How much does "nature's porter" earn when Nongfushanquan is allowed to go public?

But Nongfushanquan's business is just a "water seller", and in the past it would have been more modest to call itself just a "mover of nature". Hong Kong stock market, there has been the same water company - "Tibet water resources" ("5100 Tibet glacier mineral water" parent company) - by the short sellers sniper. -The company was sniped by short sellers, who called its financial data "unbelievable". After the disclosure of the prospectus, there were those who wanted to read between the lines and claimed they saw Nongfushanquan as an aggressive company on the edge of a cliff rather than a solid industry leader.

So what did the "water seller" say in the prospectus?

"Other drinking water"

If you don't have a lot of resources or a lot of money, and you have a sudden desire to do some business in the beverage industry, selling pure water might be a good first step.

Leaving aside the "baby water" "cool white" and other brand packaging out of the concept, China's market sales of packaged drinking water, the actual can be simply divided into drinking natural mineral water, drinking water and other types of drinking water three categories. Among them, "drinking water" of the raw water, from the public **** water supply system (that is, tap water), the preparation process is simple, so the cost is very low, which is also wahaha, master kang, ice dew and other common one to two dollars of the source of bottled water. For brands such as Master Kong and Coca-Cola, these water products are launched to help their other products expand channels or increase channel stickiness, and are not profitable in themselves.

If brands like Baisi Mountain, Kunlun Mountain, etc., from the "drinking natural mineral water" to start, it means entering a high-end market that spells water, packaging and storytelling. The corresponding high profit margins may help the enterprise to achieve some profitability, but at the same time to face the siege of Evian, VOSS and other international brands.

In the business of selling water before, Nongfushanquan's family Zhong did a period of time Wahaha in Hainan and Guangxi's general agent. During the period, he will be in Hainan, low-priced goods Wahaha oral liquid to get outside the agency area of Guangdong high-priced sales, this "crosstalk" behavior so that he ultimately lost the qualification of the agent.

Now, the clock operated by Nongfushanquan is very strict control of the dealer system. The prospectus disclosed that Nongfushanquan as of the end of 2019 covered more than 2.37 million terminal retail outlets across the country, accounting for about 11% of the number of retail network points across China. Between Nongfushanquan and these retail outlets, the flow and sale of products relies on more than 4,000 first-tier distributors who work closely with Nongfushanquan, as well as logistics partners. They are the key invisible "waterman" in the water selling chain.

Farmer's Spring itself needs to undertake the transportation process from the factory to the first level of dealers, railroads and highways are the most common mode of output. Around the "500 kilometers transportation radius" law generated by the logistics costs, is the most worthwhile part of strict control, otherwise the product may be transported to the halfway point on the loss of money.

Farmers Spring factory near the water source, and basically with the railroad or highway network. In the Changbaishan region, because of the layout of the earlier, it was once still the only domestic water seller with a dedicated railroad line. Changchun Spring Railway Logistics Group's local branch has long been providing "door-to-station" specification freight services for this large customer.

At the end of 2018, Nongfushanquan Changbaishan factory for short-distance distributors have tried to switch to direct road delivery, so that the source of rail transportation is reduced by more than 50%. In order to retain customers, the local railroad logistics company developed a "rail-automobile combined transport" logistics turnkey service program, increased the "station to the door" back-end distribution services, and the use of volume price bundling, which re-enhanced the use of railroad freight Nongfushanquan.

Railway logistics service providers, the new three board listed company "Angang Logistics", mainly serving the Changbai Mountain region to develop drinking water resources of the major well-known water plant, Nongfushanquan has been among the top five customers in the list of related income to Angang Logistics, the small company's overall revenue contribution of 40% or more.

Relying on close cooperation with these invisible water deliverers, Nongfushanquan's spending on logistics and warehousing has continued to decline as a percentage of the company's total revenue over the past three years, to 10.5% in 2019, with expenses amounting to 2.526 billion yuan, according to the prospectus.

The involvement of partners such as distributors is also helping Nongfushanquan*** bear the cost of marketing.

Since 2016, Nongfushanquan follow the example of the global FMCG group Yizhi International, sub-regional promotion of "big dealer" system reform, give up on the "husband and wife store" type of control of small dealers, not only will the sales target all decentralized to the first level of dealers to complete, but also the manufacturer's sales staff. The company's sales staff will also be included in the dealer's staffing, and will be paid by the dealers.

Farmer's Spring side of the "decentralization", and at the same time to its dealer network output called "Nongfu Cooperative Partner System" (Nongfu Cooperative Partner System, referred to as NCP) of the digital system, in order to strictly management of sales and marketing, the Nongfu Cooperative Partner System (NCP) is a digital system. Digital system, for the strict management of sales staff on another "insurance". The front-line sales staff of the distributor system are equipped with this NCP system, which is responsible for transmitting daily data such as terminal store displays, sales equipment, promotional expenses, and inventory turnover directly to the brand's headquarters. So, the dealer is actually just the executor of Nongfushanquan in the logistics and sales link.

The prospectus shows that 2017 is the peak of the termination of contracts between Nongfushanquan and dealers, and more than 30% of the dealers who cooperated with Nongfushanquan at the beginning of that year chose to terminate their contracts in that year.

At the beginning of 2020, in order to improve the speed of product distribution, Nongfushanquan also changed the shelf life of the entire line of beverage products to a shorter period of 3 to 12 months. The distributor's normal sales cycle basically covers the new shelf-life requirements, but the inventory that needs to be expedited by the distributor has increased quite a bit since then.

For dealers, Nongfushanquan take "first payment after goods" trading mode, so from its "customer advances", as well as "trade receivables" this two From the changes of its "customer advances", and "trade receivables" two financial indicators, you can get a glimpse of the cooperative relationship between distributors and Nongfushanquan. In the past three years, Nongfushanquan's "customer advances" were far more than the company's net profit, indicating that it has plenty of cash on hand; but in 2019, the proportion of customer advances to revenue declined by more than 1%, and the proportion of trade receivables relative to revenue rose slightly, partly reflecting the dealer's willingness to pick up Nongfushanquan's goods. Decline.

This may have something to do with the fact that Nongfushanquan has come up with a lot of "new products" over the years that aren't really in demand.

Big business in a small market

China's bottled water industry has basically followed the expectations of practitioners of the market outlook - Euromonitor statistics show that in the "cool white water" is still the mainstream of national drinking water.

In the entire "soft drinks" market, there is no other piece of business as certain as bottled water. Carbonated beverages, tea beverages, juice drinks, and functional beverages are not only much smaller than bottled water, but have experienced more than one round of brand battles in their respective verticals. Even if there are brands that have established a certain market concentration after the fight, consumers are always curious about the new innovative brands that come on the market.

In the case of juice, for example, the 2019 China Shopper Report released by Bain Consulting shows that between 2016 and 2018, the top 20 brands in juice contributed -6% to category-wide sales growth, while smaller, newer brands contributed 7%. Juice is also one of the few categories among the 26 FMCG categories listed in this report to show this phenomenon.

Nongfushanquan has also appeared on retail shelves as an "innovator" in the juice, functional and tea beverage niches.

The launch of Farmer's Orchard in 2003 was the first time a "mixed fruit and vegetable juice" product appeared in the Chinese market, although the idea was quite similar to that of Kagome, the Japanese fruit and vegetable juice giant.

In 2004, when Nongfushanquan launched its functional drink "Scream", the domestic perception of such products is still strong purpose of Red Bull and some regional hot brands - Suntory, Gatorade.

Sugar-free as a selling point of the "Oriental Leaf" was launched in 2011, China's tea drinks market is still in the unified iced tea, Kangshifu green tea as the representative of the significant "sugar-containing period", until around 2018, sugar-free gradually become the mainstream flavor of the tea drinks market. The mainstream flavor of the tea beverage market.

From the early advertising campaigns for Nongfu Orchard to the "screaming" bottle design to the labeling innovation of Oriental Leaf ...... Nongfushanquan's storytelling ability is more fully demonstrated in the new products it pushes around these small markets.

Nonetheless, Nongfushanquan still can't get rid of the entanglement with other brands in various market segments. The good thing is that it can use the advantage of being a big company - before the market is fully grown, it can rely on sustained investment and deep channel strength to give new products more time to do iteration, while looking for opportunities in the upper reaches of the industry chain.

In addition to drinking water, Nongfusanquan focus on another major business - juice field, Nongfusan Orchard's initial products focus on "fruit and vegetable mix", a high proportion of vegetables, and the market acceptance of this is not high. The juice market has always been strongly tied to the concept of health, and upstream to downstream sales are mainly in the form of fresh fruit. However, in the past, finished fruit juice can only choose between gross margin and taste, and larger brands tend to choose the former - either to reduce the concentration of fruit juice in the beverage, or for high-concentration juice products to adopt the "concentration reduction", which can reduce the cost of the The former - either by reducing the concentration of juice in the drink, or by adopting the cost-reducing process of "concentrate reduction" for high concentration products.

Farmer's Spring's pure fruit juice product line "17.5 °" was launched at the end of 2015, the beginning of the industry's highest standards, the largest investment in the NFC (Not From Concentrate, non-concentration reduction) model, farms, production lines all self-management. NFC originally only belonged to the pure fruit juice products in a smaller market: subject to the freshness period and cold chain transportation costs, pricing can only be matched to the top of the consumption ability of a very high customer, so the overall scale has been small, moderate growth. But Nongfushanquan's "17.5 °" just emphasizes room temperature and affordable, although there is a technical controversy, but directly breaks the NFC market previous iron law.

In fact, Nongfushanquan has never been entangled in the "only do NFC" thing. Its layout of juice drinks throughout the high, medium and low concentration of each product line, which leads to the accumulation of its product development and upstream supply chain. The prospectus disclosed that Nongfushanquan took advantage of the decline in the price of imported fruits in 2018 to strategically stockpile a considerable amount of NFC juice raw materials, which nearly doubled the value of the company's inventory in this category.

In mid-2019, the 16-year-old "Farmer's Orchard" product line was suddenly renovated from fruit and vegetable juice to a more clearly juice-led, which utilized the company's raw material stockpile to increase the concentration of juice to 50%. Along with this round of new products on the market, Nongfusanquan its slight price increase, while giving discounts to the end of the sales concessions, and ultimately promote the juice drink category that year, 24.6% revenue growth.

Compared to the previous "forward-looking layout", Nongfushanquan's iterative operation of the juice market for several years was delicate and patient, which helped it gain good market acceptance.

Of course, this kind of trial water also has a certain price - after strengthening the pure juice business, the gross margin of the juice drinks of Nongfushanquan rapidly declined, and it is difficult to digest the inventory that was suddenly stocked in 2018. Only in the non-main business market, sales and brand power as the primary goal to improve, do not have to worry too much about profit margins - to meet these prerequisites, such an attempt makes sense.

Before Nongfushanquan formally submitted to the Hong Kong Stock Exchange, the only way to get a glimpse of the company's performance data is to look at Wantai Biologicals, which was listed on the A-share Science and Technology Board earlier. Wentai Bio and Nongfushanquan belong to the same Zhong founded the "health care" under, but one is its main business to get rich, one is a risky frontier investment.

Nongfushanquan also disclosed some transactions with its parent company in the prospectus. For example, it bought the entire stake in the vending machine business from Nongfushanquan for nearly 100 million yuan. After loading into the listed company, the vending machine as a sales channel and brand advertising space in one product, it is likely to become the next round of key layout of the terminal retail facilities of Nongfushanquan, just like the previous freezer.

At the same time, Nongfushanquan will also be some marginal business from the listed company divested, including a price of only $ 1 Northeast Agricultural Company, this is Nongfushanquan a few failed to tell the story of "from the origin to the consumer," one of the few attempts to try a new category.

After sending two of its best assets, Wantai Biologicals and Nongfushanquan, to IPOs in succession, the image of Nutrient Health as a "big health holding company" has been initially established. Once the value of these two companies is recognized in the open market, it will be a great success for Keeping Well. As for the more controversial health care business such as Duoer and turtle turtle pill, it is not listed.

After all, at the moment, the market is most attentive to listen to, or Nongfushanquan this "water seller" said, and it also seems like an honest person.

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