Click to read the original text for details 0****1 Recently, Zhang Xiaoquan's official statement that "cleavers cannot smash garlic" sparked heated online debate about whether cleavers should be able to do so. The incident began on July 6, when a Ms. Wang from Guangzhou used a 99-yuan Zhang Xiaoquan cleaver she had recently purchased to smash garlic, and the blade broke. When she contacted Zhang Xiaoquan's after-sales customer service, the response was "cleavers cannot smash garlic." On July 14, Zhang Xiaoquan responded again, stating that the cleaver in question was not "newly purchased" by the consumer but was bought in September 2020. Although the three-month after-sales period had passed, to express apology to the consumer, they "arranged an unconditional refund." Following the "cannot smash garlic" controversy, a media outlet released an interview video with Zhang Xiaoquan's general manager, in which he said, "The way you've been cutting vegetables for decades is wrong; all Michelin chefs don't cut that way. Why do Michelin chefs slice meat thinner and cucumber more transparently? Because there's a pivot point at the front. We angle the front of the knife—that's not design, that's consumer education." This video sparked another wave of discussion, after which the general manager clarified that the video was from several years ago and not in response to this incident. However, the doubts about the time-honored knife brand triggered by a single cleaver had already escalated into an uncontrollable public opinion storm. On July 15, Zhang Xiaoquan Co., Ltd. issued an official explanation of the "Guangzhou customer complaint incident," detailing the event and reflecting on the company's handling of public relations, while sincerely accepting netizens' criticism and doubts, and proposing a vision to serve Chinese kitchens well. This was a sincere PR response, but an incident like "cleavers not for smashing garlic," which defies common sense, naturally stirs public outrage. "Smashing garlic" and "smashing cucumber" are essential steps in Chinese cooking. As a time-honored knife brand, its failure to adapt to Chinese market demands, coupled with poor initial PR handling, triggered online uproar—indeed, this was a spark. Some humorous netizens joked: "The blade broke; it's the garlic's fault." On the surface, the issue is about product quality and after-sales service, but beneath the heated discussion lies a quagmire trapping time-honored brands. The blade breaking is not the garlic's fault; it reflects the hidden worries of time-honored brands. 02****The Youth of Time-Honored Brands: Always in the Spotlight Zhang Xiaoquan was founded in 1625 and is one of China's first batch of time-honored brands. In 1966, Tian Han visited Zhang Xiaoquan Scissors Factory and wrote a poem of praise: _"Swift as wind, smooth as oil, steel clear and varied in kind. _ Carving mountains and rivers into brocade, Hangzhou is more than Bingzhou." In the first year of Chongzhen in the Ming Dynasty, Zhang Xiaoquan, who had fled to Hangzhou, took over his father's scissors-making craft, forging with fine steel and meticulous grinding, gaining fame in the Hangzhou area. During the Qianlong era, "Zhang Xiaoquan Jinji" scissors were praised by Emperor Qianlong during his southern tour and were listed as tribute items, widely sought after. A hundred years later, Zhang Xiaoquan went abroad and won a second prize at the Panama-Pacific International Exposition. After the founding of the People's Republic of China, with active state support, Zhang Xiaoquan implemented public-private partnership, merging with 32 scissors shops to form the "Zhang Xiaoquan Jinji" Scissors General Factory, later renamed "Zhang Xiaoquan Jinji Scissors Factory." On September 6, 2021, the 400-year-old time-honored Chinese brand Zhang Xiaoquan listed on the A-share market. On its first day, Zhang Xiaoquan's market performance was very promising: the opening price soared to 29.8 yuan per share, reached a high of 38.66 yuan, and closed at 34.09 yuan, up 394.06%, with a market value of 5.318 billion yuan, becoming China's "first knife and scissors stock." Behind Zhang Xiaoquan is more than just a cleaver After becoming China's "first knife and scissors stock," everyone watched the transformation of this time-honored Chinese brand. With capital influx bringing continuous funding, what measures did Zhang Xiaoquan take to defend the "ivy" of time-honored brands? When capital strikes, does it lead to further success or a fall from grace? I will analyze this from three dimensions: knife and scissors category characteristics, channel pricing strategy, and brand marketing tactics.
- Knife and Scissors Category Characteristics Knives and scissors are naturally low-frequency, stock-competitive categories with low brand concentration. The replacement cycle for general knives is 1-3 years, and there is a rich brand matrix across different regions. In recent years, Chinese knife and scissors industry enterprises have significantly improved in scale, management, efficiency, product variety, quality, and process technology. According to relevant statistics, the main business revenue of China's knife and scissors industry above designated size grew from 43.66 billion yuan in 2016 to 54.28 billion yuan in 2020, with a compound annual growth rate of 5.5%, roughly equal to the growth rate of total retail sales. However, according to data from Hua Jing Industry Research Institute, the scale increase in the knife and scissors category is mainly driven by price increase strategies. Taking knives as an example, from 2018 to 2020, the average product price compound growth rate reached 5.3%, so the category demand did not significantly increase. How enterprises increase profits through brand premium and product innovation is more critical. From the perspective of category competition, the knife and scissors category shows regional and industrial cluster effects. The industry saying goes, "In the south, there is Zhang Xiaoquan; in the north, Wang Mazi; plus Yangjiang Shiba Zi, China's three major knife and scissors brands gather in Yangjiang." In 2020, Zhang Xiaoquan sold approximately 6.21 million knives, 29.32 million scissors, and 1.72 million knife-scissor sets, **with a market share of only about 1%. ** But in the high-end knife brand camp, international brands like Zwilling dominate. Breaking out in the knife and scissors industry is extremely difficult; the market follows the law of the jungle, with competitors all around. Domestic old knife giant Wang Mazi took advantage of the "cleaver smashing garlic" buzz. On the 18th, on Wang Mazi's Douyin official flagship store, they loudly promoted that their cleavers can smash garlic, openly riding the wave. In 21 hours, 450,000 people watched, giving themselves free marketing, but the actual conversion sales were reportedly only 989 items. Of course, the strongest competitor is the high-end knife brand Zwilling from Germany. According to a Wall Street Journal report in early 2019, Zwilling's annual turnover was $800 million, about 5.2 billion yuan. This turnover is nearly 7 times Zhang Xiaoquan's 2021 revenue of 760 million yuan. Zwilling has diversified products covering the entire kitchen cooking field, with high international brand awareness and reputation. In contrast, Zhang Xiaoquan appears lacking in product R&D and innovation. According to data from Guojin Securities, on the Alibaba platform, for knife sales above 400 yuan per unit, Zwilling ranked first, with Zhang Xiaoquan second at 16.42%; for knives priced at 700 yuan, Zwilling accounted for about 50%. Looking back at Zwilling's development, it has a similar origin to Zhang Xiaoquan, with a history of about 400 years, also born in a city with developed metallurgy—Solingen, Germany—and won a gold medal at the 1855 Paris World Expo. Compared to Zhang Xiaoquan, which is now just a trademark, Zwilling is a typical German family enterprise. Besides its continuously inherited brand assets, Zwilling's brand moat also includes innovative material technology, from developing the unique "ice-hardening" technique to using aerospace-grade steel, and hiring famous designers to build brand symbols, extending to 2,000 products based on cooking scenarios. According to financial report data, from 2019 to 2021, Zhang Xiaoquan's R&D investment was 17 million yuan, 20 million yuan, and 23 million yuan, accounting for 3.01%, 3.51%, and 3.47% of total revenue, respectively. The growth of a few tenths of a percent is far from its public claim of "vigorously promoting the development of high-end products." With product R&D and design stagnating, where is the room for premium pricing? It's not hard to see why Zhang Xiaoquan struggles in the high-end knife market.
- Channel Pricing Strategy The Q1 2022 financial report shows that Zhang Xiaoquan's sales expenses and management expenses increased by 74.37% and 97.11% respectively compared to the previous quarter. Why are Zhang Xiaoquan's sales and management expenses so high and growing significantly year after year? Part of the reason is the sales model is holding it back. Most domestic knife and scissors products are at the mid-to-low end, mainly relying on small profits and high volume. After successfully listing, Zhang Xiaoquan chose existing distribution channels to expand sales, maximizing sales network and market coverage in the short term. But the drawbacks of this path are obvious: sales rebates, where the supplier returns part of its profit to the distributor to incentivize better sales performance, are a common marketing tactic. Sales rebates have incentive and control functions. The incentive function encourages the distributor's sales behavior; the control function prevents the distributor from engaging in illegal or non-compliant sales activities. Over 65% of the company's sales rely on distributors, and the cost increase from sales rebates is just one side effect of relying heavily on distributor expansion. According to financial report data for 2021, Zhang Xiaoquan's distribution model gross margin further declined to 33%, showing that Zhang Xiaoquan is gradually losing pricing power with channels. At this point, the larger the shipment volume, the higher the revenue, but the gross margin inversely decreases, directly eroding net profit. Taking 2021 financial data as an example, Zhang Xiaoquan's annual revenue grew 32.81% year-on-year, but profit only grew 1.96%. If it wants to raise product prices, it will be constrained by distributors at every turn, ending up in a dilemma. At the same time, focusing on the distribution model has indirectly led to a serious disconnect between Zhang Xiaoquan and C-end consumer needs, lacking necessary interaction and communication, lacking professional research data support, and lacking corresponding after-sales process optimization. The "cleaver cannot smash garlic" incident also revealed deficiencies in after-sales service capability. Additionally, Zhang Xiaoquan's general manager Xia Qianliang said, "The way you've been cutting vegetables for decades is wrong," and "All Michelin chefs don't cut that way," triggering a second wave of public opinion, with many netizens questioning whether Zhang Xiaoquan understands the needs of the mass market. Moreover, online e-commerce is the largest incremental channel. Using 2016-2020 data as an example, the average annual growth rate of national online retail sales reached 22.9%, far higher than the growth rate of total retail sales, but Zhang Xiaoquan has not effectively captured this channel increment in the past.
- Brand Marketing Tactics In recent years, Zhang Xiaoquan has invested considerable effort in marketing. For example, it launched its own brand IP image "Quan Shu," released figurine gift boxes, and collaborated with Liangzhu culture. Time-honored brands trying every means to get closer to younger consumers is indeed a feasible strategy. But if the importance of product value and marketing promotion is reversed, big problems will arise. Data shows that Zhang Xiaoquan's spending on marketing and advertising is second only to sales staff salaries and benefits. In 2019, Zhang Xiaoquan's advertising and promotion expenses were 10.4571 million yuan, which soared to 18.5706 million yuan in 2020. In 2020, its online advertising and promotion expenses increased by 98.50% year-on-year compared to 2019. Although Zhang Xiaoquan is a time-honored Chinese brand, it has long been owned by Fuchun Holdings Group, and is not actually run by Zhang Xiaoquan's descendants. This is a weakness in brand cultural inheritance. Consumers will not pay for flashy marketing; the real attraction of traditional time-honored brands is the spiritual core of the brand, which Zhang Xiaoquan has overlooked, thus losing consumer loyalty. 03****Zhang Xiaoquan's Choice Since its listing, Zhang Xiaoquan has shown signs of decline, peaking at its debut. As of July 15, its stock price had fallen over 26% this year, with a total market value of 2.5 billion yuan. Compared to many time-honored brands that have disappeared in the waves of history, Zhang Xiaoquan has received capital's favor and had the opportunity to regroup, and can even be a topic of casual conversation today. To some extent, it has already achieved success. According to survey data from Chinese brand research institutions, at the beginning of the People's Republic of China, there were 16,000 time-honored enterprises in China; now there are only 1,600, with less than 10% surviving. Even among the few survivors, only 20% can barely survive, another 70% are struggling, and truly profitable ones do not exceed 10%. Chinese time-honored brands have long been mired in difficulties. Zhang Xiaoquan's predicament is not accidental; it has fallen into pitfalls that almost all time-honored brands encounter to some degree. Unclear brand positioning and lack of innovation momentum result in limited brand premium space. Just two months after listing, Zhang Xiaoquan established a wholly-owned subsidiary engaged in "cosmetics wholesale and retail" business. Subsequently, Zhang Xiaoquan also acquired 100% of a smart home company. It is clear that Zhang Xiaoquan is frequently crossing borders to chase trends, using category diversification to offset the risk of weak main business revenue. On one hand, it is eager to leverage capital to keep the time-honored brand in step with the times and avoid elimination; on the other hand, as durable consumer goods, knives and scissors inherently have low replacement frequency and low gross margins, so the brand still faces challenges of low repurchase rates and small profit margins. In the 2021 financial report, 69.22% of Zhang Xiaoquan's business revenue came from knife and scissors, while other business income accounted for only 0.88%. Under new consumption trends, cosmetics, retail, and smart home are fast-growing tracks, but this does not mean traditional time-honored brands should follow the crowd, frequently cross borders, and forget their original business, neglecting R&D investment, relying on outsourcing for production and distributors for sales, without even forming a fully controllable industrial chain. Traditional time-honored enterprises should clearly recognize their brand value and the target customer profile. Blindly chasing industry trends while neglecting product refinement is not innovation. On the premise of doing well in classic products, providing different types of products that meet the needs of different customers is the foundation for survival. Only by deeply embedding cultural heritage and craftsmanship spirit into products can traditional time-honored brands achieve better brand premiums. The root of this crisis goes far beyond the incident itself. Facing a weak brand moat, Zhang Xiaoquan needs to make its own choice. Source: Pai Dong Business Review (ID: paidongshangye) -END-