Can the shareholders plan to reduce the price of products in good shops and maintain their competitive advantage during the transition period？

Text | Investor Network Xie Yingjie

With the aura of "the first share of high-end snacks", Liangpin Shop Co., Ltd. (hereinafter referred to as "Liangpin Shop", 603719.SH) has steadily increased its revenue in recent years and its stores have continued to expand. But at the same time, the company is also facing the dilemma of shareholders taking turns to reduce their holdings and the market value evaporating.

The core competitiveness of a good shop lies in its perfect product supply chain and rich industry experience, but there are still some problems such as quality control and low R&D expenses caused by OEM mode. Under the influence of high competition in the industry, the company has fallen into a vicious circle of stagflation in recent years, and its gross profit margin has also dropped from over 30% to around 27%.

Today, good shops have announced their return to the image of their neighbors. More than 300 sharp goods and explosive products have reduced their prices by an average of 22%, with the highest drop of 45%. After the news landed, the capital market gave an eager response, and the company’s share price went up and down twice.

However, there are still many practical problems before the company. On December 30, 2023, the second largest shareholder once again threw out the reduction plan.

Both revenue and net profit declined.

In the past two years, the performance of snack food companies has been generally under pressure. In addition to the pressure of high performance in previous years, the most important factor is the influence from the channel side. Snack shops have blossomed everywhere, and new brands such as "Zhao Yiming Snacks" and "Snacks Busy" have won the favor of capital, which has accelerated the pace of "staking the land".

As the industry enters the Red Sea period of competition, good shops continue to expand through the whole category layout SKU, driving revenue, and personally participate in the snack discount track competition.

In the second half of 2022, Liangpin Store launched its sub-brand "Snacks Hard Home" to expand the sinking market by joining mode, and the store mainly sold third-party brand products. In April 2023, Guangyuan Juyi, a wholly-owned subsidiary of Liangpin Store, invested 45 million yuan to participate in Zhao Yiming Food, and held 3% of the shares at that time.

A few months later, Liangpin Store sold all its shares, and at that time, the valuation of Zhao Yiming was only 3.5 billion yuan. Only 22 days after the equity transfer, Zhao Yiming announced the merger with Snacks, with an overall valuation of 10.5 billion yuan.

Liangpin Store is suing Zhao Yiming recently because it didn’t know the integration news in advance and sold its equity at a high valuation.

All of the above have intensified the operating pressure, and the performance has stagnated.

From 2020 to 2022, the operating income of good shops was 7.894 billion yuan, 9.324 billion yuan and 9.440 billion yuan, with growth rates of 232%, 18.11% and 124% respectively, and the net profit returned to the mother was 344 million yuan, 282 million yuan and 335 million yuan, with growth rates of 0.95% and-18.000% respectively.

In the first three quarters of 2023, the revenue of good shops was 5.999 billion, down 14.33% year-on-year; The net profit was 1.91 billion yuan, down 33.43% year-on-year; Among them, the net profit in the third quarter was only 1,998,400, a further sharp drop of 97.88% year-on-year.

The third quarterly report showed that the decline in net profit was mainly affected by changes in the market and platform, the operating income of online channels declined, and the proportion of fixed expenses attributable to shareholders of listed companies increased.

The turnover rate of total assets also showed a downward trend, with 1.49 times, 1.38 times and 1.18 times from the first three quarters of 2021 to the first three quarters of 2023 respectively. This means that the overall operating costs have increased and the growth momentum has shown signs of decline.

As a result, some research institutions have lowered their profit forecasts. Considering that the company’s online business is in the adjustment stage and the layout process of offline stores remains to be seen, Everbright Securities lowered its net profit from 2023 to 2025 to 2.72/3.85/431 billion yuan (down 35.3%/27.54%/31.55% compared with the previous one).

Homogeneous competition depresses gross profit margin

Liangpin Shop is the representative of the last round of snack chain operation. It cut into the market with high-end snacks, opened up offline channels and actively embraced e-commerce and landed in the capital market.

In order to get deus ex from low-end snacks, in 2018, good shops began to market "high-end personal products". The company upgraded its Logo, replaced its brand image with a simple "good" mark, and offline stores began to take the "apple style" with a generous atmosphere. In marketing, the company highlighted internationalization, youthfulness and high-end.

Among the domestic leisure and snack listed companies, only the online and offline channels of good shops account for an even proportion of revenue, and the two channels basically account for half of the revenue. By the end of the third quarter of 2023, there were 3,344 stores in the company, of which direct sales accounted for about 40%.

Among peer companies, Three Squirrels (300783.SZ) and Miss You (002582.SZ) mainly earn online income, and online sales revenue accounts for about 80%; Laiyifen (603777.SH) and qiaqia Food (002557.SZ) mainly rely on offline store revenue, accounting for about 90% of offline revenue.

Online or offline performance growth problems will put pressure on the company’s overall profitability, and the high sales expenses are also dragging down the gross profit margin. The data shows that the sales expense in the third quarter of 2023 was 1.15 billion yuan, accounting for 19.17% of the total revenue.

From the results, the high-end not only failed to improve the profitability of enterprises, but left the impression of "snack assassin" to the market.

The financial report shows that the gross profit margin of good shops has dropped from over 30% in previous years to about 27%, and it was 28.54% in the first three quarters of 2023, which is at a low level among similar enterprises. In terms of peer-to-peer companies, the gross profit margins of Yanjinpu and Laiyi are around 38% and 42% respectively.

In the pre-sale list of double 11 Tmall leisure snacks in 2023, good shops also fell out of the top 10, while in 2022 and 2021, they ranked eighth and second respectively.

In the secondary market, in 2023, the share price of good shops kept falling. From February to September, 2023, the share price dropped from 40 yuan to below 20 yuan.

The stock price downturn is the result of multiple factors: limited product competitiveness, wrong management decisions and overall stock market decline, while the far-reaching background is that the snack industry is changing rapidly-from consumption upgrading to discounts.

Shareholders issue a reduction plan.

According to the data of China Commercial Industry Research Institute, offline channels still account for more than 85% of the circulation share of snack foods. Modern channels such as snack specialty stores and convenience stores continue to occupy the market share of traditional small stores, while the growth of e-commerce platforms is gradually slowing down.

As an old brand, the concern of a good shop is obvious. The most worrying thing is that it will lose its right to speak in the process of playing games with new channels and eventually become a foundry role.

Yang Yinfen, the new chairman of Liangpin Store, recently announced a large-scale product price reduction. According to the open letter issued by the chairman of the board of directors on November 29th, the price of 300 products from all channels of the company was reduced simultaneously, with an average price reduction of 22% and the highest drop of 45%, which was the largest price reduction for the first time in the 17 years since the establishment of the company.

After the news of price reduction was released, the share price of good shops rose sharply. On December 1, it closed at 21.32 yuan/share, recording a daily limit. At this time, it has fallen by 46.18% from the high point of the year in February. In the last month, its share price is still hovering around 20 yuan/share.

In the view of some organizations, good shops are still actively transforming and have achieved some results. Some investors are also worried that under the mode of OEM, the cost and difficulty of quality control in good shops will increase, which will bring product quality problems.

The root cause lies in the brand’s high dependence on the foundry, lack of product research and development capabilities, and price reduction "treats the symptoms rather than the root cause". In the first three quarters of 2023, the research and development expenses of good shops were 36.2 million yuan, accounting for 0.6% of the revenue; In the same period, the research and development expenses of Yanjin Puzi and Chacha Food were 63.19 million yuan and 43.09 million yuan, accounting for 2.1% and 1% of the revenue.

It is worth noting that some shareholders are voting with their feet.

On December 30th, Liangpin Store announced the reduction of shares. Dayong Co., Ltd., the second largest shareholder holding 26.05%, plans to reduce the company’s shares by no more than 12.03 million shares, and the reduction ratio does not exceed 3% of the company’s total share capital.

During the period from May 25th to November 29th, 2023, Dayong Limited reduced its holdings by 17 million shares, accounting for 4.25% of the company’s total share capital, and cashed in 404 million yuan.

Good shops also suffered a clearance of high-quality goods. During the IPO of Liangpin Store, Gaochun Capital held a total of 46,800,300 shares, accounting for 11.67% of the total share capital. As of September 30, 2023, the number of shares held by Gaochun Capital was 16,040,600, and the shareholding ratio dropped to 4%.

To sum up, the transformation of good shops is still in its infancy, and there is still a long way to realize large-scale benefits. The recent shareholder reduction and the lawsuit against Zhao Yiming have cast a layer of uncertainty on the company’s future. Research institutions are cautious about the company’s secondary market forecast, and remind investors to be alert to trading risks.