and items well, is it useful to invest in so much R&D? Is the company's problem in R&D? No, it's in marketing. It's just that your marketing costs versus R&D costs give unscrupulous media a handle, making consumers believe you're selling foam in an iron can. Where Does Six Walnuts Fall Short Compared with Xiang Piao Piao? Why can Xiang Piao Piao, which once struggled alongside Six Walnuts, go public? Logically, milk tea is a small category; the combined volume of Xiang Piao Piao and Youlemei is less than Six Walnuts. Now we no longer see ads for Xiang Piao Piao circling the earth or Youlemei holding you in its palm. It's as if they disappeared from consumers' sight overnight. But, sorry, the low-key Xiang Piao Piao went public, while the high-profile Six Walnuts continues to struggle. 1. Prospects for Milk Tea Beverages In the past two years, freshly brewed milk tea has become very popular due to online hype, but the business of cup-packed milk tea is definitely declining. Although Xiang Piao Piao is now repositioning itself toward functionality, from "sales circling the earth 3 times" to "slightly hungry or sleepy, drink Xiang Piao Piao", the decline in sales is an undeniable fact. But unlike Six Walnuts' decline, Xiang Piao Piao has future potential. Xiang Piao Piao is just cup-packed milk tea; it hasn't yet launched a ready-to-drink beverage. The beverage market is vast; beverages determine a company's ceiling. Six Walnuts is already a beverage, so its ceiling is set; it can only decline, with no growth in the near term. But who knows if Xiang Piao Piao's future beverage might create a whole new milk tea category? That's possible, and after the IPO, Xiang Piao Piao will immediately launch beverages. 2. Weak in Immediate Consumption, Not Sustainable in Gifting Six Walnuts still only focuses on gifting; its sales come from selling boxes, without cultivating the habit of immediate consumption (drinking right after purchase). Six Walnuts knows its problem but shows no intention of changing. We don't see any implantation of drinking scenarios for Six Walnuts; we only see its endless intellectual variety show sponsorships. What's the use of building a castle in the air? Even if your team's execution is excellent, it only makes consumers see your product and be able to buy it when they want. But how do you solve the problem of consumers being willing to buy? How do you solve the problem of in what scenarios consumers drink it? You can only think of Six Walnuts during gift-giving seasons. And during gifting, you also face the awkward question: Are you sending me Six Walnuts to mock me for lacking brains? Gifting is a surge in volume, but not a path to long-term growth. Only companies that strengthen immediate consumption can have a chance at recovery. Clearly, Six Walnuts hasn't realized this. Its team only has sales, no promotional staff to do the foolish consumer education. That's why when problems arise, Master Kong can rise against the wind, while Six Walnuts only sponsors variety shows. Xiang Piao Piao's sales come from selling cup by cup. No one gives Xiang Piao Piao as a gift. Although Xiang Piao Piao currently can't be consumed immediately—you need hot water to brew it—even with that hassle, it has achieved good results. That's where Xiang Piao Piao is stronger than Six Walnuts. Moreover, when Xiang Piao Piao prepares to launch beverages, it learns from Master Kong and sets up a professional promotional team, gradually cultivating consumers. That promotional team could be called "the little demon that grinds you down". 3. Conservative Employment Practices Six Walnuts is a typical Hebei enterprise. Among Chinese companies, those in Hebei, Henan, Shandong, and Fujian only trust fellow townsfolk, not outsiders. Professional managers? Get out of the way. Can they shine like our fellow townsfolk? You outsiders are all disloyal, here to cheat money. Only our fellow townsfolk team can have tears of joy when meeting. So you outsiders, leave your experience and go do whatever you want. Don't talk to me about contract spirit; that's nonsense. Work or not, our fellow townsfolk have strength. So FMCG companies in these regions may do well, but they can never achieve greatness. Xiang Piao Piao is a typical Zhejiang enterprise: everything for prosperity. As long as you have ability and can serve me, that's fine. Money can't be earned by one person alone; professionals do professional things. You organize a team, achieve my results, I'll give you power if you want power, and talent if you want talent. Together we'll make this bigger and stronger. So we see that after deciding to launch beverages, Xiang Piao Piao found a professional beverage team and directly let professional managers coordinate nationwide. This is unimaginable for enterprises in Hebei, Henan, Shandong, and Fujian. 4. Cherish Life, Stay Away from Variety Show Sponsorships Before going public, Xiang Piao Piao was extremely low-key, with few TV ads. Many media thought Xiang Piao Piao must be short on cash or in trouble. No media excessively targeted Xiang Piao Piao. The public opinion before the IPO was relatively healthy (although it sponsored "Smiling Jianghu", the ratings were low). But our Six Walnuts is very willful. It invests in various variety shows and even says it will raise funds to develop channels. The money you spend on variety shows is enough to develop channels. After so many years in business, you only think the problem is in channels—don't you find that laughable? Who can guarantee that after going public, you won't invest in variety shows again and deceive shareholders? Your current problem isn't the ratio of marketing costs to R&D costs, but that you make people doubt your understanding of your own enterprise. That's the main issue. Moreover, look at the past years: except for Mengniu's Super Girl, which recouped its investment for Sour Milk, which other company didn't suffer after sponsoring variety shows? Actually, if Six Walnuts took the naming fee for one variety show and invested more in self-media advertising to create a good atmosphere, it would be much better than being a "strongest dark horse". As an FMCG practitioner, Lao Na sincerely hopes that next time Six Walnuts succeeds in its IPO... Source: Kuaixiao Touban (FMCG Front Page) -END-