This is an English adaptation of a FoodBud historical article originally published on September 12, 2021.
Prepared dishes had become one of China’s hottest food categories by 2021, drawing capital and new entrants into a market that was moving from restaurants into household dining.
On September 8, 2021, Guolian Aquatic disclosed a private placement plan for A-shares. The company planned to issue up to 275,867,644 shares to no more than 35 specific investors, representing no more than 30% of its pre-issue share capital, and raise up to RMB 1 billion.
For Guolian Aquatic, the raise was mainly intended to expand prepared-dish products. In the company’s definition, prepared dishes use agricultural, livestock, poultry, or aquatic products as raw materials, add auxiliary ingredients, undergo pre-processing such as cutting, mixing, marinating, tumbling, forming, and seasoning, and are then rapidly frozen into finished or semi-finished dishes.
Guolian Aquatic’s products were grouped into three main categories:
The planned private placement proceeds were allocated mainly to three uses:
The central kitchen project involved the renovation of Guomei Aquatic’s central kitchen, with total planned investment of RMB 252.9945 million and a 24-month construction period. It planned to renovate 19,000 square meters of prepared-dish workshops and 5,000 square meters of central kitchen workshops.
After reaching full production, the project was expected to add annual capacity of 4,000 tons of shrimp dumplings, 10,000 tons of grilled fish, 4,000 tons of shrimp paste, 1,000 tons of pickled-cabbage fish, 2,500 tons of rice/noodle marine foods, and 2,500 tons of fried aquatic products, for a total of 24,000 tons. Based on Guolian Aquatic’s calculations, the project would generate average annual sales revenue of RMB 765.6 million, average annual net profit of RMB 62.4775 million, an after-tax internal rate of return of 29.38%, and an after-tax dynamic payback period, including construction, of about 5.6 years.
The aquatic-product deep-processing expansion project had planned total investment of RMB 601.7151 million and a 12-month construction period. It planned to build 15,000 square meters of production facilities, 7,200 square meters of automated vertical cold storage, 12,000 square meters of dormitories, 4,000 square meters of office buildings, and supporting facilities.
Focused on crawfish and fish deep-processing products, the project was expected to add 15,300 tons of annual crawfish capacity and 29,700 tons of annual fish deep-processing capacity, for planned annual capacity of 45,000 tons. Guolian Aquatic estimated average annual sales revenue of RMB 1.8012775 billion, average annual net profit of RMB 114.5798 million, an average annual internal rate of return of about 26.34%, and an after-tax dynamic payback period, including construction, of about 5.73 years.
Taken together, the two projects were expected to add roughly RMB 2.567 billion in average annual sales revenue and about RMB 177 million in average annual net profit.
Even though Guolian Aquatic said its product mix was gradually shifting toward restaurant ingredients and marine foods led by prepared dishes, prepared dishes were still a relatively small share of revenue. In 2020, the company recorded revenue of RMB 4.494 billion, while prepared-dish revenue was about RMB 730 million, or 16.24% of total revenue.
In the first half of 2021, the company’s main business revenue, aquatic food processing, was RMB 1.902 billion. Mainland China, Hong Kong, Macau, and Taiwan contributed RMB 1.050 billion, or 55%, while international business contributed RMB 838 million, or 45%. The company described this as a healthier balance that reduced historical overconcentration in international markets, especially the United States.
Within mainland China, distribution partners generated RMB 333 million, foodservice customers RMB 233 million, supermarkets RMB 228 million, and e-commerce RMB 94 million. B2B distribution and foodservice together accounted for 63%, while consumer-facing supermarket and e-commerce channels accounted for 37%.
On the B2B side, Guolian Aquatic said its major foodservice customers and distribution centers were focused on foodservice distributors, including group catering and rural banquet markets. On July 30, 2021, the company signed cooperation agreements with group-catering companies including Qianxihe Group and said business cooperation was progressing. Qianxihe Group served logistics and catering needs for three-quarters of China’s military academies, three-fifths of armed-police academies, and more than 2,700 large enterprises, local schools, government agencies, and hospitals, providing three meals a day for more than 6 million people.
On September 9, 2021, Guolian Aquatic announced a strategic cooperation agreement with Nichirei Foods. The companies said they would cooperate in seafood raw-material supply for frozen convenience foods, category and product development, sales-channel sharing, and brand building.
Nichirei Foods was founded in 1942. Since launching Japan’s first prepared dish, frozen ready-to-heat chawanmushi, in 1954, it had accumulated nearly 70 years of experience in the prepared-dish industry. In 2019, its revenue was JPY 584.858 billion, with prepared dishes and frozen seasoned foods accounting for about 35%.
For Guolian Aquatic, Nichirei Foods offered channel and operating experience. Nichirei Foods’ business mix was more than 60% B2B and more than 30% consumer-facing, with experience in both B2B and especially C-end channel development.
Under the strategic cooperation agreement, Nichirei Foods would introduce Guolian Aquatic’s prepared-dish products into its convenience-store channels, including 7-Eleven. These stores directly reach consumers and are especially focused on younger shoppers, whose preferences may reflect current mainstream consumption trends.
Based on Guolian Aquatic’s investor-relations responses, the company believed B2B typically accounted for more than 60% of the prepared-dish market, and Guolian Aquatic was currently prioritizing the B2B side. The Nichirei Foods partnership appeared to be aimed largely at channel resources.
In Guolian Aquatic’s financial reports, “Guangzhou Guolian” and “Guangzhou E-Commerce” both referred to Guangzhou Guolian Aquatic E-Commerce Co., abbreviated as Guolian E-Commerce.
In the first half of 2021, Guolian E-Commerce recorded revenue of RMB 88.52 million and a net loss of RMB 4.51 million. In 2020, revenue was RMB 150 million and the net loss was RMB 9.51 million. In 2019, revenue was RMB 377 million, but the net loss was RMB 38.44 million. Revenue in 2020 fell 60% from 2019.
Guolian Aquatic did not disclose more detailed e-commerce data in its 2020 annual report, but it did in 2019. According to the 2019 annual report, the company deepened cooperation with major e-commerce and new retail platforms including Freshippo, JD Fresh, and MissFresh. Sales on the three platforms reached RMB 126 million, RMB 93.257 million, and RMB 59.255 million, respectively, up 106%, 148%, and 123% year on year.
Although Freshippo, JD, and MissFresh could be classified as e-commerce channels, they functioned more like supermarket channels, with distribution and shelf-placement capability as the key. In 2019, the three accounted for more than 73% of Guolian E-Commerce revenue.
Guolian Aquatic had long operated in aquaculture and seafood processing, selling through distribution, foodservice, and supermarket channels. Moving directly into the consumer market and building a consumer-recognized brand would be a long process. The more strategic question was whether the company had the capabilities to build a C-end brand, and how much it was willing to spend to do so.
In May 2018, Yonghui Superstores invested RMB 538 million in Guolian Aquatic, acquiring 10% of the company and becoming its second-largest shareholder. Since the end of 2020, Yonghui had repeatedly reduced its Guolian Aquatic holdings.
On December 9, 2020, Yonghui sold 18.39 million shares through block trades, representing 2% of Guolian Aquatic’s total share capital. From April 13 to May 31, 2021, it sold a further 29.2786 million shares, representing 3.18%. At the time of the article, Yonghui held 45.9779 million shares and was the third-largest shareholder, with a 5% stake.
Yonghui had been an important sales channel for Guolian Aquatic’s supermarket business. In 2021, Guolian Aquatic’s supermarket channel generated RMB 228 million, with Yonghui contributing RMB 100 million, or 44.7%.
According to Guolian Aquatic’s financial reports, the supermarket channel generated about RMB 395 million in 2020, of which Yonghui contributed RMB 150 million, or 38%. In 2019, the supermarket channel generated RMB 236 million, with Yonghui contributing RMB 143 million, or 60.6%.
Yonghui’s own financial reports showed that it purchased RMB 50.70 million, RMB 130 million, RMB 140 million, and RMB 94.64 million of products from Guolian Aquatic in 2018, 2019, 2020, and the first half of 2021, respectively.
After Yonghui’s share reductions, Guolian Aquatic’s controlling shareholder, Xinyu Guotong Investment Management Co., transferred 45.978 million shares, or 5% of the company, to individual investor Zhang Xinhua by agreement on November 25, 2020. The transfer price was RMB 3.90 per share, for a total of RMB 179 million.
Zhang Xinhua held 20% of Henan Dazhang Industrial Co., also known as Dazhang Group. Dazhang Group was a well-known retail chain with more than 60 commercial outlets nationwide, total commercial area of 500,000 square meters, and formats including convenience stores, small and midsized supermarkets, large hypermarkets, apparel specialty stores, and gold and jewelry specialty stores, under brands including “Dazhang” and “Shengdamei.”
In the first half of 2021, Dazhang Group generated only RMB 15.83 million in product sales revenue for Guolian Aquatic, far below Yonghui’s contribution.
In August 2021, Zhang Xinhua also reduced his stake. On the evening of August 26, Guolian Aquatic announced that Zhang sold about 18.391 million shares on August 25, representing 2% of the company. In response to investor questions, Guolian Aquatic said the shareholder reduced holdings due to his own funding needs and that it was a market transaction.
One additional financial detail: Guolian Aquatic’s 2020 annual report disclosed RMB 56.41 million in bad-debt provisions for accounts receivable.
Note: financing, shareholding, project-return, and forward-capacity figures are historical and reflect disclosures cited in the 2021 article.