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the supply chain is the lifeblood of the catering industry. at a time when the catering industry is affected by "low-price competition", what is the operating status of supply chain companies?

on the evening of august 28, guoquan (02517.hk, share price hk$2.97, market value hk$8.16 billion), the "first stock for eating at home", released its interim results report ending june 30, 2024. the financial report shows that guoquan's revenue in the first half of 2024 was 2.665 billion yuan, a year-on-year decrease of 3.5%; gross profit was 609 million yuan, a year-on-year increase of 5.3%.

in terms of the number of stores, as of june 30, 2024, guoquan had a total of 9,660 retail stores, including 10 self-operated stores and the rest were franchise stores.

at the interim results conference on august 29, guoquan founder and chairman yang mingchao explained that guoquan further optimized the retail store network structure and strengthened the store's refined management capabilities in the first half of 2024. "in the second half of last year, we carried out the store's 'seedling plan' and temporarily suspended franchising... in the past three years of the epidemic, we opened stores at a relatively fast speed, and (now) we have proactively eliminated some stores with weak management capabilities."

it is also worth mentioning that guoquan tried to develop a new store type in the first half of this year, launching the "guoquan yaoyao lingxian" farmers' market store, which focuses on farmers' market scenes and features pre-cooked dishes as its main products. so far, guoquan has opened 10 farmers' market stores in zhengzhou, shenzhen and other places, and plans to open 200 new farmers' market stores this year.

yang mingchao revealed at the performance briefing that guoquan has formulated a development plan for the next five years. through a dual-scenario, dual-brand, and dual-channel model, it will push for the expansion of outlets to 20,000 stores. at the same time, with the transformation of online sales towards instant retail, the existing stores will be gradually transformed from store-warehouse integration to store-warehouse-distribution integration. guoquan will also transform from a food supermarket to a higher-value community central kitchen.

gross profit increased by 5.3% year-on-year, and "the average customer price naturally dropped by 6 to 8 yuan"

in terms of specific sources of income, guoquan's income comes from two major sectors: "sales of home-cooked meals and related products" and "service income". the former is the main source of income, with revenue of 2.587 billion yuan in the first half of the year, accounting for 97.1% of total revenue; the latter's revenue was 77.821 million yuan, a year-on-year increase of 4.34%, mainly due to the service income generated by the newly opened franchise stores in mid-2023 in 2024.

regarding the decline in revenue, yang mingchao mentioned the weakness of the catering consumption market at the performance conference. "faced with changes in the consumption market in the first half of the year, our average customer spending naturally dropped by 6 to 8 yuan."

"the slight decline in performance in 2024 matches the decline in the number of stores," yang mingchao explained. "starting from the second half of last year, we decided to suspend the opening of stores and conduct structural adjustments and 'squatting' of the 10,000 stores we opened in the past. the 'squatting plan' ensures the quality rate of our stores and lays the foundation for profit growth in the second half of the year."

the financial report shows that as of june 30, 2024, guoquan has a total of 9,660 stores, including 10 self-operated stores and 9,650 franchise stores. compared with the same period last year, the number of self-operated stores increased from 5 to 10, and the number of franchise stores decreased from 9,910 to 9,650.

image source: photo taken by reporter wang ziwei of meijing (file photo)

however, guoquan's profits in the first half of the year were not affected by the decline in revenue. the financial report shows that the company's gross profit in the first half of the year was 609 million yuan, a year-on-year increase of 5.3%; the gross profit margin was 22.8%, compared with 20.9% in the same period of 2023; the core operating profit was 125 million yuan, a year-on-year increase of 4.9%.

in this regard, the financial report stated that the steady growth of operating data was mainly due to better cost control capabilities brought about by scale advantages, an increase in the proportion of self-production, and additional gross profits brought about by new product development and upgrades of existing products. it is worth noting that yang mingchao revealed when talking about gross profit margin at the performance conference: "based on the operating conditions in the first half of the year, we deliberately adjusted the price and gave consumers a two percentage point profit."

at the same time, he seemed confident about the performance expectations for the second half of the year. "(performance) grew strongly in june during the off-season, with revenue increasing by more than 46% year-on-year. so even though the number of stores and performance have slightly declined, our management team feels very stable and confident that we can get through this adjustment period and lay a good foundation for the next step of development."

with both online and offline layouts, will the goal of 20,000 stores be achieved through the "vegetable market"?

the expenses in the first half of the year revealed guoquan’s strategic moves.

the financial report shows that in the first half of this year, guoquan's sales and distribution expenses reached 302 million yuan, a year-on-year increase of 13.94%. regarding the increase in this part of expenses, yang mingchao said at the performance release conference that one of the main reasons was the increase in investment in douyin, a new online channel, "a certain amount of money was spent on douyin and offline brand operations to increase brand tension."

online, guoquan continues to innovate sales channels and vigorously develops multiple online sales channels such as douyin, guoquan app and wechat mini programs. it also expands the product portfolio sold through diversified sales methods such as online live streaming and breaks away from the limitations of physical store retail space.

yang mingchao introduced at the performance conference that guoquan's newly launched 99 yuan "tripe freedom" hot pot set meal had sales of more than 130 million yuan on douyin channels in june alone, which is 1.25 times the total sales of all products on douyin channels in the first half of 2023. at the same time, since its launch in june, the set meal has been the sales champion of douyin catering products for two consecutive months. at present, the total sales volume of the entire network has exceeded 4 million orders, with sales exceeding 400 million yuan.

at the same time, in terms of offline store expansion, yang mingchao proposed a goal of reaching 20,000 stores in the next five years, and guoquan’s focus in the second half of the year will inevitably be on community and farmers’ trade stores.

in march this year, guoquan opened the first store of its chain sub-brand "guoquan yaoyao lingxian" in a farmer's market in zhengzhou. according to guoquan, the brand is positioned as a vegetable basket for residents, mainly selling pre-cooked dishes, and is located in a farmer's market, which is closer to consumer demand, with an area of ​​10 to 20 square meters.

"next, guoquan will expand from 10,000 stores to 20,000 or even 30,000 stores. what will support the new 10,000 stores?" liu yichuan, general manager of guoquan food brand, said in a public speech in august this year, "we have given an answer - pre-prepared meals."

liu yichuan explained that the reason why the preferred location for the "guoquan yaoyao lingxian" project is the farmers' market in first- and second-tier cities is because the farmers' market is the main circulation area for the most core raw materials related to food, and it is also the "sinking market" in first- and second-tier cities. "guoquan hopes to conduct project experiments in markets where consumers are more receptive."

regarding guoquan's new attempt, e-commerce analyst zhang shule said in an interview with the "daily economic news" reporter that this strategy is consistent with the grocery shopping business of many platforms and lacks competitive advantages in terms of vertical categories.

"adopting the fresh food e-commerce model and covering a two-kilometer living circle will be more efficient and reduce costs. it will also stagger the grocery shopping platforms and attract low-frequency e-commerce consumers in farmers' markets and offline fresh food. however, this approach still has huge cost pressure and management difficulties, and will be forced to raise prices due to costs. fresh food e-commerce has failed here before. it depends on whether guoquan has a better solution." zhang shule analyzed.

in addition, yang mingchao also looked forward to the development in the second half of the year at the performance conference. "for the structure of guoquan stores, 60% are located north of the yangtze river. winter is guoquan's peak season, and the company will achieve better performance in the second half of the year. at the same time, operating and management costs will also decrease with the arrival of the peak season. looking forward to the second half of the year, the company will continue to focus on the three-in-one brand, product, and channel, as well as the guoquan business model of integrated production, supply and marketing to promote the company's performance growth. in terms of the upstream supply chain, guoquan will acquire daixiaji in the second half of the year, and the newly invested seafood pre-prepared food base will be put into production in september."

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