“Investor Network” Hou Shuqing

Looking at the main financial indicators of Weilong Meishui (hereinafter “Weilong”, 09985.HK)'s 2023 financial report, both revenue and net profit have increased, but when we look at the company's business level and on its offline shelves, we will find the former “king of spicy bars”, and the current situation is unspeakably smooth. Compared to many of its competitors, Weilong has been stuck in “spicy bars” for too long.

Most of the time, the market's vision is bright. Although this financial report did not bring growth to Weilong's stock price in line with the growth rate of net profit, it gave the company management an incentive to pay dividends: in 2023, the company's total dividend ratio was as high as 90%, of which more than 8 dividends fell into the pockets of actual controllers Liu Fuping and Liu Weiping.

Weilong's ability to achieve today's position in the industry has a great deal to do with its pioneering solutions to target consumers' “food safety anxiety” and excellent marketing strategies. However, after all, it is difficult to build a strong moat for the company. Strong enough products are important, but even a tough fist is difficult to change the fact that “consumers love freshness and always have the right to choose.”

Are spicy strips not selling well?

After reading Weilong's 2023 earnings report, the most unexpected discovery was that such famous spicy bars actually didn't sell well.

Weilong achieved total revenue of 4.872 billion yuan for the full year of 2023, an increase of 5.2% year on year, and net profit during the year increased 481.9% year on year. The company explained in its annual report that the sharp increase in the company's net profit was mainly due to an increase in gross profit, and in 2022, the company had share-based payments of 629 million yuan related to pre-sale investments. Adjusted net profit was about 970 million yuan, an increase of 6.3% over the previous year.

From a macro perspective, Weilong's revenue and net profit grew at the same time, but the contribution of the company's main revenue business showed interesting changes in 2023. The company's main products include three segments: seasoned noodles, vegetable products, soy products, and other products. Among them, seasoned noodle products, what consumers usually call spicy strips, are also Weilong's main source of revenue, while vegetable products include konjac, kelp, etc.

In 2023, the sales volume of flavored noodle products, which contributed 52.3% of revenue, was 124,400 tons, down 17.4% year-on-year from 2022, and sold 26,200 tons less. In 2022, sales of this type of product fell 22.23% year on year, reducing sales by 43,000 tons. Along with the decline in sales, there was also the capacity utilization rate of flavored noodle products, which fell from 57.1% to 48.3%.

Compared with these, revenue from seasoned noodle products declined little, from 2,719 billion yuan to 2,549 billion yuan, a decrease of only 6.2%. The reason behind this is the five-year continuous increase in the unit price of this product. The average price per kilogram rose from 14.3 yuan in 2019 to 20.5 yuan, an increase of about 43.36%.

At the same time, vegetable products have become Weilong's main focus in recent years, and data also shows that such products may have received an ideal market response. In 2023, the design capacity of vegetable products increased from 84,400 tons to 96,200 tons, and the capacity utilization rate also increased from 64.44% to 72%, sales increased 31.1% year-on-year to 71,500 tons, and the average price per kilogram fell from 31.1 yuan to 29.6 yuan. The business also became Weilong's second largest revenue source in 2023.

This also led to the most contradictory phenomenon reflected in Weilong's earnings report: if Weilong's spicy strips still have enough competitive advantage, why would the company choose to cut production? If Weilong's spicy strips lack a competitive advantage, why would the company choose to raise prices?

Judging from the results of offline research, the competitiveness of Weilong products is not as good as before. Production cuts are due to weak market demand, while price increases are aimed at maintaining the scale of performance.

Exclusive shelves are actually protection

Financial reports show that Weilong's offline channel revenue in 2023 will account for 89.5%. The sales situation in supermarkets and convenience stores is critical for Weilong. “Investor Network” conducted a field survey of 3 large supermarkets and 4 convenience stores in Shanghai and found that compared with 2016, Weilong's iconic spicy strip products no longer have a clear advantage offline, and are also facing a completely different competitive environment.

On the snack shelf at a Lawson convenience store in Shanghai's Putuo district, spicy strips from Wei Long and Prince Spicy were placed in the most prominent position. Due to the limited size of the store, the selection of products in convenience stores is very streamlined, and the price is higher than that of large supermarkets. At the bottom of the spicy strip, there are new products currently being promoted by Weilong: Fresh kelp and konjac.

In the convenience store scene, it can be seen that in a horizontal comparison of the single brands that appear on the shelves, Weilong has the richest product line, and the unit price is a uniform price of 6.8 yuan. Compared with 9.9 yuan for 80 grams of sweet chestnut kernels and 7.5 yuan for 25 grams of mixed nuts, Weilong has a clear cost performance advantage in the same price range. In front of Prince Spicy, who was also displayed together, Wei Long was not able to leave the gap.

However, when the scene changed to large offline supermarkets, the situation clearly changed.

First, at a Hualian supermarket in Putuo District, Weilong received a completely different treatment from other similar snack brands — the supermarket did not display Weilong with other products like convenience stores, but gave it an exclusive shelf.

At this point, Weilong can avoid direct competition with competitors in the offline scene, which is a good thing: because if Weilong and its peers are put together, consumers probably won't choose Weilong.

This supermarket has set up a separate shelf for spicy strip products, and spicy strip brands such as Brother Xian, Saiyi, and Wu Hot Mom are in full swing. In terms of the richness of products and flavors, Weilong is difficult to compare with any of them. In addition to spicy strips, the bottom of the shelves was also filled with braised foods such as duck feet and braised eggs, and the top also featured crispy noodles from Little Sister Zhang Junya.

From the perspective of product richness alone, it is difficult to reflect all the challenges Weilong faces in this supermarket. The biggest problem is in terms of cost performance.

Unlike convenience stores, Weilong lowered its selling price in large supermarkets. The price of 78-gram spicy bars dropped to 4.9 yuan per pack, and the unit price was only 5.5 yuan for 90g Spicy Prince. The unit price of other brands is evenly distributed between 4 yuan and 4.8 yuan, and the net content is over 100 grams.

Regarding the question of exclusive shelves, a sales clerk at an offline supermarket told “Investors Network” that arranging separate shelves for Weilong is a requirement of the leaders. Seen from this, Weilong's exclusive shelf is ostensibly a special treatment, but it is more likely a form of protection. The unit price of Weilong is the second most expensive of similar products, but the net content is the lowest. Compared with a large number of peers, Weilong has no advantage in terms of product richness.

War reports can be falsified; the front line will not deceive people. If the rising unit price of Weilong's spicy strips is a war report, then production and capacity utilization are the battle line. Combined with Weilong's offline performance, it can also be seen that Weilong's products are indeed not selling as well as before. “Exclusive shelves” may be an affirmation of the company's position in the industry by supermarkets, but it is more likely that Weilong avoids market competition.

The era of consumption has changed

The fact that spicy strips can become a topical snack is the result of Weilong's “going both ways” with its target consumers.

Weilong's target audience is the post-90s. The childhood days of this group closely coincide with the “reckless era” of the spicy strip industry. They don't dislike spicy strips that children have little pocket money, and kids don't dislike spicy strips that are high in oil and salt. If you buy a bag of spicy strips for five cents, you can share them with friends after school. The post-90s became “angel investors” in the industry during this period.

And Weilong was able to become the “first stock in spicy strips,” also because it was the first company in the industry to introduce specialized production equipment and the first to improve the image of spicy strip products. Such a move could be called a “dimensional reduction attack” for its peers at the time. But having to say that, using specialized production equipment to produce spicy strips that meet industry standards is a matter for spicy strip companies. With the introduction of industry standards, the industry will only become more and more perfect. Weilong is only a pioneer, but not necessarily always a leader.

“Clean and hygienic spicy bars” are becoming increasingly difficult to become a competitive advantage in the industry. Weilong is still able to maintain its position in the industry today, relying on the brand power brought by the first-mover advantage. There are more and more new rivals on the shelves, and the company is getting tired of dealing with it. The most intuitive point is reflected in Weilong's channel structure: in 2022, the company's online and offline channels accounted for 10.5% and 89.5%, and the 2023 annual report shows that this ratio has not changed at all.

This share of channels is unimaginable for a snack company in 2023. In 2023, the three squirrels achieved revenue of 4.951 billion yuan on e-commerce platforms, exceeding Weilong's total revenue in 2023.

Whether it's imitating the packaging design of technology products, discussions on social media, or all kinds of trendy marketing methods, Weilong gives people a sense of “influencer snacks.” However, judging from the company's financial reports and operating performance, its marketing skills seem to be out of touch with the company's channel construction situation and ability to track industry trends.

Weilong still hasn't broken out of the core of a traditional snack company. It has produced epoch-making spicy bars, but compared to its peers who have embraced the internet age, it seems like it's still alive in a small store at the entrance of the school. (Produced by Thinking Finance) ■