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growth and profitability are the core reasons restricting the development of vinegar.
“Mao 20” is a collection of leaders in various fields. Due to its good growth and high moat, it is regarded as a standard by many value investors.
However, there are also great differences between “Mao” and “Mao”. For example, the market value of “vinegar Mao” and “sauce Mao”, which are the same condiments, is dozens of times different. According to choice data, the market value of Hengshun vinegar industry, known as “vinegar Mao”, is only 16.1 billion yuan, while the market value of Haitian flavor industry, known as “sauce Mao”, is as high as 504.2 billion yuan, and the market value of “vinegar Mao” is 27.6 times that of “vinegar Mao”.
The market is always right. There are two reasons why “vinegar Mao” is not as good as “sauce Mao”: first, the growth of leading vinegar enterprises is not as good as that of leading soy sauce enterprises. From 2016 to 2020, the revenue and net profit of Haitian flavor industry, a leading soy sauce enterprise, increased by 82.9% and 125.4% respectively, while the revenue and net profit of Hengshun vinegar industry, a leading vinegar enterprise, increased by only 39.2% and 85.3% respectively.
Second, the profitability of leading enterprises in vinegar is not as good as that of leading enterprises in soy sauce. From 2016 to 2020, the net profit margin of Hengshun vinegar industry, the leading enterprise in vinegar, remained between 15% and 20%, while that of Haitian flavor industry, the leading enterprise in soy sauce, was as high as 25% to 30%.
Then a question worth pondering is, what causes the gap between “vinegar grass” and “sauce grass” to be so large?
Selling vinegar vs selling soy sauce, vinegar loses completely
In the investment logic, vinegar and soy sauce belong to the daily consumption of large consumption industries, with the characteristics of rigid demand and high frequency. In addition, they also have great similarities in pricing and channels.
But you can hardly imagine that there is a gap of tens of times in the operation of the corresponding listed leading companies in such two similar categories.
Specifically, take Haitian flavor industry and Hengshun vinegar industry as an example. As of June 30, 2021, Haitian’s market value is 27.6 times of Hengshun’s market value; Haitian’s revenue is 10.9 times of Hengshun’s revenue; Haitian’s net profit is 24.8 times of Hengshun’s net profit. Haitian flavor industry will dump Hengshun vinegar industry for ten blocks in terms of market value, scale and profit.
Even Zhongju hi tech, a sub leading company in the soy sauce industry, has far exceeded Hengshun vinegar, a leading vinegar enterprise. According to choice, as of June 30, 2021, the market value was 33.49 billion yuan, the revenue was 2.32 billion yuan and the net profit was 290 million yuan.
Of course, some people may ask, is there a situation that although the dragon one of vinegar enterprises is not comparable to the dragon one of sauce enterprises, the Dragon two, dragon three and dragon one of vinegar enterprises are on the same scale?
No. at present, in addition to Hengshun vinegar industry, the scale of other vinegar enterprises is far less than that of Hengshun vinegar industry. For example, Shanxi vinegar, which is most recognized and well-known by consumers in China, has a number of well-known vinegar enterprises that have not yet been listed, such as Zilin, water tower and East Lake, and their scale is very limited.
Taking Zilin, the most famous and largest Vinegar Enterprise in Shanxi, as an example, the performance of the leading Vinegar Enterprise in both scale and profit is far lower than that of Hengshun vinegar industry. According to the latest prospectus data, Zilin achieved an operating revenue of 450 million yuan and a net profit of 66 million yuan in the first three quarters of 2021.
You know, the performance of Zilin, the leading Vinegar Enterprise in the “vinegar capital”, is the same. Other vinegar enterprises such as East Lake and ninghuafu will naturally be smaller.
From this point of view, the business of selling vinegar loses completely compared with the business of selling soy sauce. So what is the reason for this huge difference?
Listed leading vinegar enterprises are also facing growth difficulties
From the perspective of capital market, the capital market is willing to overestimate Haitian flavor industry rather than Hengshun vinegar industry. The core reason is that the growth of vinegar enterprises is less than that of soy sauce enterprises.
According to the data released by the condiment Association, the compound growth rate of sales of vinegar industry was about 10% from 2010 to 2019; the compound growth rate of sales of soy sauce industry was about 8.5% from 2015 to 2020.
In contrast, from 2016 to 2020, the revenue of Haitian flavor industry increased by 82.9% and the net profit increased by 125.4%; the revenue of Hengshun vinegar industry increased by 39.2% and the net profit increased by 85.3%. In the first half of 2021, the net profit of Hengshun vinegar industry decreased by 14.6%, while the net profit of Haitian flavor industry increased by 3.1%.
It can be seen that although the sales growth gap between vinegar industry and soy sauce industry is not large in the past few years, there is a large gap in the performance of leading companies in the two industries, and the growth of vinegar enterprises is far less than that of soy sauce enterprises.
The underlying reason is that vinegar sales have regional characteristics, but this regional nature makes vinegar unable to appear enterprises with high concentration like soy sauce.
You know, vinegar has two different tastes: balsamic vinegar and sour vinegar, so people in China mainly divide vinegar into two factions. Generally speaking, people in the North eat more sour vinegar and those in the South eat more balsamic vinegar.
Due to the different tastes and hobbies of the north and the south, it is difficult to have a vinegar enterprise brand to meet the needs of the national population at the same time. This is reflected in the sales data of Hengshun and Jinglin vinegar enterprises. The data show that in the first half of 2021, Zilin vinegar industry accounted for 66.4% of the total revenue in central and North China, while Hengshun vinegar industry accounted for 67.6% of the total revenue in East and South China 。
It can be clearly found that the consumption groups of acid and vinegar enterprises are mainly concentrated in North and central China, that is, the northern region, while the consumption groups of vinegar enterprises are mainly concentrated in South China, East China and the southern region.
It is precisely because of this that ultimately leads to the problem of slow growth and even stagflation for a long time, whether it is the unlisted sour vinegar big brother Zilin or the listed sweet vinegar big brother Hengshun.
Vinegar sales have regional characteristics, which also makes it difficult to improve the concentration of the vinegar industry. Data show that the market share of Hengshun vinegar industry is only about 6.5%; In the past two years, the market share of Haitian flavor industry is about 16%, much higher than Hengshun.
The logic behind it is not difficult to understand. Soy sauce is more standardized than vinegar, and the demand is irreplaceable. To put it bluntly, soy sauce is generally divided into raw soy sauce and old soy sauce. There is no taste difference between the north and the south, and raw soy sauce and old soy sauce are usually used at the same time. There will be no “left-right competition” in demand. Therefore, it is easier for enterprises to make use of brand advantages for nationalization, and industry leaders are more tolerant of long-term and stable growth performance.
From this perspective, the current problem of vinegar enterprises is similar to that of snack tracks. Read what Jun once mentioned in the youth crisis of liangpin stores. The reason for the retail track is that there are many sub categories and it is difficult to improve the industry concentration, resulting in the slowdown of enterprise revenue growth.
For the current vinegar enterprises, their growth is not as good as sauce enterprises, and so is the core reason.
Vinegar industry is not a “good track”
However, if you think that eating vinegar and sour vinegar only leads to the slow growth of leading enterprises in the industry, you are very wrong. More importantly, the competition among regional leading enterprises in the industry makes the profitability of the whole vinegar industry obviously inferior to soy sauce enterprises. This is one of the reasons why it is difficult for vinegar enterprises to enjoy high valuation.
Specifically, Hengshun vinegar wants to be sold to Shanxi, Shaanxi and other central and northern regions, but its brand strength is not as strong as Zilin, so it needs to sell at a lower price and invest more in sales expenses; If Zilin’s balsamic vinegar wants to be sold to Jiangsu, Eastern and southern Zhejiang, its brand strength is not as good as Hengshun. It also needs to sell at a lower price and invest more in sales expenses, resulting in a significant weakening of the overall profitability of the industry.
Reflected in the data, from January to June 2021, Hengshun’s gross profit margin in East China was as high as 41.9%, while that in Central China was only 31.8%. The sales gross profit margin gap between the two regions was a full 10 percentage points, resulting in the company’s gross profit margin fluctuating around 42% in most years, while that of Haitian flavor industry could remain fluctuating around 44%.
In terms of sales expenses, the sales expenses of Hengshun vinegar industry accounted for 13.8% in the first half of the year, while the sales expenses of Haitian flavor industry accounted for only 5.5% in the first half of the year, with a difference of 8.3 percentage points.
The reason behind this is that vinegar enterprises want to seize the territory of other competitors by actively reducing prices and increasing marketing expenses, so as to weaken the profitability of enterprises. After all, at this stage, the Cr5 of vinegar is only 22%, and everyone wants to eat more of the rest of the cake.
In fact, in addition to the obvious regionalization of vinegar enterprises caused by excessive taste, although vinegar and soy sauce are people’s daily high-frequency condiments, the just needed attributes and frequency of soy sauce are stronger and higher than that of vinegar, which further strengthens the competitive advantage of soy sauce enterprises.
For example, consumers need soy sauce for almost every kind of cooking, and the demand for vinegar is much weaker, which is more used in pasta scenes.
In addition, there is a certain proportion of salt content in soy sauce. Especially under the background that people pay more and more attention to healthy diet, soy sauce can replace salt, and consumers are more dependent on it than vinegar.
Compared with vinegar, soy sauce has higher use frequency and just need attributes, so it will also strengthen its pricing power.
Finally, the profit of the whole vinegar industry is much lower than that of the soy sauce industry. For example, in the past few years, the net profit margin of Hengshun vinegar industry has remained between 15% and 20%, while the net profit margin of Haitian flavor industry can also be as high as 25% to 30%, with a difference of about 10 percentage points.
Therefore, the market share and profit margin of domestic leading vinegar enterprises are not as good as those of leading enterprises in soy sauce industry. This is also the core reason why the market value of “vinegar grass” is only 1 / 10 of “sauce grass”.
From the perspective of opening the cycle, due to the different tastes of consumers, it is difficult to have a larger market share of vinegar enterprises at this stage. Unless the leading vinegar enterprises complete further industry mergers and acquisitions and integration, they still have the opportunity to grow into the existence of “sauce grass”. However, this is a matter of great difficulty.
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