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Zhou Hei Ya’s annual net profit plummeted by 65%, has the growth of the braised food industry peaked?

On March 9, Zhou Hei Ya (01458.HK) issued a profit warning, saying that net profit would drop by approximately 65% ??in 2020.

Regarding the reasons for the decline in net profit, Zhou Heiya stated in the announcement that the new crown epidemic had a significant impact on Zhou Heiya's operations.

In the second half of 2020, with the improvement of the epidemic and the gradual implementation of Zhou Hei Ya's strategy, the operating conditions gradually recovered.

In fact, this is the third consecutive year that Zhou Hei Ya’s net profit has declined.

For braised food brands such as Zhou Hei Ya and Juewei, with the rise and rapid development of snacks, tea and other industries, the ceiling of the braised food industry is gradually emerging, leaving less and less space for the development of the traditional braised food industry. Looking for new opportunities

Growth points require new stories, which is the severe test faced by the above-mentioned companies.

Both revenue and net profit fell. The decline in Zhou Hei Ya’s performance was already evident in the first half of last year.

In the first half of 2020, Zhou Hei Ya's operating income was approximately 903 million yuan, a year-on-year decrease of 44.43%; its net profit loss was approximately 42 million yuan, which turned from profit to loss year-on-year, with a decrease of 118.83%.

This is also the first time Zhou Hei Ya has suffered a loss since its listing.

Regarding the loss in performance at that time, Zhou Heiya mainly attributed it to the sharp drop in store traffic and sales volume caused by the new coronavirus epidemic sweeping China.

Zhou Heiya said, "The group has suspended production activities in Central China in order to comply with the guidelines and requirements of relevant epidemic prevention and control work. About 1,000 stores across the country have temporarily suspended operations. In fact, regardless of the impact of the epidemic, starting in 2018

, Zhou Hei Ya's performance has shown decline. From 2017 to 2019, Zhou Hei Ya achieved operating income of 3.249 billion yuan, 3.212 billion yuan, and 3.186 billion yuan, and net profits of 762 million yuan, 540 million yuan, and 407 million yuan.

, Zhou Hei Ya's revenue fell by 1.15% and 0.79% year-on-year; its net profit fell by 29.09% and 24.56% year-on-year. However, Zhou Hei Ya's sales gross profit margin has been at a high level in recent years. Wind Wind shows that Zhou Hei Ya's sales gross profit margin has been at a high level.

They are 60.93%, 57.53% and 56.54% respectively. The sales gross profit margin of Huangshanghuang and Juewei Foods fluctuates between 33% and 38%. It is understood that this is mainly due to the differences in sales models between enterprises.

Direct operation is the main focus, Juewei Food is mainly franchise, and Huangshanghuang has both franchise and direct operation models. As of 2019, Juewei has opened 10,954 stores nationwide (excluding Hong Kong, Macao and Taiwan), and in recent years.

It has maintained rapid expansion throughout the year; Huang Shanghuang has 3,600 stores; while Zhou Hei Ya has only 1,301 stores, with only 13 new stores added in 2019. After performance growth stagnated, Zhou Hei Ya chose to expand stores to increase revenue.

The development franchise model has been officially opened and the business model has been upgraded to "direct operation + franchise". However, according to industry analysts, although this model can alleviate financial pressure to a certain extent, it will also speed up expansion.

As the number of stores expands, the production capacity problem becomes more prominent. The franchise model has an immediate effect on increasing the number of stores. However, due to limited management standards and uneven product quality, food safety issues often arise and online complaints arise.

There are many complaints about the deterioration of Zhou Hei Ya's products on the platform. In addition to expanding its stores, Zhou Hei Ya has also been trying to expand its online e-commerce business, entering convenience stores and new retail scenarios to further strengthen the expansion of new markets and the penetration of mature markets.

Zhou Fuyu, the founder and chairman of Zhou Hei Ya, appeared in the Viya live broadcast room and personally brought the goods. As early as May 2017, Zhou Hei Ya announced a high-profile entry into the crayfish market and launched the sub-brand "Juyi Shrimp", with only 4 products on the market.

The product was discontinued after three months. In order to improve their competitiveness, companies such as Zhou Hei Ya, Juewei and Huang Shanghuang also tried to launch other categories, including mushrooms, squid, lotus root slices, etc., in order to "alleviate the impact of the epidemic."

Zhou Hei Ya, which focuses on the "direct operation" model, not only opened up franchise operations, but also further deepened its channels by entering Shanghai FamilyMart and Beijing 7-Eleven convenience stores. However, it can be seen from the performance of the past two years that these measures have not significantly improved

Performance, at the same time, Zhou Hei Ya's sales costs have also been at the highest level in the industry. According to Wind, the sales expenses of Zhou Hei Ya, Huang Shang Huang, and Juewei Foods in the first half of 2020 were approximately 462 million yuan, 177 million yuan, and 235 million yuan respectively.

Zhou Hei Ya's sales expenses from 2017 to 2019 were approximately 948 million yuan, 1.082 billion yuan, and 1.133 billion yuan respectively.

In the 2019 annual report, Zhou Heiya mentioned that "the increase in sales expenses was mainly due to the increase in store rent, sales staff salaries and benefits related to the expansion of the group's store network, and transportation expenses due to geographical expansion."

As for the reasons for the continuous decline in performance, Zhou Heiya once said that it is mainly related to the intensification of market competition, the decrease in self-operated store income and the decrease in distributor income.

In addition, it is also facing pressures such as the gradual disappearance of e-commerce dividends and the diversion of emerging food products from consumers.