In 1997, Hong Kong returned to China, and Chongqing became a municipality directly under the central government. Also in 1997, a man named Lu Youzhong invested to establish Youyou Food, using pickling methods to preserve meat, ultimately making pickled pepper chicken feet a meat snack popular nationwide. On May 8, 2019, Youyou Food successfully listed on the A-share market, becoming the first listed company specializing in pickled chicken feet. However, starting from 2022, Youyou Food experienced a decline in performance since its listing, and its proud single-product strategy has gradually been questioned by the market. The second growth curve, pig skin jelly, which the company carefully crafted, also failed to meet expectations. Recently, Youyou Food's financial report data showed that its third-quarter operating revenue was 279 million yuan, a year-on-year increase of 11.53%; net profit was 25.7485 million yuan, a year-on-year decrease of 40.21%. The phenomenon of increasing revenue without increasing profit raises a question for the industry: How long can Youyou, with its traditional management mindset, lagging product innovation, and aging brand image, survive in the traffic era? ****At its peak, it sold 430,000 packs a day Pickled pepper chicken feet swept the nation Youyou Food's success is attributed to the synergy of its product, channel, and market strategies. On the product front, pickled vegetables are a local specialty for people in the Sichuan-Chongqing region. However, traditional pickles mainly consist of vegetables. Meanwhile, Chinese people have a well-established habit of consuming chicken feet. The creative introduction of Youyou's pickled pepper chicken feet changed this landscape. This product cleverly combined meat products with pickling and marinating techniques, achieving a breakthrough innovation from a table dish to a snack. On the channel front, in its early stages, Youyou Food coincided with the large-scale rise of supermarket and convenience store systems in China. Through direct sales and distribution, Youyou established close partnerships with major supermarket systems, successfully pushing its products to the market. At the same time, for distribution channels such as small supermarkets, food retail stores, and restaurants, Youyou chose to authorize distributors to develop these channels deeply, ultimately achieving comprehensive coverage of the Sichuan-Chongqing market. On the market front, after fully opening the Sichuan-Chongqing market, Youyou began to expand into the national market. According to data released in 2015, its sales network had covered all regions of China except Hong Kong, Macao, and Taiwan. Additionally, Youyou set up operation centers in Chongqing and Chengdu, and established 20 offices in cities such as Beijing, Shanghai, Guangzhou, Shenzhen, and Kunming. Seizing market opportunities and dividends at the right time allowed Youyou Food to quickly become known to consumers nationwide. From 2012 to 2016, annual revenue remained around 600 to 700 million yuan, with annual profits around 100 million yuan. Until 2018, Youyou's flagship product, pickled pepper chicken feet, still sold 28,400 tons, equivalent to 157 million packs based on the 180g per pack specification. In other words, it sold 430,000 packs per day. ****Unsatisfactory performance in the first three quarters The annual target of 10%-20% growth is difficult to achieve Ideals are full, but reality is harsh. After listing on the A-share market on May 18, 2019, Youyou Food released its first semi-annual report on August 15, showing that in the first half of 2019, it achieved revenue of 478 million yuan, a year-on-year decrease of 16.65%; net profit was 93.93 million yuan, a year-on-year decrease of 8.03%. The first report card after listing showed a double decline, dimming the halo of the first pickled chicken feet stock. In the following years, 2020 and 2021, Youyou Food's performance recovered, achieving operating revenue of 1.093 billion yuan and 1.22 billion yuan, up 8.4% and 11.62% year-on-year, respectively. At the same time, net profits for 2020 and 2021 were 226 million yuan and 220 million yuan, with year-on-year growth of 26.12% and -2.65%, respectively. However, in 2022, Youyou Food experienced a significant decline in both revenue and net profit. Data shows that its 2022 revenue was 1.024 billion yuan, a year-on-year decrease of 16.01%, and net profit attributable to shareholders was 154 million yuan, a year-on-year decrease of 30.13%. More notably, Youyou Food's 2022 revenue was still lower than its 2018 revenue level. Regarding the decline in net profit and non-recurring net profit in the third quarter of this year, Youyou Food stated in its financial report that it was due to a decrease in product gross margin and an increase in period expenses. Similarly, constrained by the obvious increase in revenue without profit growth in the third quarter of 2023, Youyou Food's performance in the first three quarters was not ideal. In the first three quarters of this year, Youyou Food achieved total revenue of 759 million yuan, a slight year-on-year increase of 2.79%; net profit was 106 million yuan, a year-on-year increase of 1.96%; non-recurring net profit was 89.3132 million yuan, a year-on-year decrease of 5.73%. In the investor relations activity record released on May 26, an investor directly asked, "Are you confident in achieving the goal of 10%-20% sales revenue growth mentioned in the 2023 financial budget report?" Based on the first three quarters, it is difficult to achieve the target of 10%-20% growth. ****Operating cash flow declines Pressure on main business operations Looking at a longer timeline, from 2018 to 2022, the company's operating cash flow fluctuated greatly, almost showing an "M" trend. Specifically, from 2018 to 2022, Youyou Food's operating cash flow changed year-on-year by -72.76%, +133.54%, -21.50%, +105.90%, and -19.46%, respectively. The decline in operating cash flow indicates that the company's main business operations are under significant pressure. In the first half of this year, revenue from its core product, pickled pepper chicken feet, decreased by 8.02% year-on-year to 351 million yuan, accounting for 73.18% of total revenue. However, Youyou Food did not explain the reason for this phenomenon in its semi-annual report. When its main product, pickled pepper chicken feet, hits a performance bottleneck, Youyou Food is striving to explore new growth points—pig skin jelly. Although revenue from pig skin jelly increased during 2020 to 2021, its proportion of total revenue never exceeded 8%, far lower than the contribution of pickled pepper chicken feet. Industry insiders believe that, on one hand, Youyou Food's positioning of pig skin jelly is too singular, merely as another ingredient with pickled pepper flavor, failing to attract consumers; on the other hand, the Youyou brand is closely associated with pickled pepper flavor, weakening consumers' willingness to try new products, hindering the expansion of new products in the market. ****Prepared dishes are difficult to bring performance growth Reduction in R&D expenses raises questions In addition, Youyou Food has also entered the currently popular prepared dishes field. According to its official website, it has launched more than a dozen prepared dish products, including various flavors of boneless duck feet, boneless chicken feet, pig skin jelly, spicy peanuts, pickled pepper peanuts, pickled chicken feet, tiger skin chicken feet, pickled wing tips, Fengdu spicy chicken pieces, pepper and sesame chicken, and bamboo shoots. However, in a survey in September this year, Youyou Food admitted that prepared dishes account for a very small proportion of its total revenue. Looking at Youyou's prepared dish products, most are adjustments based on original products, such as changes to packaging and form. Therefore, prepared dishes may not become a new performance growth point for Youyou Food in the short term. In my opinion, the dilemma Youyou faces is not that consumers no longer like pickled pepper chicken feet, but that too many competitors have emerged in the market. In the highly competitive chicken feet track, various new products and brands are emerging, pursuing freshness and extreme cost-effectiveness, continuously seizing market share that originally belonged to Youyou. According to official data, as of March 2023, Wangxiaolu has been the national sales leader for tiger skin chicken feet for four consecutive years, and it is estimated that the market size for this single product will exceed 5 billion yuan. At the same time, Chengdu Yamaya Food's lemon chicken feet, launched in 2019, has achieved annual sales exceeding 300 million yuan in less than three years, with an annual growth rate of 100%. Additionally, Shanghai Tuoguxia Food Co., Ltd.'s Tuoguxia brand focuses on boneless chicken feet, and its best-selling product has ranked third on the Taobao list, with rapid growth momentum. These data and examples indicate that Youyou Food needs to be more innovative and flexible in facing market competition to adapt to changing market demands and consumer preferences. To cope with the pressure of rising raw material prices, Youyou Food had to raise prices for some products. However, this move seems to have led consumers to switch to other brands, directly causing a decline in sales. According to Sina Finance, Youyou Food raised prices for pickled pepper chicken feet and pig skin jelly by 14% and 11%, respectively, at the beginning of last year. The negative impact of this price increase quickly appeared: in 2022, its sales volume decreased by 28.48% to 17,912.46 tons, and revenue correspondingly decreased by 18.57%. More concerning, to control costs, Youyou Food also chose to cut R&D expenses. In the first half of this year, its R&D expenses were 1.1851 million yuan, a year-on-year decrease of 7.53%. R&D expenses accounted for only 0.25% of its total revenue, while the same period last year was 1.2816 million yuan. Compared with peers, this figure is significantly low. Yanjinpu Food's R&D expense ratio in the first half was 2.4%, Jinzai Food's was 1.82%, and Ganyuan Food's was 1.25%. However, Youyou Food's R&D expense ratio is less than a fraction of these peers. In the context where innovative R&D is regarded as the lifeblood of enterprises, Youyou Food's reduction in R&D spending is indeed difficult to understand. At the 2023 semi-annual performance briefing on September 20, Youyou Food's chairman and general manager, Lu Youzhong, stated that the company will accelerate product iteration and optimization while maintaining the leading position of its main product, pickled pepper chicken feet, in the segmented market. At the same time, it will continue to develop high-quality products that better align with current market trends and diverse needs, accelerate the market transformation of research results, build a multi-dimensional product matrix, and enhance the company's sales scale. From this information, Youyou Food will still focus on the pickled pepper field in the short term. So, do you think Youyou Food will get lost holding onto pickled pepper? This deserves further observation and discussion. Some references— Xie Xianseng on Marketing: "Xie Wenjing: How long can Youyou, which missed out on youthfulness, 'swim' in the traffic era?" Zebra Consumption: "Youyou Food can't hold its own turf?" Zhengdian Consumption: "Youyou Food, with increasing revenue but not profit, struggles to find a second growth pole" Money Weekly: "Youyou Food's pickled pepper chicken feet revenue declines, advertising expenses triple but fail to drive sales growth"