Click to read the original text for details Have you ever drunk sparkling water with vinegar? Seeing this question, you might think: Can vinegar be added to sparkling water? Yes! This wonderful combination has been born! In June, Hengshun Vinegar crossed over into the sparkling water sector and launched a sparkling water product called "Sweet and Sour Hug TM". This sparkling water product contains Zhenjiang aromatic vinegar and brewed vinegar. Upon its launch, this product sparked heated discussion, after all, it is the first time a vinegar company has crossed over into sparkling water. 01 Hengshun's Cross-Industry Journey But in fact, this is not the first time Hengshun has expanded into side businesses. Since its listing in 2001, Hengshun Vinegar has continuously attempted cross-industry ventures over the past decade or more. Initially, Hengshun's expansion areas had some relevance to its main condiment business. In 2001, it acquired partial stakes in six companies, including Hengshun Muyang Condiment Co., Ltd., Zhenjiang Henghua Color Printing and Packaging Co., Ltd., and Zhenjiang Hengshun Bioengineering Co., Ltd. But then things gradually started to go off track: In 2002, it entered a series of hot fields such as real estate, automobile trading, LED, and fire-fighting equipment. Within just one year, the number of its holding companies rapidly increased to 19; In 2003, its invested optoelectronics, bioengineering, and automobile trading companies all suffered losses, severely dragging down Hengshun's performance. That year's net profit plummeted to 20% of the previous year's level; After incurring losses, Hengshun decisively cut off automobile, pharmaceutical, and optoelectronics businesses, then entered wine-making, glass, and construction installation sectors; When the financial crisis broke out in 2008, the company's real estate business was hit hard, with real estate project operating revenue falling by 71.87%, leading to a net loss of nearly 50 million yuan that year. The company had no choice but to exit; In summary, over the years, Hengshun has dabbled in optoelectronics, bioengineering, pharmaceuticals, real estate, automobile sales, wine-making, glass, media, finance, and even invested in cafes, but the results have been unsatisfactory. Gradually disheartened, Hengshun began to abandon useless sectors and slowly return to its main business. But on June 8 this year, Jiangsu Hengshun Vinegar Industry Co., Ltd. issued an announcement regarding the 2021 annual performance briefing. When asked "Where will future revenue growth come from?", senior executives replied that future revenue growth points lie in the expansion of other categories and the accelerated deep expansion of the main vinegar and alcohol products in catering and e-commerce channels. Clearly, Hengshun has not completely given up on expanding other categories, and finding a second growth curve remains a company priority. This inevitably makes one curious: Hengshun is, after all, a leading enterprise in the vinegar industry. Why not just focus on its main business? Why persist in cross-industry ventures? 02 Why is Hengshun Persistent in Cross-Industry Ventures? 1. Category Uniqueness When discussing Hengshun Vinegar's cross-industry behavior, the industry often compares it with the top student Haitian. They believe that when it comes to expansion, Haitian's foundation is relatively solid, so the success rate of expansion is higher, and whether it succeeds or fails is not a big deal. In contrast, Hengshun's foundation is not solid, and random cross-industry expansion is very draining on the company's energy. Hengshun should first expand the market share of its core products. But everyone overlooks the fundamental difference between Hengshun and Haitian. Hengshun's core product is vinegar, while Haitian's core product is soy sauce. Competition among soy sauces is about segment differences, such as zero-additive soy sauce and reduced-salt soy sauce, which are all segment battles. This kind of concept segmentation is easy to copy and imitate. But competition among vinegars is more regional, because there are significant taste differences across regions. The four famous vinegars each dominate their own regions, and small workshops are prevalent. The entry barrier for vinegar is not high either. As a result, anyone can come in and take a share, leading to low brand concentration in the vinegar industry, and the track space is clearly not as large as that of soy sauce. Image source: Panoramic Vision Due to the uniqueness of its core product, although Hengshun is the leader in the vinegar industry, its market share is not high. Thus, Hengshun's desire to break the "vinegar" label has grown, and its operation of expanding into new tracks is not hard to understand. 2. Sluggish Growth During its growth, Hengshun's anxiety has gradually emerged, with sluggish growth being the top issue. In recent years, the revenue growth rates of Qianhe Flavoring and Haitian Flavoring have both been above 15%, but Hengshun's revenue growth rate has remained below 10%, far lower than other brands in the same industry. In addition to slowing revenue growth, profit margins are also unsatisfactory. Last November, in response to rising raw material costs, Hengshun Vinegar raised prices of some of its products by 5%-15%. Even so, Hengshun's net profit margin still dropped significantly by 9.61 percentage points year-on-year to 6.25%, returning to the single-digit level of 2014. Although the overall profit margin of the condiment industry has been on a downward trend in recent years, it still remains at the 20% level. The company's profit level is far lower than the industry average. If non-recurring gains and losses are excluded, the company's profitability would be even lower. The dual obstruction of revenue and profit growth has further strengthened Hengshun's determination to cross industries. 03 What is the Prospect of Hengshun Making Sparkling Water? After understanding why Hengshun wants to cross industries, let's analyze the prospects of Hengshun making sparkling water. 1. Product Hengshun positions this product as a "mood" beverage with light vinegar characteristics, catering to the emotional needs of young women as the core. "When you feel emotionally suppressed, let this hug water accompany you." In terms of taste, it officially contains Zhenjiang aromatic vinegar and brewed vinegar, emphasizing low calorie, low sugar, 0 preservatives, and real fruit juice concepts. Currently, there are three flavors: pineapple, passion fruit, and lychee. To give consumers more choices, the sweetness and sourness levels include 5 sour 5 sweet, 7 sweet 3 sour, and 3 sweet 7 sour. Such a novel positioning, combined with sufficiently novel flavors, has attracted a group of curious young people to try it. But while attracting people to try, it also raises doubts, such as: Can sparkling water with vinegar taste good? In response to this question, the brand specifically released a response from the R&D engineer on the product detail page, stating that the sparkling water contains Zhenjiang Hengshun three-year aged aromatic vinegar. The collision of sparkling water and aromatic vinegar will bring both taste and health, so there is no need to worry about the strange taste of the sparkling water. Whether the product's taste can withstand the public's test can only be told by time. 2. Channels The sparkling water industry, where the sweet and sour sparkling water is located, is currently a hot track. China's sparkling water beverage market was stirred up by Genki Forest four years ago, prompting major brands to follow, and reached a climax in 2020-2021. Forward-looking data shows that the overall market size of domestic sparkling water in 2019 was about 15 billion yuan, and it is expected to reach 32 billion yuan by 2025. Other data indicates that in 2018, the sales of sparkling water in the Chinese market increased by 43.9% year-on-year, far higher than the 5% sales growth rate of ordinary mineral water. Sparkling water beverages mainly compete in offline channels. Therefore, on the shelves of supermarkets and convenience stores, mainstream beverage brands such as Genki Forest, Coca-Cola, and Nongfu Spring have already begun to compete, seizing different consumer groups by occupying refrigerators in small shops and booking display stands in hypermarkets. For a newcomer like Hengshun's sweet and sour sparkling water, it is difficult to grab offline shelf space. Currently, Hengshun does not plan to directly join the offline battle, only setting up the "Sweet and Sour Hug Tmall Flagship Store" online for customers to choose. To achieve better performance and revenue in the future, participating in the offline battle is inevitable. Hengshun's future channel decisions will largely determine the survival of this product. At present, Hengshun's sparkling water is sold through online channels, which is consistent with the testing actions of some new beverage products in the industry: first test the waters online on a small scale, see the channel and consumer reactions, and then decide whether to invest in offline or directly conclude that it is not suitable for key follow-up, gradually being marginalized or abandoned. On the other hand, from the perspective of offline channels, Hengshun's distributor channels are mainly focused on the catering industry. Sparkling water still has some imagination in catering scenarios. However, catering channels have always been a battleground for beverages and alcohol. If Hengshun sparkling water wants to enter the offline fray, the competitive pressure to ensure its product's penetration in catering terminals is indeed not small. If Hengshun wants to stand out in the catering channel, using "vinegar-added sparkling water can aid digestion, and create a blockbuster single product" could be a good method. Speaking of the sparkling water track, it is popular but relatively crowded. Hengshun's advantages in competing with beverage giants for market share are not obvious. The sparkling water segment has entered a white-hot competition period. At this time, the product barrier is not very high, and the key lies in market strategy and channel distribution. Looking back at the reasons for Hengshun's unsatisfactory cross-industry performance in the past, it is actually because it was too hasty on the road to "tearing off labels." Initially, it did not even establish a stable position in diversified condiment products, but was eager to continuously try relatively unfamiliar fields, choosing wherever it was "hot," and decisively giving up when encountering difficulties. In the future, if Hengshun wants to succeed in sparkling water, it must withstand the test of time and have a firm determination to solve problems and overcome difficulties! Cover source: Genki Forest official Weibo -END-