After the outbreak, various departments made full preparations for the resumption of work and production. According to survey feedback, Haitian began to resume work one after another on February 10. Most of the employees had already arrived in February, and drove the upstream and

(Report Producer/Author: China Merchants Securities, Yu Jiaqi, Tiandi)

1. Long-term perspective: Impacts do not change the leading advantage, and expand market share against the trend

Since 2020, the condiment industry has been affected by repeated epidemics, weak consumption, and rising costs. , community group buying and other multiple impacts, the competitive advantage of the leader has become more prominent under external pressure. Haitian fully mobilized its operational initiative, performed better than the industry in revenue and profit, and expanded its share against the trend. By reviewing Haitian's performance in several crises, we found that behind the increase in share against the trend is the brand advantage, management team and corporate culture. This is also the context of the slowdown in growth and intensified competition in the condiment industry. We are still optimistic about Haitian's share in the long term. Reasons for improvement and platform value.

2020 When the epidemic hit suddenly, Haitian still achieved its full-year goals and returned to leading the industry. Under the epidemic in 20Q1, it was difficult to resume production in the catering channel scene, logistics and distribution were blocked, and both supply and demand faced pressure at the same time. Condiment companies basically lost 1-2 months of volume (February/March). Starting from Q2, the epidemic was gradually brought under control, and companies began to catch up with their full-year targets. Although Haitian has a high proportion of catering channels (about 60%) and is more directly affected, as of the end of the third quarter of 2020, the company has caught up with the full-year progress and successfully achieved the 15% revenue growth target by the end of the year. Compared with other competing products, Meishixian and Qianhe failed to achieve the full-year target. Lee Kum Kee gave up its target in the first half of the year. Brands such as Xinhe, Vista , and Donggu experienced slight growth throughout the year. Haitian's recovery speed was significantly faster.

Under the impact of

, Haitian’s share and advantages continue to strengthen. According to Euromonitor's retail market share data, among the leading brands in 2020/2021, only Haitian's market share continues to increase. Even in the face of the impact of new channels such as community group buying platforms, Haitian can still maintain its position after short-term adjustments. Capture leading share in new channels. In the past two years, in order to make up for the losses on the catering side, Haitian has increased its investment in the retail side, resulting in rapid growth in small-package products and further breakthroughs in market share.

1. Impact of the epidemic: Why did Haitian recover faster after the epidemic?

(1) The company responded quickly and took the lead in resuming work and production to ensure supply

After the epidemic, Haitian's speed in resuming work and production led the industry. After the outbreak, various departments made full preparations for the resumption of work and production. According to survey feedback, Haitian began to resume work one after another on February 10. Most of the employees had already arrived in February, and drove the upstream and downstream to resume work together. By late February, the actual production of the factory had begun. Goods volume has returned to pre-holiday levels. During the epidemic, logistics and distribution were also a key issue affecting supply. Haitian took one week to obtain logistics passes for 24 provinces to ensure that products could be distributed smoothly. The company responded to the sudden epidemic faster than other brands in the industry. For example, Zhongju’s resumption of work and production was about a month later than in previous years, and its logistics recovery time was even later. Many other small and medium-sized enterprises had less than 30% progress in resuming work and production until the end of February. %. During the resumption of work and production, the company team worked together, executed efficiently, and overcame many difficulties. Many sales staff even lived in dealer warehouses. The company also commended and motivated a large number of employees with outstanding performance.

Haitian sales staff are the fastest to seize market opportunities. According to channel survey feedback, Haitian sales staff have been connecting with customers since February 3, communicating and formulating response policies, and helping dealers allocate and adjust goods. After the outbreak of the epidemic, the channel structure changed. Catering scenes in various places were restricted, wholesale farmers' markets were closed, and household consumers had a need to stock up. Haitian's sales team made timely adjustments, and its personnel tilted towards KA supermarkets, and were the first to do stocking, display, promotion and other activities. , People working from home also launched e-commerce platforms and community sales, leading competitive product market movements.

(2) Stick to the goal, buy goods first and then digest them, and seize dealer resources.

Completing the task is the first priority, and does not lower the goal easily. After the epidemic, Haitian did not adjust its growth targets. From top to bottom, it has adopted various countermeasures around the full-year targets. High morale has been maintained with high targets and high incentives. The company's firmness in targets has also given dealers confidence and pressure.According to channel survey feedback, some companies such as Lee Kum Kee lowered their full-year targets in March due to the epidemic, reducing their progress in the first half of the year. Be the first to push goods through channels, increase product discounts to stimulate purchases, and seize dealers' funds and warehouses. According to survey feedback, Haitian increased its incentive policy in March and provided dealers with different discount incentives for KA/BC and catering terminals, and dealers' enthusiasm for replenishment increased significantly. Under squeeze competition, Haitian took the lead in seizing dealers' cash and inventory by selling goods, and other brands followed suit later. For dealers, Haitian has the strictest requirements and the strongest say. Even with limited shipping capacity, they will give priority to cooperate with Haitian to achieve Haitian's sales goals. According to channel survey feedback, after the completion of stocking for the Spring Festival in 2020, the inventory of Haitian dealers is generally 2.5 months old. Due to the outbreak of the epidemic after the Spring Festival, the inventory at the catering end has basically not been digested. In March, Haitian further increased its inventory, and at the same time increased the stimulation of promotional policies. Dealers were more enthusiastic about making payments. At the end of 20Q1, advances received increased significantly, an increase of 1.3 billion compared with the same period last year. Channels reported that dealer inventory also further increased to 3-4 months.

After the goods are pressed, the inventory will be transferred to the second batch and the terminal according to the cost investment. After dealer inventory increased, Haitian increased investment in terminal expenses, launched combination products for retail and catering terminals, and further transferred inventory to second batches and terminals. In response to the changes in channels after the epidemic, Haitian first increased the channel expenses of KA/BC at the retail end, which were mainly used for Duotou display, purchase and gift promotions, etc. Subsequent expenditures on the catering side have also increased, with the promotional expense rate increasing from the previous 2.5%-3% to 5%-6%, and some regions require catering dealers to release all their annual expenses in the first half of the year. In the second quarter, inventory continued to be transferred downward through expense investment. According to channel research feedback, the inventory of Haitian's second batch merchants once increased to about 40 days. The funds and inventory of the second batch and catering terminals are even more limited. After Haitian first suppresses the inventory, the terminal will not purchase any more, but will seize the share of competing products. After the third quarter, the inventory of Haitian dealers has dropped from a high level to a level of about 2.5 months, and the intensity of promotional expenses has also begun to gradually shrink. During the epidemic, in addition to purchase discounts and terminal fees, Haitian also provided a series of other supports to dealers to help dealers tide over the difficulties, including increasing personnel support, lowering loan thresholds, increasing loan amounts, extending delivery cycles, etc.

(3) Increase investment in the C-side to make up for the gap in the B-side

B-side sales were damaged during the epidemic, and the C-side benefited from stocking up at home. Haitian partially made up for the losses in the B-side by increasing investment in the C-side. Since the epidemic, the company's demand for small packaging products has been strong and growing rapidly. Some production lines even need to work overtime for production and supply. The company's C-end sales have also increased from 25%-30% before the epidemic to 30%-40%. The C-end market The share has continued to increase in the past two years. In addition to Haitian's production and logistics being able to keep up with the supply of products after the epidemic, the company's sales staff also acted quickly on the C-side. As the wholesale market closed, salesmen concentrated on the supermarket system, increased investment, and assisted dealers in B Transfer goods between terminal and C terminal. At the same time, most Haitian dealers directly connect with KA supermarkets, without going through the second batch, and the manufacturer's instructions are executed faster. After the epidemic, Haitian immediately grabbed a lot of piles and displays in supermarkets, while competing products can only cost higher. Grab the display and activity resources for the next time period.

2. Impact of community group buying: How does Haitian respond to channel changes?

In the early stage, the group buying platform benefited tail brands while impacting the offline price system. The community group buying platform has no entry fee for and , and there are no entry barriers. It is naturally suitable for the attack of small regional brands. In addition to diversion from traditional channels, the more serious impact of community group buying is reflected in its impact on offline prices. Strong promotional discounts damage channel profits, intensify vicious competition and dumping behavior among dealers, dealers, The willingness of second-batch merchants to purchase goods has decreased. Leading brands such as Haitian and Zhongju, which mainly rely on offline channels, have been greatly affected in 2021. They were forced to adjust channel inventory in the second and third quarters, and their performance was damaged. Haitian adjusted its strategy in a timely manner, from non-cooperation to active embrace.In the early days of the rise of community group buying platforms, the phenomena of product diversification and arbitrary prices were serious. In order to maintain profits in offline channels, Haitian strictly controlled supply to community group buying platforms. As the group buying platform rapidly increased its volume and its management gradually improved, the company adjusted its response strategy in a timely manner. In 21Q2, it began to actively embrace the platform. In June, a community group buying department was established for docking and cooperation to provide products in specifications such as 1.25L and 1.28L. In the future, 500ml will also be gradually released. , 750ml and other small size products. According to channel survey feedback, starting from 21Q3, Haitian will increase its cooperation with leading platforms such as , Meituan, and , increase investment, and gain a firm foothold on the platform with its brand power and cost-effective products. In 2021, the company's online sales will exceed 700 million yuan, a growth rate of over 85%.

How to predict the impact of community group buying channels in the future?

1) The industry as a whole has weakened due to the influence of community group buying, and the proportion of channel sales is actually not high. Community group buying platforms have developed rapidly under the catalysis of the epidemic in 2020, but the hottest stage has passed. After March 21, the total MAU of the industry began to decline month-on-month, and the State Administration for Market Regulation issued a number of policies and administrative penalties. As the industry cools down, platforms begin to move towards concentration, and after passing the early stage of extensive money-burning and grabbing share, the leading focus turns to cost reduction and efficiency improvement, and promotions and discounts are reduced. From the perspective of sales proportion, community group buying channels account for a relatively low proportion in the mass product segment.

(2) Management and control are becoming more and more perfect, and the impact on the offline price system is weakening. As mentioned above, we believe that the impact of community group buying platforms is more reflected in disrupting the offline price system. As top brands cooperate more closely with platforms, the management of cross-selling goods and prices becomes more and more strict. At the same time, the platforms themselves also begin to have the motivation and demand to reduce discounts. According to survey feedback, leading platforms such as Meituan Selection and Duoduo Maicai now have much more standardized supply and prices. The proportion of cross-border goods in the supply does not exceed 5%. They also have strict red lines for purchase prices and retail prices.

(3) Haitian has achieved a leading share in the community group buying platform. Taking Meituan Selection as an example, after the change of Haitian cooperation strategy, its share increased rapidly. In 2021, Haitian's share of GMV in the soy sauce category on the platform has reached 26%, establishing its leading position just like offline channels. On the one hand, after Haitian increased its investment in the platform in 21Q3, regional small brands were unable to follow up; on the other hand, after Haitian, as a national leading brand, cooperated with the platform, the platform was also willing to tilt its traffic and advertising resources to Haitian. What is also reflected is Haitian’s brand power and scale advantages. (Report source: Future Think Tank)

3. Cost impact: Why is Haitian’s profit more stable under cost pressure?

Under the pressure of external costs, Haitian’s profit performance is more stable. As the leader in the condiment industry, Haitian not only leads the market in terms of share, but also has a leading profit margin in the industry due to its scale advantages and efficient operations. Since 2021, the costs of raw materials and packaging materials such as soybeans, sugar, glass, PET have continued to rise, and the profits of the condiment sector have been damaged. Haitian has raised prices externally and increased efficiency internally, using a two-pronged approach of to hedge the rising cost pressure of . From 21 and 22Q1 In terms of performance, the decline in both gross profit margin and net profit margin is significantly smaller than that of other companies in the industry (except for Qianhe's significant contraction in expenses), reflecting stronger smoothing capabilities.

is the leader in raising prices, while taps the potential and enhances the internal digestion of . When the cost of raw materials generally rises, Haitian usually plays the role of driving price increases in the sector. In October 2021, the company took the lead in issuing a price increase notice, starting a wave of price increases in the condiment industry. With strong brand power, Haitian's price increase transmission is also the smoothest, and price contribution is the first to be reflected in reported performance. In addition, the company will smooth the direct increase in raw material costs through purchasing strategies such as stocking up and locking prices. At the same time, it will improve the production process internally, accelerate intelligence, and alleviate the rising pressure on raw materials. In 2021, the labor cost and manufacturing expenses per ton of Haitian soy sauce will only increase by 0.3%. and 4.3%. According to survey feedback, the annual procurement cost increased by more than 10%, but the company digested nearly 30% internally through cost reduction and efficiency increase. Keep your eyes inward and your sword directed toward yourself, and strictly control expenses to hedge against rising costs. In response to external shocks, the company launched a call to fight against adversity, requiring all employees to look inward and strictly control various expense rates.Taking freight as an example, against the background of the increase in freight prices and in 2021, Haitian freight costs fell by 2.6%, and the freight cost per ton fell by 9.3%, mainly due to the company's optimization of the logistics network structure and improvement of the efficiency of production and marketing linkage. In 2021 and Q1 2022, Haitian's expense ratios will decrease by 1.2% and 0.2% respectively. In the full-year financial budget for 2022, the sales expense ratio, and administrative expense ratios are also planned to be stable with a decrease to cope with the pressure of rising costs. .

In the long term, average prices and efficiency have improved, expense rates have stabilized, and per capita output has led the industry. The time dimension has lengthened. Over the past five and ten years, Haitian has maintained a continuous increase in its net profit margin. Taking 2015-2020 as an example, Haitian's net profit margin increased from 22.2% to 28.1%. The improvement was mainly contributed by gross profit margin. Looking at the further breakdown, taking soy sauce as an example, Haitian raises prices once every 2-3 years on average, and the average product price maintains an upward trend. The average material cost per ton fluctuates with the price of raw materials. However, due to scale effects and efficiency improvements, the average manufacturing cost per ton and The average labor cost per ton continued to decline, which comprehensively drove the improvement of gross profit margin. Comparing horizontally with other enterprises, Haitian's output per worker is clearly ahead. In terms of expenses, from 2016 to 2018, the sales expense rate first increased and then decreased with changes in advertising and promotion investment, and was overall stable.

4. Tracing back to the source: behind the expansion against the trend is the brand and team

(1) Brand: the absolute leader in the industry, with strong bargaining power

In the one-super-multiple strong structure, the Haitian brand is deeply rooted in the hearts of the people. The soy sauce industry has one super player and many strong players, with Haitian leading in market share, especially in the catering channel. In the early days, Haitian cooperated with chef schools to cultivate the habit of using Haitian soy sauce among chefs, thereby breaking through the catering channel. The company's straw mushroom dark soy sauce, gold label light soy sauce and other products are technically stable and cost-effective, and are widely praised in catering terminals. In terms of brand marketing, Haitian began to launch CCTV on-time advertisements as early as 1999, and launched a large number of ground advertisements in 2003-04. Since 2016, in order to further break through retail channels, Haitian has increased online and offline expenses, and its advertising expenses have increased from about 200 million to 400-500 million per year. It has named " Youth Travels ", " Chinese Poetry" Popular variety shows such as "Conference ", " Who is the Treasure Singer ", "Tucao Conference", etc. With the expansion of the company's oyster sauce and sauces, and its efforts into new categories such as vinegar, cooking wine, and blends, Haitian's brand advantage has also extended from soy sauce to more categories.

classic single product has become a traffic-oriented product for dealers. Haitian's Gold Label light soy sauce, straw mushroom dark soy sauce, extremely fresh, premium oyster sauce, seasoning sauce, etc. have exceeded RMB 1 billion or even RMB 2 billion many years ago. It relies on popular pricing and high-quality products to deeply bind catering customers. Although the gross profit margin provided by these core products to dealers is not the highest in the industry, as traffic-based products, they are necessary for dealers and a stepping stone for dealers to expand their customers downstream. Distributors in the condiment industry usually represent multiple categories and brands. Haitian has the largest overall market. From the perspective of a single distributor, Haitian series products are the brands that contribute the highest revenue and profit among all its agents. Therefore, the completion and assessment of Haitian’s annual tasks have a crucial impact on its income, such as whether it can receive Haitian’s comprehensive rebates. With the combined advantages of scale and flow-based products, Haitian can be said to be a unique choice for dealers. Therefore, manufacturers are more powerful in seizing resources, task assessment and management of dealers and even platforms.

(2) Management: A pragmatic entrepreneurial team, deeply bound to the company.

The management is focused on pragmatism and has a keen insight into industry changes. The company's senior management team adheres to long-termism and aims to achieve Haitian's century-old corporate goal. The company's positioning is also relatively clear, and its business focuses on the condiment sector. The company's senior executives are relatively pragmatic, focused on industry, and deeply involved in the front line. According to survey feedback, Chairman Pang lives a simple life and focuses on work every day. He comes to the company office at seven in the morning and visits factories every week. Vice President Cheng often goes deep into the market to understand the latest sales situation. Therefore, the management of Haitian is more sensitive to industry trends and can deploy top-down response strategies faster and more accurately when faced with external shocks or changes.The management team is stable and grows with the company. Historically, executive resignations and shareholding reductions have rarely occurred. The company's management Pang Kang, Cheng Xue, Chen Junyang, Wu Zhenxing and Huang Wenbiao directly and indirectly hold 58.38% of Haitian's equity. The management actually controls the company and signed the "Concerted Action Agreement". Basically, the senior management team has worked in Haitian for more than 20 years. They have grown up with the company and work together towards the century-old corporate goal. Only two senior executives have resigned since the listing, and shareholding reductions rarely occur.

executives have high salaries, equity incentives, and are deeply tied to the company. The average salary of Haitian executives in 2021 exceeded 3 million, ranking among the top in the condiment industry. The company has also launched an equity incentive plan. Currently, all current senior executives hold shares and are deeply bound by equity.

(3) Corporate culture: high goals and high incentives, high efficiency and strong implementation of

wolf culture, eliminating slack mentality, and leading the industry in employee motivation. Haitian has always been an assessment mechanism with high goals and high incentives, with a strong style and a wolfish nature. The sales team will not easily adjust task goals and avoid slacking off. For example, after the epidemic in 2020 and 2022, the whole team worked hard to catch up with the goal and had high morale. The company will provide middle-level and lower-level employees with higher salary levels in the industry and encourage the team to do more marketing actions and event promotions to achieve sales targets. According to survey feedback, the monthly salary of Haitian front-line salesmen can basically reach 8,000-10,000 yuan, and the annual income of mid-level provincial and district managers can reach more than 500,000 yuan, both of which are relatively high in the industry. Haitian has a Japanese-style corporate style, pursuing fairness and justice, pursuing ultimate management and efficiency, and has very strict internal and external (dealer) assessments. In order to avoid market consolidation, Haitian adopts the strategy of localization at the grassroots level and relocation at the middle level, and regularly rotates provincial and district heads. The maximum term will not exceed five years. If the performance is not as good as expected, they will be replaced in time. The company values ​​the long-term returns of its employees, recruits and trains them from its own school, and builds a strong middle-level team. Haitian’s team mainly recruits from school, supplemented by social recruitment. School recruits have a clear training path after entering Haitian. The company also values ​​employees’ long-term contributions to the company. At present, many provincial and district leaders are recruited and trained from the school. They have strong problem-solving abilities, positive attitudes, and high loyalty. Even in Haitian's most difficult times, the employee turnover rate is very low.

2. Short-term tracking: The industry is gradually coming out of the cold winter, and high-quality leaders are starting to repair

This year’s epidemic has a wider scope and spreads to more areas. Under stricter control, large-scale restaurant closures have become more serious. At the same time, the epidemic has lasted for two years. , the long-term sluggish operation has also led to poor willingness to stock up in channels. The impact of this round of epidemic on the condiment industry is even greater than the 2020 epidemic. In addition, costs have risen further this year, and condiment companies are also facing greater profit pressure. However, as the epidemic was effectively controlled in May/June, the catering scene gradually recovered, the sales of condiments further improved, and cost suppression was most obvious in Q1-Q2, and the industry gradually passed the most difficult period. Despite the great external pressure this year, Haitian has still made many moves in terms of expenses, channels, and new products to further seize share in multiple categories. If the epidemic further eases and the catering industry chain enters the recovery stage, we believe that it has gained share in the past two years. The leading companies are better able to enjoy the dividends of the industry rebound.

1. Expenses: Flexibly adjust expenses to accelerate the expansion of new categories

Increase market expenses to drive terminal sales. The epidemic has repeatedly slowed down the progress in March and April, but the sales team still maintains the full-year growth target unchanged to put an end to the slack mentality under the epidemic. In order to catch up with the target, Haitian has increased investment in terminal expenses. According to channel research feedback, market construction expenses have increased from about 3 points in the past to 6-7 points. Moreover, this year is different from the increase in expenses after the epidemic in 2020. After two years of repeated epidemics, dealers and terminals have been facing greater operating pressure, and channel inventory is higher than in early 2020. Therefore, the form of expense investment this year is It is more about terminal display, stacking and new category exposure, which increases the enthusiasm for purchasing by stimulating terminal sales, rather than increasing the bundled promotions and purchasing rewards of core single products to push down the goods.The channel structure is also tilted. With the catering channel severely damaged, the investment direction of resources this year is mainly on the retail side. At the same time, investment in closed channels and industrial channels such as some government agencies, schools and factories has also been increased. Since the second quarter, the company's expense policy for core customers has been effectively implemented, and the driving effect is relatively obvious. It is expected that the first half of the year will equal last year's progress.

New categories have high targets and high costs, accelerating the share grab. In addition to the three core categories of soy sauce, oyster sauce and seasoning sauce, Haitian has accelerated its expansion in new categories this year, which can not only make up for the annual target gap, but also further open up long-term space. According to channel survey feedback, the company has set higher goals for vinegar, cooking wine, and zero-additive series this year, and has also increased expenses. The focus is to increase the terminal market share of existing dealers. Taking the zero-added series as an example, in the past There is basically no additional cost investment. This year, the upper limit of the zero-added series cost can reach 15 points. Overall, the cost of vinegar has also increased by about 5 points. After the fee was effectively implemented, the company pushed core dealers to replace smaller competing products with Haitian's corresponding categories. With more concentrated distribution and agent brands, logistics, warehousing, and personnel efficiency improved. Coupled with fee support and comprehensive rebates, In addition, the gross profit margin of the vinegar and cooking wine channels is relatively high, and dealers are also willing to do so. In the first half of the year, the completion of vinegar, cooking wine, and zero-additive series tasks was progressing well, faster than the company's overall progress. (Report source: Future Think Tank)

2. Inventory: Channel inventory is relatively high, but there is no operating risk

Since the channel has been operating with high inventory last year, we believe that the operating risk is not significant and is expected to ease with recovery. According to channel survey feedback, due to the stimulation of price increases at the end of 21 and the arrival of the Spring Festival peak season, dealers are more willing to stock up, and inventory has increased, reaching a high level of 2.5-3 months at one time. After the Spring Festival peak season and digestion in the first quarter, channel feedback at the end of April showed that inventories in many regions had decreased, such as in the central and western parts of the country, and had digested to normal levels. However, since May/June, as expenses have increased to catch up with the target, dealer inventory has increased gradually. The market has been worried about Haitian's high inventory, and even worried about whether there will be an adjustment similar to 2016. We believe that there are many differences between the two. The current high inventory will not cause operating risks:

Inventory level: Channel feedback on current dealer inventory 2.5-3 months. Although it is on the high side, it is still lower than the inventory level in 2016, when some areas even reached 4 months of inventory.

Dealer profits: In 2016, dealer prices became lower and lower, and profits were severely damaged. After this year’s price increase, Haitian’s transmission was smoother, and Haitian dealers’ profit margins were relatively stable.

cost strategy: This year the focus is to increase the terminal market share, and cost investment is more inclined to display, stacking, and new products, rather than stimulating dealers to purchase and press goods.

Dealer structure: After the expansion of the number of dealers in 2017, Haitian’s current dealers (7000+) are more segmented and sinking than in 2015/16 (2600+). The proportion of large dealers has declined, and the number of dealers is spreading across the country. There is less pressure to buy goods at unfair prices.

Category structure: Compared with 2016, Haitian currently has more SKUs. Oyster sauce, sauces, vinegar, and cooking wine all contribute to growth, reducing the risk of unstable single product prices. Although inventory has increased periodically since May/June this year, the structure is different. The proportion of new categories such as vinegar and cooking wine has increased, and dealers have relatively less pressure. Moreover, when the subsequent industry enters the recovery stage, the current channel inventory will be transformed into market share.

Judging from the changes in dealers, despite the repeated impacts of the epidemic and community group buying in the past two years, the Haitian dealer team is still relatively stable, especially the core dealers who have cooperated for a long time. Most of the dealers who have withdrawn are those with relatively mature business operations. Poor small dealers are the result of proactive optimization.

Haitian took the lead in completing the price increase, and dealers' profit margins are relatively stable. In this round of price increases in the condiment industry, Haitian, the leader, has the smoothest transmission. The actual price increase at the channel feedback terminal is basically the same as the ex-factory price increase. The channel profit margin has not changed much before and after the price increase.At present, the gross profit margin of Haitian dealers is about 10%, and the net profit margin after deducting various expenses is estimated to be about 5%. Although the operating pressure has been great in the past two years, the profit margin is still relatively stable. With the increase in the proportion of new product categories such as vinegar and cooking wine, It is also expected to have a positive contribution to dealer profit margins.

3. Channels: Focus on core dealers and give full play to their advantages to seize the market

Focus on core dealers and give full play to the advantages of core customers. Haitian has been expanding the number of dealers in the past two years, sinking channels vertically, increasing the number of dealers in counties and towns; splitting dealers horizontally according to channels and specifications, even when the epidemic broke out in Q1 of 2020, the number of dealers was expanding against the trend , At present, disadvantaged areas such as the west and north have also been reduced to the town and village level. However, the industry is under great operating pressure at this stage, and some small dealers are difficult to meet Haitian's assessment. Therefore, the company began to integrate less powerful dealers into a second batch to reduce internal consumption. In 22Q1, there was a net decrease of 291 dealers nationwide. At the same time, it reduced manpower, Expenditure resources are tilted towards core dealers. During the period when the industry is under pressure, we focus on core dealers, realize brand replacement within dealers, and use their strength to further seize terminal market share.

4. Cost: The suppression is most obvious in Q1-Q2, and is expected to improve in subsequent quarters.

Cost suppression is most obvious in Q1-Q2, and costs will improve downward in the medium term. Affected by extreme weather and the conflict between Russia and Ukraine at the beginning of this year, the cost of raw materials such as soybeans and sugar, as well as packaging materials such as PET, further increased, which significantly suppressed profits in the first half of the year. Looking forward to the following quarters, the prices of agricultural products are expected to remain stable under the control of the State Reserve. The growth rate under base effect and will gradually narrow. The prices of packaging materials such as glass bottles and cartons also showed a downward trend in the second quarter, and the cost side is expected to gradually improve.

3. Future space: The share continues to increase, and the value of platformization appears.

The overall scale of the condiment industry is about 450 billion, with many sub-categories blooming in succession. Soy sauce is the largest category among them, with an ex-factory value of about 62 billion. The market size is expected to reach 87.7 billion in 2026, with a compound growth rate of 6% in the next five years, and the industry growth rate is slowing down. Categories such as vinegar, cooking wine, oyster sauce, and compound blends are still in the early and middle stages of growth and branding, with relatively high annual growth rates.

1. Soy sauce: The growth rate is slowing down, competition is intensifying, and the leader is squeezing growth.

The ex-factory end of the soy sauce industry is about 62 billion, and the industry growth rate is slowing down. According to Euromonitor data, the total sales volume of the soy sauce industry in 2021 is 11.64 million tons. Taking the average price of Haitian soy sauce as 5,333 yuan/ton as the industry average price, the industry’s factory-produced price is estimated to be about 62 billion. From the perspective of sales volume, the industry's total sales volume has grown at a compound rate of 3.5% since 2018, and the growth rate has slowed down. In the short term, it is under pressure due to the epidemic, and a recovery rebound is expected in the medium term. Compared with Japan, my country's current per capita consumption of soy sauce is 8.3 liters. Before World War II, Japan's per capita soy sauce consumption peaked at about 16 liters per person, and then began to decline. However, taking into account the differences in eating habits, China's per capita consumption ceiling should be lower than Japan. From a price point of view, the leader has the ability to transfer prices when costs rise. The average compound price of Haitian soy sauce has grown at a compound rate of approximately 1.9% in the past ten years. Structurally, soy sauce is also continuing to upgrade. Haitian high-end (ton price is more than 7,000 yuan), mid-range (4,000-7,000 yuan), and low-end (below 4,000 yuan) soy sauce accounted for about 1:6:3 when it was first launched, and currently accounts for 4 :5:1.

The industry is generally fragmented, showing a pattern of one superpower and many strong players. The CR3 of the soy sauce industry is less than 30%. Haitian has taken the lead in growing into a national brand, with a market share of about 22.7% and a clear lead in scale share. According to calculations, the relative advantage of the catering channel is even more obvious, with a market share of about 25%. The second-tier brands Zhongju, Lee Kum Kee and Donggu all have market shares below 10%, and most brands are still in the process of nationalization. In addition, there are a large number of small regional brands in the industry.

Competition is intensifying, and leading companies are growing like squeeze. Judging from the output of the soy sauce industry, sales growth is slower than production capacity expansion. According to National Bureau of Statistics data, the compound growth rate of output of soy sauce enterprises above designated size from 2018 to 2021 is 9.4%, which is higher than the industry sales compound growth rate of 3.5% and is also high. The sales volume of Yubaiqiang soy sauce increased at a compound rate of 7.5%.At the same time, in the past two years, leading grain and oil companies such as Luhua and Golden Arowana have also crossed over into the condiment sector. Competition in the industry has intensified, but Haitian's advantages have not diminished. We are still optimistic that the leading players will continue to grow their share by squeezing out competing products. The cross-border expansion of leading grain and oil companies has little impact on Haitian. The soy sauce products launched by leading grain and oil companies such as Luhua and Arowana are positioned at the high end, which mainly affects the high-end retail market. Taking Luhua as an example, research reports that Luhua’s current soy sauce scale is about 1 billion+, and its channels are currently mainly KA supermarkets. The price of is equivalent to and its positioning is aligned with Liuyue Xian and Qianhe. There are differences in the business ideas between grains and oils and condiments. Luhua and Arowana sell condiments through gifts in the catering sector, which cannot deeply bind chefs, and the repurchase rate is low. Moreover, grain and oil dealers usually have thin profit margins and do not support the rural market. They are not as good as Haitian in channel sinking, so new entrants pose little threat to Haitian.

2. Oyster sauce: The category is in the growth stage, with Haitian being the latecomer.

The oyster sauce category is still in the growth stage, and is currently focused on the catering side. Oyster sauce used to be a seasoning in classic Cantonese dishes. Haitian has promoted it as a flavor type, and its application scenarios have expanded, no longer limited to Cantonese cuisine. At present, the category is still in the growth stage, with sales mainly at the catering end. The family end also needs continuous consumer education. The industry is expected to maintain double-digit growth, and the compound growth rate of oyster sauce in Haitian's third five-year plan is 10%-15%. The competition pattern in the oyster sauce market is simple, with latecomers from Haitian taking the lead. Lee Kum Kee was initially the leader in the oyster sauce market. Its classic products Caishen Oyster Sauce and Jiuzhuang Oyster Sauce were positioned as high-end products. Haitian later launched mid- to low-end premium oyster sauce (the C-end retail price is 20% lower than Lee Kum Kee’s), quickly seizing the market and currently ranking first in the industry in terms of share. Except for Haitian and Lee Kum Kee, the other players have a small share, their products have low recognition in the catering sector, and there are no strong competitors.

3. Other categories: High cost performance strategy, expected to become the national leader

The vinegar and cooking wine industry is fragmented and in the early stage of branding. The development stages of the vinegar and cooking wine industries are similar. Both categories are still in the growth stage, and branding is also in the early stages. In particular, the catering side is still dominated by mid- to low-end products. The structure is regionally dispersed, and no national leader has yet emerged. Among them, in terms of vinegar, the factory-end scale is estimated to be about 24 billion, and the compound growth rate is expected to be high single digits. Vinegar has strong regional characteristics. There are four famous vinegars in the country. Balsamic vinegar represents Hengshun, which accounts for less than 10% of the market. In terms of cooking wine, it is estimated that the factory scale is about 20 billion, and the compound growth rate is expected to be more than double digits. In the past, Lao Henghe, Wang Zhihe and others focused on regional markets and failed to achieve national success. In recent years, both Haitian and Hengshun have made efforts in the cooking wine market. In 2021, Haitian has become the number one in the cooking wine category with its high cost performance.

Haitian adopts a cost-effective strategy and is optimistic about becoming a national leader in the medium and long term. Haitian vinegar and cooking wine are currently mainly sold at the retail end, accounting for about 70%. The company also has Hui-series sub-brands that launch large-package vinegar and cooking wine for the catering channel, but considering the impact of the epidemic, it has not yet focused its efforts. In terms of vinegar, taking barreled mature vinegar and bottled white vinegar as an example, comparing the prices of Haitian, Hengshun and Zilin, the retail price of Haitian is 30% or even higher than competing products. The SKU of Haitian vinegar series is also constantly expanding. In the early days, it was mainly bottled white vinegar and mature vinegar. Now barreled vinegar, balsamic vinegar and other products are available. Since vinegar has strong regional characteristics, Haitian will sink the cost to various provincial institutions. , promote marketable products for different regions and seize market share more flexibly. In terms of cooking wine, taking glass bottles as an example, Haitian’s cooking wine products are priced much lower than competing products. In 2021, it has become the number one in the cooking wine industry. In the medium to long term, we are optimistic about Haitian's ability to grow into a national leader in these two fragmented tracks due to its implementation of its cost-effective strategy, as well as its strong brand power and channel introduction capabilities.

4, Haitian medium and long-term spatial category calculation

category calculation, based on the previous calculation of the scale of each condiment industry segment, it is assumed that the future compound growth rate of the soy sauce, oyster sauce, sauce, vinegar, and cooking wine industries will be 6% and 12% respectively. , 6%, 8%, 12%.It is expected that by 2025, Haitian's various categories: 1) soy sauce and oyster sauce will continue to consolidate their leading positions in the industry, with market shares expected to increase by 1% and 0.5% annually; 2) vinegar and cooking wine market shares will reach 8% and 5% respectively, becoming a national Industry leader; 3) Seasoning sauce market share is 5.5%, slightly increased; 4) Compound blends and other products contributed approximately 1.2 billion in revenue. By 2025, Haitian Condiment’s revenue will be approximately 38.1 billion, with a compound growth rate of 12.7%.

4. Profit Forecast

On the income side, in the short term, the epidemic will affect the industry. In the medium term, the industry will gradually improve as the catering industry recovers. Leaders that have captured shares in various categories are more likely to enjoy the dividends of the rebound. We estimate that Haitian’s soy sauce, oyster sauce, seasoning sauce and other main business revenue growth rates from 2022 to 2024 will be 9%/12%/10%, 10%/16%/13%, 6%/12%/9%, respectively. 39%/28%/20%. It is expected that the company's investment in new categories such as vinegar and cooking wine will have significant results in 2022, making up for the progress loss caused by the epidemic in the short term and further opening up room for growth in the long term.

On the profit side, affected by the continued rise of commodities in 2022, it is expected that the price increase will be difficult to offset the increase in raw material and freight costs, and the company's gross profit margin will continue to be under pressure. In the medium term, the cost of bulk raw materials will improve downwards, and the report side is expected to reflect the flexibility brought about by the cost reduction dividend. On the expense side, the company continues to strictly control expenses, and various expense rates are expected to be stable with a decrease.

(This article is for reference only and does not represent any investment advice on our part. If you need to use relevant information, please refer to the original report.)

Selected report source: [Future Think Tank]. Future Think Tank - Official website