Click to read the original article for details Fads don't matter, trends don't matter, ocean currents matter. Recently, we entered the intensive disclosure period for 2018 annual reports of listed companies. This year's annual report data has attracted particular attention. As we transition from the old to the new year, the past year's US-China trade war, global economic uncertainty, slowing economic growth, and consumption downgrade have all brought a chill. What kind of report cards will listed companies deliver? What is the true 'foundation' of China's economy? Will the start of the year bring hope or confusion? On February 27, Yili released its 2018 annual report. During the reporting period, Yili achieved total operating revenue of nearly 80 billion yuan, a year-on-year increase of 16.89%; revenue grew by over 10 billion yuan (an increase of 11.5 billion yuan) compared to the previous year, the largest increase in history; net profit was 6.452 billion yuan, with non-GAAP net profit increasing 10.32% year-on-year, setting a new high for Asia's dairy industry. The weighted average return on equity was 24.33%, continuing to rank first globally in the dairy industry. Seeing Yili's impressive annual report is both expected and unexpected. Expected, because in the past few years, Yili's business development has always been very stable, steady, and sustained—it has always been a 'top student.' Unexpected, because the economic environment in 2018 was poor, with slowing growth, and too many internet companies, financial firms, and startups laying off employees or shutting down. Coupled with the noise about consumption downgrade, Yili's ability to deliver such a report card is quite remarkable. I specifically consulted some industry insiders and economists and found that our judgment of the economic situation is often limited by 'within-the-5th Ring Road thinking'—only seeing the bubble burst of some internet companies, trend-chasing companies, and companies relying on rounds of financing, and assuming that is the whole of China's economy. In fact, in a market like China's, which is a 'five-line overlay,' the main theme and 'foundation' are the overall sustained growth of national income, consumption upgrade, and the pursuit of a better life. This is especially prominent in the lower-tier markets 'outside the 5th Ring Road.' Brands like Yili, which are large and high-quality, are truly experiencing their highlight moment. During the Spring Festival this year, I saw in some rural markets in central China that with rising income levels, high-quality dairy products like Yili Jindian organic milk have become the main gift for visiting relatives and friends. Yili's annual report also shows that the company owns the 'Yili' master brand and more than 20 sub-brands. Among them, the three major brands—Pure Milk, Ambrosial, and Jindian—each achieved annual sales revenue of over 10 billion yuan, and 11 brands each achieved annual sales revenue of over 1 billion yuan. To summarize Yili's characteristics, I think of several keywords: 'ocean current enterprise,' 'better life enterprise,' and 'sustained growth enterprise.' The concept of 'ocean current' was proposed by economist He Fan in his book 'Variables.' It is relative to trend-chasing and fad enterprises, representing a slow variable and a force for long-term stable development. Ocean currents are the most stable flows in the deep sea, unaffected by storms. In the historical trend of Chinese people pursuing a better life, Yili is an important witness and participant, much like Coca-Cola is to the United States. So the question arises: How far is Yili, which is developing so rapidly, from global food giants like Nestlé and Danone? Let's take Nestlé as an example. Nestlé was born in 1867, with a history of 152 years. Its founder was Henri Nestlé, a chemist living in Switzerland. He used his invention—infant cereal made from milk and wheat flour—to save a malnourished baby whose mother couldn't breastfeed, thus beginning Nestlé's century-long history. Today, Nestlé has become the world's largest food manufacturing company, with over 500 factories in more than 80 countries and 250,000 employees. Let's compare Nestlé and Yili from the following dimensions: In terms of development history, Nestlé is 152 years old, while Yili is only a few decades old. If Nestlé is a centenarian, Yili is in its prime. In terms of revenue scale, Nestlé achieved total group sales of 91.4 billion Swiss francs in 2018, equivalent to 613.3 billion yuan, while Yili's total operating revenue in 2018 was nearly 80 billion yuan. In terms of revenue growth rate, Yili leads Nestlé. Yili's 2018 revenue grew 16.89% year-on-year, while Nestlé grew 2.1% compared to 2017, which was already its largest increase in four years. Yili's momentum is clearly much stronger. In terms of product categories, Nestlé covers almost all food categories, including health nutrition, water, culinary products, cereals, coffee, beverages, chocolate and confectionery, ice cream, etc. Yili started with dairy products and is currently accelerating its layout in cross-category health food industries, such as plant-based protein beverages and functional beverages. In terms of global brand value and recognition, the UK brand valuation agency Brand Finance released the '2018 Global Top 50 Most Valuable Food Brands' list, where Nestlé ranked first with a brand value of $19.37 billion, and Yili ranked third with a brand value of $6.158 billion. Despite the above differences and gaps, Yili and Nestlé also have great similarities:
Both started with dairy products;
Both are laying out the big health food industry;
Both have top global brand recognition;
Both place extreme emphasis on innovation and have strong innovation capabilities. For example, Nestlé has a research and development system with over 5,000 people, including a three-tier research center, spread across more than 500 factories globally. Yili's chairman, Pan Gang, has a saying: 'No innovation, no future.' Yili's development history is a history of innovation—Yili established the first and only provincial-level dairy research institute in China's dairy industry, created China's first liquid milk division, developed the first domestic舒化 milk product that effectively solves lactose intolerance, and has tirelessly built the first Chinese breast milk database for 16 consecutive years... Some people call Yili the 'Chinese version of Nestlé.' In my view, what Yili lacks in catching up with Nestlé is mainly time. In just a few decades, Yili has transformed a small factory on the northern grasslands of China into Asia's number one dairy company, with annual revenue of 80 billion yuan and the third-highest brand value in the global food category. This achievement far surpasses what Nestlé had achieved at the same age. Yili has various elements for sustained growth, the most core of which is people—all Yili employees, with Pan Gang at the core, who are daring, hardworking, down-to-earth, quality-first, continuously innovating, and pursuing excellence. People often say, if the people are right, everything is right. The essence of corporate competition is talent competition. Yili has always placed great importance on talent investment and development. For example, organizing executives to benchmark against overseas companies like Apple and Google; strengthening the international perspective and professional capabilities of the management team; shaping an innovation culture within the company; promoting rapid integration of diverse cultures; and building a strong team driven by the goal of pursuing excellence. As early as 2007, Yili entered Harvard Business School classrooms with the case 'Yili: The Leader of China's Dairy Industry.' At that time, Pan Gang was also invited by Harvard for the first time to teach MBA students. In 2018, Pan Gang's thoughts and practices on globalization were again written into a case study by Harvard researchers, 'Yili Group: Building a Global Dairy Company,' and it became a teaching case at Harvard again. This is recognition of the achievements of all Yili employees. In the future, I believe Yili has multiple advantages in catching up with Nestlé, which can be summarized as 'timing, location, and harmony': 'Timing' refers to the rise of China's economy, the increase in national income, consumption upgrade, the aspiration for a better life, and the transformation of the global food industry, with consumers having a stronger demand for healthy food. This provides the best opportunity for Yili's rise, an opportunity no less significant than the era when Nestlé was born over a hundred years ago—a once-in-a-century opportunity. 'Location' can be viewed from two levels. First, Yili has the backing of China's huge growth market. The resources, market, and team support that China provides have tempered Yili like a 'Mongolian army,' enabling it to conquer farther places. The other level is globalization. Yili maintains cooperative relationships with over a hundred suppliers in more than one country and region, covering raw materials, product packaging, smart equipment, and other industries, working together to improve product quality. In the process of integrating global resources and serving the global market, Yili's strategic synergy advantages under its global industrial chain layout are increasingly evident. Yili's Oceania production base produces 'Jindian' New Zealand imported milk and 'Bai Fei Lan' milk, which have been launched in the domestic market. Yili's 'Joy Day' ice cream has entered the Indonesian market. In November 2018, Yili acquired THE CHOMTHANA COMPANY LIMITED, Thailand's largest local ice cream company. 'Harmony' is mainly manifested in the professionalism, internationalization, and maturity of all Yili employees, with Pan Gang at the core. In Yili's development history, there have been many difficult and dangerous moments. There have been both domestic competitors pressing hard and international giants exerting pressure; both management pressure from the upstream and downstream of the industrial chain and the absolute safety requirements for product quality; both demands for product and category expansion and tests in channels, marketing, public relations, global layout, and capital markets. But Yili people, with a strong team, have overcome difficulties, fought against the current, and continued to grow and mature. 'Riding the wind and waves will come, hanging the cloud sails straight to the sea.' As economist He Fan said, 'Fads don't matter, trends don't matter, ocean currents matter.' As an 'ocean current enterprise,' Yili's growth brings surprises and makes people believe that, given more time, Yili will surely catch up with Nestlé. Source: Zhao Jicheng Channel (ID: zhaojcpd) New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar and Wine Fair from March 15 to March 18. This conference will focus on the topic 'Breakthrough' and conduct in-depth discussions with many brand owners, supply chain service providers, distributors, and retailers. Compared to previous conferences, this summit will be fully upgraded. In addition to original topics such as channel innovation, city distribution logistics, and distributor transformation, it will add multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail. Through three days of ten high-density, high-quality expert sharing and exchanges, we believe every brand owner and distributor can learn the latest business models, expert opinions, and practical methods, finding new tools and methods for their own breakthrough in 2019 and returning to the track of high-speed growth. 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