---
title: "Youyou Food: Questionable Disclosure Rigor, Can Entering Hot Pot Base Material Market Break the Chicken Feet Dilemma?"
description: "Youyou Food, known as the 'first stock of pickled pepper chicken feet,' finally passed the CSRC review for its second IPO attempt, but soon faced scrutiny over its distributors' licenses and data accuracy. The company's move into the hot pot base material market may not solve its product diversification issues."
author: "@十玖"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-03-09"
language: "en"
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# Youyou Food: Questionable Disclosure Rigor, Can Entering Hot Pot Base Material Market Break the Chicken Feet Dilemma?

> Youyou Food, known as the 'first stock of pickled pepper chicken feet,' finally passed the CSRC review for its second IPO attempt, but soon faced scrutiny over its distributors' licenses and data accuracy. The company's move into the hot pot base material market may not solve its product diversification issues.

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Labels such as "gnawing its way to listing" and "first stock of pickled pepper chicken feet" have not only failed to boost Youyou Food's IPO but have made its path to listing thorny.
On October 10, 2018, Youyou Food, in its second IPO attempt, finally passed the CSRC review, meaning it was set to enter the capital market as desired. However, before the new shares were issued, the company found itself in deep trouble.
On February 19, 2019, media reported that Youyou Food's major distributors lacked food business licenses, and its prospectus was suspected of seriously exaggerating data. Subsequently, Youyou Food responded that it was verifying these issues and would announce the results later.
A month before this incident, Youyou Food announced its entry into the hot pot raw material market, aiming to address its single-product structure and enhance its risk resistance. But can Youyou Food's foray into the hot pot sector for differentiated development truly succeed?
Distributor channels suspected of fraud
Recently, media reported that Youyou Food's largest client from 2013 to the first half of 2017, Zhajixi Road Jinluo Hexin Firm, did not have a food business license. Additionally, Mianyang Chengqu Qunxing Non-staple Food Wholesale Department, the fifth-largest client from 2012 to 2014, and Shuangliu District Xinwei Food Business Department, among the top five clients from 2014 to the first half of 2017, also lacked food business licenses.
After these issues were exposed, Youyou Food faced public scrutiny. Amid the uproar, Youyou Food publicly stated it was verifying the issues and would provide explanations later.
According to the Food Safety Law of the People's Republic of China, food distributors must obtain food business licenses.
In response, Caijing.com contacted Youyou Food, and a company representative said: "All our distributors are compliant and have food business licenses; the media reports are inaccurate."
Regarding why the verification results were not disclosed, Youyou Food stated that since the company was in the IPO review period, it was not necessary to disclose the verification results to the public.
Notably, this is not the first time Youyou Food's distributors have been questioned.
As early as 2015, during Youyou Food's first IPO application, media raised doubts about the registration time of its largest client.
Zhajixi Road Jinluo Hexin Firm was registered on May 28, 2014, with an approval date of March 4, 2015. Its 2014 annual report showed four employees and registered capital of 1 million yuan. However, in 2013, a year before its establishment, it was already Youyou Food's largest client with purchases of 34.5841 million yuan.
In response, Youyou Food explained in its prospectus that the firm was formerly known as "Jinluo Hexin Firm," established in January 2003.
According to Tianyancha, on March 4, 2015, Zhajixi Road Jinluo Hexin Firm changed its business term and scope, extending the term from May 27, 2017, to March 4, 2025, and adding the sale of dairy products (excluding infant formula milk powder).
Before the change, the firm's food circulation license was valid until May 27, 2017, which coincided with the original business term. However, after the change, the firm did not mention whether the food circulation license was renewed.
According to Zhu Danpeng, a Chinese food industry analyst, if it is true that Youyou Food's distributors lacked food business licenses, it indicates shortcomings in Youyou Food's operational management and a need to strengthen distributor management.
Questionable disclosure rigor and frequent quality issues
As an established food company, Youyou Food's achievements rely on public trust. However, two recent incidents have eroded its credibility.
On February 19, media pointed out that data in Youyou Food's prospectus did not match reality, and the company made misleading statements.
The prospectus stated that from 2008 to 2011, the market size of China's braised snack food industry increased from 74.477 billion yuan to 130.143 billion yuan, with an average annual compound growth rate of 20.45%; by 2016, the market size would reach 223.059 billion yuan.
However, according to Caijing.com's analysis, data from Frost & Sullivan predicted that China's retail sales of braised snacks grew from 23.2 billion yuan in 2010 to 64.2 billion yuan in 2016, with an average annual compound growth rate of 18.5%. Leqing Think Tank data showed the braised product industry grew from 23.2 billion yuan in 2010 to 76.7 billion yuan in 2017.
Comparing the two, the data published by Youyou Food differs significantly from other institutions' data, raising doubts about the authenticity of Youyou Food's data and the rigor of its prospectus.
In response, Caijing.com contacted Youyou Food, and its representative said, "The company also cited other industry reports, and data changes are beyond our control."
According to Article 18 of Chapter 2 of the "Standards for the Content and Format of Information Disclosure by Companies Issuing Securities to the Public - Prospectus (2015 Revision)", sponsors promise that if documents they produce for the issuer's initial public offering contain false records, misleading statements, or major omissions, causing losses to investors, they will compensate investors first.
The prospectus shows that Youyou Food's sponsor is Northeast Securities (000686.SZ), which holds 1.0415 million shares, accounting for 0.46% of total shares, making it the sixth-largest shareholder.
Now, Youyou Food has shifted all blame to "other industry reports." Does Northeast Securities, as the sponsor, need to bear responsibility?
In this regard, renowned economist Song Qinghui told Caijing.com that Youyou Food clearly exaggerated the market size of its industry in the prospectus, and its information disclosure may contain misleading statements. The sponsor should be held responsible, and the company also needs to bear responsibility.
Meanwhile, Youyou Food's repeated food quality and safety issues are also challenging consumer tolerance.
As early as 2015, Youyou Food's pickled squid product was listed on the Guangdong Provincial Food and Drug Administration's "food quality blacklist" for excessive peroxide value. In the same year, in Chongqing's food safety supervision and sampling results, Youyou Food's 80g bags of braised duck feet from October 13, 2014, were found unqualified due to excessive use of food additives (preservatives).
Since then, consumers have successively reported on social platforms that the company's product quality has problems. Caijing.com's preliminary statistics show that since 2016, netizens have posted nearly 40 complaints about Youyou Food's safety issues on Sina Weibo.
This year is no exception. On January 7 and February 25, 2019, netizens reported on social platforms that they found black foreign objects in Youyou Food's pickled pepper chicken feet. Youyou Food, which built its fortune on pickled pepper chicken feet, is now embroiled in a product quality crisis.
In response, a Youyou Food representative explained to Caijing.com regarding the black foreign objects: "The pickled pepper chicken feet have no food safety issues, and the company has contacted the consumers to resolve the matter."
In Song Qinghui's view, quality issues with chicken feet indicate a lack of rigor in quality inspection, which could negatively affect the quality of other products.
For food companies, food safety is the lifeline; once lost, it is hard to regain. Against the backdrop of stricter food safety supervision, Youyou Food's product quality issues are undoubtedly "digging its own grave."
Snack brands compete to "cross over"
There are over 600 enterprises in China producing pickled pepper chicken feet and other pickled braised snacks, with nearly half concentrated in Chongqing and Sichuan, showing a clear industrial cluster effect. Among these braised snack companies, although Youyou Food has a strong brand influence, with the entry of well-known brands like Baicaowei, Liangpinpuzi, and Three Squirrels, Youyou Food's market advantage may be hard to maintain.
Searching for pickled pepper chicken feet on Taobao, Youyou Food ranks first with 15,000 buyers, followed by Baicaowei. A closer look reveals that although Baicaowei's total buyers are fewer than Youyou Food's, Baicaowei's monthly sales orders are 705 higher than Youyou Food's. Youyou Food's "uniquely dominant" position in the pickled pepper chicken feet sector faces significant challenges.
Moreover, Youyou Food lacks a price advantage. According to Taobao data, Baicaowei's 160g pickled pepper chicken feet sell for 17.8 yuan with free shipping; Liangpinpuzi's 260g sells for 18.9 yuan with free shipping; while Youyou Food's 180g sells for 15.8 yuan, plus 6 yuan shipping, totaling 21.8 yuan, higher than competitors.
Yet, it is this very product that supports Youyou Food's performance.
From 2014 to 2017, pickled pepper chicken feet generated revenues of 645 million yuan, 575 million yuan, 630 million yuan, and 783 million yuan, accounting for 73.56%, 76.63%, 76.27%, and 79% of the company's main business revenue in the respective periods.
Now, in the snack market, Liangpinpuzi, Baicaowei, and Three Squirrels all start with leisure foods, covering meat snacks, nuts, candies, pastries, dried fruits, and vegetarian mountain delicacies. With such strong competitors, can Youyou Food defend its "territory" with a low-cost-performance pickled pepper chicken feet?
Fortunately, the management seems to realize the problem of relying solely on "chicken feet." On January 16, 2019, Youyou Food's chairman Lu Youzhong announced the import of Spanish pork back skin and entry into the hot pot raw material market.
However, given the generally poor performance of new business in recent years, will consumers accept Youyou Food's regionally distinctive pork back skin? Can entering the hot pot raw material market solve the single-product structure problem?
Song Qinghui said: "Currently, the hot pot raw material market is highly competitive, and I don't see any significant advantage for Youyou Food. Entering the hot pot raw material market when there are quality issues with the main product is unwise and may bring significant operational risks."
In recent years, to shake off the "chicken feet" label, Youyou Food has been seeking differentiation, launching products like braised turkey wings, dried tofu, peanuts, pickled bamboo shoots, and skin jelly, but consumers have been less receptive to these new products.
The prospectus shows that in 2016, Youyou Food's main business revenue still relied on pickled pepper chicken feet, accounting for 76%; while new businesses like braised turkey wings and bamboo shoots together accounted for 24% of operating revenue, less than one-third of total revenue.
Among them, businesses like dried tofu and peanuts not only failed to boost performance but began to decline. From 2014 to 2016, Youyou Food's peanut business sales revenue fell from 21.0696 million yuan to 17.172 million yuan; dried tofu business sales revenue fell from 43.5816 million yuan to 17.9667 million yuan, a significant decline.
According to a Youyou Food representative's response to Caijing.com, the new Spanish pork back skin product is already on sale in the Sichuan-Chongqing region, and sales figures are not disclosed but will be in the annual report.
Regarding whether there are regional limitations for pork back skin hot pot ingredients, the representative said: "There are certainly regional limitations, but that doesn't deny its development. It's like how only Sichuan and Chongqing used to eat spicy food, but now people across the country eat spicy food."
Source: Enterprise Value Observation (ID: jiazhiguancha)
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