Quanjude is a difficult duck

By orchioo Sep29,2022

After three consecutive years of losses, Quanjude’s financial report for the first quarter of 2023 released on April 17th showed that the net profit attributable to shareholders of the listed company was 9.174 million yuan, with a deduction of 6.739 million yuan from non net profit – a figure that had been negative for the previous 13 quarters. On the surface, Quanjude turned losses into profits.
However, in actual dismantling, Quanjude’s main business still suffered losses, and its profit contribution actually came from other income of 2.81 million yuan – mainly government subsidies and various subsidies, as well as 7.67 million yuan of “investment income from affiliated enterprises and joint ventures”.
For Quanjude, this situation is no longer just a day or two. The losses caused by the impact of the pandemic in the past three years go without saying that they have swallowed up the total profits of the previous six years; Even in profitable years, most restaurants in Quanjude did not perform as well as expected. The profit contribution of the main business related to roast duck was constantly decreasing. By 2019, the income brought by investment far exceeded the main business profit, becoming the absolute leader in profit contribution.
Formerly known as the “number one food in China” and the first Chinese restaurant “time-honored brand” to go public, Quanjude’s roast duck was popular for a while, but unknowingly, the roasted duck was about to fly away. How long can Quanjude’s “original” be eaten?
1、 Profits have already been made outside of roast duck
The most glorious time of Quanjude can be traced back to 2012, 10 years ago. Five years after its listing, Quanjude achieved a revenue of 1.944 billion yuan and a net profit attributable to shareholders of the listed company of 152 million yuan.
After climbing the mountain, there was a downhill path. In the following decade, Quanjude struggled to open and close stores, with a slightly faster opening speed than closing speed. By comparison, in 2022, Quanjude opened 102 catering stores in Beijing, Shanghai, Hangzhou, Changchun, and overseas, including 92 Quanjude brand stores; In 2012, these two data points were 94 and 89 respectively.
Quanjude, which once struggled to become the “number one restaurant in China, world-class cuisine, and internationally renowned brand”, even struggled to compete in the North China market.
There are some actions of external expansion, but most of them have failed. In 2022, the sales revenue of Quanjude’s North China market will account for 65.5%. According to the disclosure in the annual report, Quanjude will do 36 Tiktok live broadcasts in 2022, with a cumulative duration of 300 hours and a cumulative number of viewers of nearly 1.8 million, but more than 95% of the transaction users are local young consumers in Beijing.
In addition to the North China market, the East China market accounted for 21.43% of sales, and other regions also have sporadic layout, which may look good, but most stores are struggling to lose money, including Qingdao stores, Zhengzhou stores and Shenyang stores, which have suffered long-term losses, while Shanghai Quanjude, an important strategic area in East China, has been insolvency since 2018, and will lose 18.64 million yuan by 2022; Even the most important stores in the Beijing area are slowly declining in revenue and profits. For example, the Sanyuanqiao Quanjude store, which performed best in 2012, achieved a net profit of 3.29 million yuan. In 2014, it reached a high of 4.26 million yuan, but by 2017, it had dropped to 1.46 million yuan, and the performance of many other stores was similar.https://forum.stoneitech.com/
In addition to store revenue, Quanjude is attempting to make a breakthrough in product sales. The highest revenue in this segment was over 461 million yuan, but in 2022 it dropped to 176 million yuan. Quanjude Sanyuan Jinxing Food Company, which is responsible for food processing, and Quanjude Fangshan Food Company, which is responsible for sales, also suffered losses of 28.08 million yuan and 22.59 million yuan.
In the context of losses in both restaurant and product sales, which are the main businesses of roast duck, the two main supports that can help Quanjude recover some of its performance face are its 12.5% stake in First Travel Finance and 30.91% stake in Jude Huatian. According to data from Tianyancha, the latter is a limited liability company jointly invested and established by Quanjude and other catering groups, with the catering industry as the main investment object. Its subsidiaries include more than 40 wholly-owned and controlled enterprises, including Hongbinlou, BBQ Season, BBQ Wan, Shaguoju, Emei Restaurant, Liuquanju, Old Xi’an Restaurant, Youyishun, Mackay Restaurant, etc. It is worth mentioning that Jude Huatian, which also operates catering assets, has consistently maintained profitability under the impact of the pandemic for three years, with net profits of 32.88 million yuan, 40.27 million yuan, and 11.83 million yuan, respectively.
Looking at Quanjude in this way, the continuous losses of this “time-honored brand” of roast duck cannot be simply attributed to the single effect of the epidemic, and the recovery of Quanjude may not occur naturally after the epidemic.
2、 Low R&D cannot drive innovative flywheel
The key issue lies in insufficient innovation.
Quanjude has a rich family background. Quanjude, founded in 1864, has a development history of 160 years and is also a “seen the world” roast duck that has served at international events such as the Olympics, World Expo, and APEC meetings – this is the “core competitiveness” that Quanjude emphasizes every year in its financial reports.
But these are no longer enough to earn this duck, which has traveled through a century, a better reputation and a higher premium in the new era of consumption.
The positioning of Quanjude has become disconnected from consumers’ perception: on the one hand, Quanjude adheres to the high-end market, with high vegetable prices and service fees being criticized; On the other hand, consumers have complained about “bad taste”, “expensive” and “poor service”. Since 2012, the per capita consumption of Quanjude stores has continued to decline, with a year-on-year decline of 2%~5% every year.
Perpetual motion machines do not exist, and “time-honored brands” and Yizhaoxian cannot become the sustainable power sources for the development of Quanjude. With the changes in consumer times and consumer tastes, products need to be innovated, but Quanjude lacks innovation in this regard. It can be seen from its innovation investment over the years that the proportion of research and development expenses has always been low, mostly around 0.1%, including expenses for dish research and development and workshop renovation – even in the catering industry with relatively low research and development investment, this level is considered a bottom.
The sluggish product innovation corresponds to the downturn in the capital market. Since 2018, the stock price of Quanjude has been hovering at a low level. Whether it is the consumer market or the capital market, Quanjude has not provided surprises for too long. So that at the end of 2022, the news that Quanjude launched two types of Maotai flavor Baijiu triggered abnormal fluctuations in the market as soon as it was released, and its stock price rose by a limit of five times within half a month. The stock price has risen to a historic high, and the market value has suddenly soared to nearly 3 billion yuan, even triggering a letter of concern from the Shenzhen Stock Exchange. However, after the company’s response that “Baijiu is launched in the form of entrusted processing, and the business income accounts for a relatively small proportion”, Quanjude’s share price continued to decline.
3、 Introducing new ones can revitalize old ones
Without the support of innovation, inherent advantages will gradually fade away.
As one of the core competitiveness of Quanjude, the number of technical personnel has been continuously shrinking since 2017, from 1683 to 921 in 2022. Quanjude has repeatedly emphasized in its financial reports that the fierce competition in the domestic catering market has made senior technical and management personnel the targets of high salary competition among many businesses. The catering industry is generally facing the phenomenon of underemployment and high talent turnover, which poses risks to the formation of store teams.
The salary and incentive system are the crux of the problem and also a chronic illness that Quanjude is difficult to remove. Tang Ying, the Secretary of Quanjude’s Board of Directors, admitted in an interview with Caijing magazine that Quanjude also hopes to use equity incentives for employees beyond a limited salary level, as many private enterprises do. This way, employees will pay more attention to the development of the enterprise. However, unfortunately, “the country has not opened this door for state-owned holding companies”.
At present, the state-owned capital Beijing Capital Tourism Group still holds a controlling position of 43.67% in Quanjude. Quanjude has attempted mixed ownership reform before. In 2014, under the promotion of the then chairman Wang Zhiqiang, IDG Capital became the second largest shareholder of Quanjude. However, the latter suddenly announced liquidation and reduction of its holdings in the company’s stock after entering three years. At that time, Quanjude’s annual profits had already shown a downward trend, and several “major actions” in the three years of mixed reform had also ended in failure; The internet delivery platform “Yage Technology” established in 2016 also closed down after losing 15.87 million yuan in the second year; The equity acquisition plan for Beijing Tangcheng Xiaochef Catering Management Co., Ltd. has also come to an end.
In fact, the introduction of diversified capital does not necessarily lead to positive changes, and without decision-making power, capital can only run ineffectively. A comparable case is McDonald’s decentralization of its operations in China. After McDonald’s decision to introduce CITIC Capital as a strategic investor for its business in China in 2017, the number of its restaurants doubled within five years, benefiting from CITIC’s local resource advantages; On the other hand, what is more important is McDonald’s maximum decentralization of power in the Chinese region, ultimately achieving an improvement in decision-making efficiency and an acceleration of localized innovation.
This is also a possible path to revitalize the “time-honored brand”. Only by introducing capital and mechanisms of vitality can the brand value and asset value of Quanjude be truly unleashed. In January 2023, Wu Jinmei, who served as the Deputy General Manager of Shoulv Group, took over the position of Chairman Quanjude after the short-term tenure of the former two chairmen. With a postdoctoral background in finance, can she bring new imagination space to Quanjude under the new wave of state-owned enterprise reform?

By orchioo

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