The investment failed to recreate another Juewei Food.

Zebra Consumer Chen Xiaojing

In a recent announcement responding to the Shanghai Stock Exchange, "King of Duck Necks" Juewei Food had to acknowledge the immense pressure from the braised food consumer market.

Both store openings and sales have slowed, and even the capacity expansion project funded three years ago has been forced to adopt cautious measures. However, the long-accumulated capacity project is like an arrow on the bowstring—how will it be absorbed in the future?

To diversify risks, the company began laying out its investment business as early as 2013, focusing on upstream and downstream enterprises in the braised food and food industry. From investing in Hefu Noodles and Qianwei Central Kitchen to indirectly entering related enterprises through multiple private equity funds like Tomato Fund No. 3, it has initially sketched out a gourmet business empire. The intention is to recreate another Juewei through investments.

However, these operations have not brought substantial returns to the company. From 2022 to 2024, nearly 4.4 billion yuan was invested, with total investment losses exceeding 200 million yuan.

Continuous Investment Losses

After firmly securing its position as the leader in the braised food industry, Juewei Food (603517.SH) continued its external equity investments, even as losses mounted year after year.

The company used equity investments to target related industries, indirectly driving business expansion. By building a "gourmet ecosystem," it attempted to realize the grand plan of recreating another Juewei.

The wish was beautiful, but reality proved harsh and unforgiving.

On October 22, the company disclosed in its response to the Shanghai Stock Exchange's regulatory letter that since 2017, its net cash flow from investment activities has been consistently negative, with no net inflow of funds from investments.

From 2022 to the first half of 2024, the company's cash outlays for investments were 880 million yuan, 2.422 billion yuan, and 1.063 billion yuan, respectively, while investment losses were -94.2185 million yuan, -116 million yuan, and -3.252 million yuan. The trend of investment losses has been difficult to curb.

In the first half of this year, the company's equity investment expenditure was 30 million yuan, mainly directed at Jiangsu Manguan (47.88% stake) and Changsha Nayun (33.09% stake). These two enterprises reported revenues of 29.71 million yuan and 167 million yuan, respectively, with net profits attributable to the parent company of -8.3917 million yuan and -11.7163 million yuan. The company recognized investment losses of -4.0183 million yuan and -3.8763 million yuan, respectively.

In 2023, the company's equity investment expenditure was approximately 262 million yuan, directed at five enterprises: Juewei Phase II Fund, Golden Cudgel Private Fund, Xinjin 415 Fund, Gan Yao Food, and Jiangsu Manguan. That year, except for Gan Yao Food (20% stake), which recognized an investment gain of 711,000 yuan, all others reported losses, with the company recognizing a total loss of about 106 million yuan.

As of June this year, the book value of the company's external investments totaled approximately 2.646 billion yuan. There are six investment projects with recovery risks, with a combined book value of about 107 million yuan and a total potential loss of 45.4062 million yuan.

Juewei Food stated that, on one hand, it would organize or dispatch post-investment management teams to help improve the operational efficiency of invested enterprises. On the other hand, it would actively seek exit routes for non-braised food-related projects to reduce investment losses.

Slowed Progress in Funded Projects

In 2021, Juewei Food decided to further increase its production capacity reserves through a private placement to lay the foundation for long-term development. In August of that year, the company raised nearly 2.4 billion yuan to implement six major capacity projects, adding an annual production capacity of 160,000 tons for braised meat products and by-products.

Three years later, discretionary consumer goods have been affected by external factors, and shifting consumer demand has put significant survival pressure on the braised food industry. The company's funded projects have not been completed and put into operation as scheduled. Among them are Guangdong Ahua and Guangxi Axiu, recently singled out by the Shanghai Stock Exchange.

These two enterprises are wholly-owned subsidiaries of the company, with planned annual production capacities of 65,700 tons and 25,000 tons for braised meat products and by-products, respectively, and total planned investments of 863 million yuan and 444 million yuan. As of June this year, the construction-in-progress balances for the two projects were 221 million yuan and 214 million yuan, with investment progress at 30.18% and 46.10%, respectively. They are expected to reach operational status by October 2025 and December 2024, indicating slow progress.

The slower-than-expected progress of the capacity projects is mainly due to external factors.

Beyond the company's explanation of disruptions during the special three-year period, the broader adjustments in the food and catering industry in recent years and weaker overall demand have had a significant impact.

Not only Juewei Food but also other braised food companies like Zhouheiya and Huangshanghuang (002695.SZ) have indicated in their financial reports a shift from previous emphasis on scale expansion to improving quality and efficiency, optimizing store structures, and innovating business models to cope with sudden market changes.

Juewei Food stated that its existing production capacity still has surplus, and adopting a cautious approach to funded projects aligns with its actual operational strategy.

Duck Necks Are Harder to Sell

How long has it been since you last gnawed on a duck neck?

A few years ago, the trend of casual braised food was at its peak, with brands emerging endlessly. Traditional braised food companies seized the opportunity and expanded aggressively. During the industry's heyday, Zhouheiya (01458.HK) and Juewei Food successively went public.

However, consumer trends are not static. In recent years, the braised food market has shifted from casual snacking to meal accompaniment, posing severe challenges to related enterprises.

Affected by declining sales, Juewei Food's revenue in the first half of 2024 was 3.34 billion yuan, down 9.73% year-on-year. Meanwhile, net profit attributable to the parent company was 296 million yuan, up 22.20% year-on-year.

In the past, as the number of stores expanded, Juewei Food's scale continued to grow. From 2021 to 2023, the company added 1,315, 1,362, and 874 net new stores, respectively, driving year-on-year revenue growth. However, net profits attributable to the parent company were 981 million yuan, 235 million yuan, and 344 million yuan, respectively, showing an overall downward trend.

This year, the situation took a sharp turn for the worse. As of the end of the first half, the company had 14,969 stores in mainland China (excluding Hong Kong, Macau, Taiwan, and overseas markets), a decrease of 1,193 stores compared to the same period last year.

The braised food sales business, the company's mainstay, is gradually hitting a ceiling. From 2021 to 2023, its revenue scale was 5.743 billion yuan, 5.650 billion yuan, and 6.050 billion yuan, with year-on-year growth rates of 17.27%, -1.62%, and 7.09%, respectively. Over the same period, gross margins fell from 33.77% to 27.86%. In the first half of 2024, braised food sales revenue was 2.809 billion yuan, down 9.42% year-on-year.

In late September, news that Juewei had started selling milk tea trended on social media, with outsiders viewing it as an attempt to find a second growth curve.

Milk tea paired with braised food might double the happiness, but for the "King of Duck Necks" to sell milk tea, it’s not as simple as just putting it on the shelves.