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Zebra Consumption Chen Xiaojing

With both half-year performance down, Taoli Bread, the "king of short-shelf-life bread", has never been in such a dire situation since it went public in 2015.

It’s not that users don’t eat bread anymore, but that they have more choices and don’t have to go to the supermarket to buy Taoli bread.

When the high growth in performance ceased, investors turned away. At its peak, Taoli Bread's market value was as high as 45 billion yuan, a veritable blue chip consumer stock. Now, its market value is only 9.1 billion yuan.

Worst midterm report card

This should be the worst mid-term report card for Taoli Bread (603866.SH) since its listing in 2015.

Both revenue and net profit attributable to shareholders of the parent company declined. Especially in the context of continued expansion, the company recorded a decline in revenue for the first time. The "king of short-shelf-life bread" has shown signs of growth fatigue.

At the beginning of this year, Taoli Bread's performance was shocking. In Q1, operating income suddenly dropped by 5.15%, which had never happened before; net profit attributable to the parent company dropped by 16.95%.

In Q2, the company took a variety of measures to improve efficiency, strengthen supply chain management, and increase production efficiency, while reducing the return rate, and finally achieved a significant increase in profitability, which largely made up for the profit gap in the first quarter. However, the downward trend in revenue cannot be reversed, and there is even a trend of further expansion.

The semi-annual report released yesterday showed that from January to June this year, the company achieved operating income of 3.021 billion yuan, a year-on-year decrease of 5.79%; net profit attributable to shareholders of the parent was 290 million yuan, a year-on-year decrease of 0.60%.

Data shows that the revenue of the major regions covered by the company in the first half of this year has almost all declined, especially in Northeast China, where the company's base camp is located, which has dropped from 1.313 billion yuan in the first half of last year to 1.151 billion yuan. In recent years, the high growth of the southwest and south China markets that the company has focused on has ceased, and the revenue of the south China region has dropped from 361 million yuan in the same period last year to 232 million yuan.

In the semi-annual report, the company did not have product sales data, but from the production volume, we can basically see the product sales situation.

In the first six months of this year, Taoli Bread's total production was 165,500 tons, 11,700 tons less than the 177,200 tons produced in the same period last year. The company's main products are short-term products, and the daily inventory is not large, only a few hundred tons at the end of last year. From this, it can be basically inferred that the company's product sales trend in the first half of this year should be basically consistent with the production.

In the first half of this year, Taoli Bread's capacity utilization rate dropped from 73.35% to 69.84% while its total production capacity was reduced from 241,600 tons to 237,000 tons.

Although the performance is not impressive, the company is still as generous as ever. The board of directors has passed a proposal to implement an interim dividend, with a cash dividend of 1.20 yuan (including tax) per 10 shares, a total cash dividend of 192 million yuan, accounting for 66.21% of the net profit attributable to the parent company in the current period. The profit distribution plan still needs to be submitted to the shareholders' meeting for deliberation.

Even with the positive stimulus of a large mid-term dividend, the company's stock price opened high and fell yesterday, with a slight drop of 0.69% throughout the day.

The "short-term protection king" who is focused on expansion

Taoli bread can be found almost everywhere in supermarkets and convenience stores across the country, but many ordinary consumers are not aware that it is actually a consumer brand from Northeast China.

Wu Zhigang from Dandong was a teacher all his life. After retiring in 1995, he opened a bakery with his son. The name was "Taoli" because of his teaching experience.

Having just established a firm foothold locally, the company, under the leadership of Wu Zhigang, expanded to Northeast China, North China and other regions.

Different from the long-shelf life bread in supermarkets and the freshly baked bread in bakeries, Taoli mainly produces short-shelf life bread, which generally has a shelf life of 3-12 days.

In order to ensure delivery efficiency and product freshness, the company builds factories wherever it goes and establishes a "central factory + wholesale" production and sales model.

In 2000, Taoli Bread’s revenue exceeded 100 million yuan for the first time, which was a major milestone in the company’s development history.

After 20 years of development, the company has established a production capacity of 150,000 tons in many regions across the country by 2015. It was also in this year that the company successfully landed on the main board of the Shanghai Stock Exchange and became the "first A-share bread stock."

After the listing and fundraising, Taoli Bread started a new round of expansion. It increased production capacity in Harbin, Shijiazhuang and other places, and built new bases in Dongguan, Chongqing, Tianjin and Wuhan.

As of the end of last year, the company had 22 production bases in operation and 5 bases under construction, covering more than 310,000 retail terminals. The company's current production capacity has exceeded 500,000 tons. When all the bases under construction are put into production, the annual production capacity will exceed 720,000 tons.

The massive expansion did greatly improve performance in the short term. However, if we extend the timeline, after the company's revenue exceeded 6 billion yuan in 2021, it entered a bottleneck period of scale growth, changing the past double-digit growth trend and entering a period of low-to-mid-single-digit growth that lasted for many years, until this year's revenue decline.

At the same time, the company's net profit attributable to shareholders of the parent company has experienced a double-digit decline for three consecutive years.

Lost “white horse stocks”

Taoli Bread was able to grow big because it started early, found the blank market between long-lasting and freshly baked bread, and took the lead in realizing the layout of production capacity across the country by leveraging the financing platform advantages of a listed company.

However, the "central factory + wholesale" model also leads to insufficient brand communication directly facing the C-end, low brand clarity, and failure to form a deep brand moat.

The reason why many users buy Taoli bread in supermarkets is not specifically because of the "Taoli" brand, but simply because it is there, the price is not expensive, and the display is eye-catching enough.

Taoli Bread's rapid development has long aroused the vigilance of its peers in the food industry. In the food industry, which does not have a deep moat, there is no track that can be monopolized by a certain company or brand.

In 2018, Bimbo, the world's largest baking company, acquired the Chinese business of Mancoton, starting its expansion from North China to the whole country; in Guangdong, locals almost only recognize the century-old Hong Kong brand Garden.

Dali Foods, which is good at late-comer surprise, launched the short-shelf-life bread brand Meibeichen in the second half of 2018. With the help of Dali's capital, channels and other resource advantages, it quickly opened up the market through low prices and celebrity endorsements, and became the second in the track. In 2022, the brand's operating income has reached 1.438 billion yuan (the company no longer discloses data after delisting).

Chain snacks and new retail companies have quickly launched a variety of short-shelf-life bread products through the supply chain model. In addition, more and more chain bakeries and bakeries are offering freshly baked bread, which can arouse young people's desire to buy.

They are all competing with Taoli Bread for users.

As one of the few blue chip consumer stocks in Northeast China, Taoli Bread's market value once reached 45 billion yuan at its peak. Now, it is only 9.166 billion yuan (closing price on August 13).

At the end of June last year, a total of 198 funds held 5.54% of the company's shares. Now, only a few are still waiting.