This is an English adaptation of a FoodBud historical article originally published on September 22, 2021.
For chain operators, Sichuan Dingdianer is a useful case study in how a supplier with a clear category position can still fail public-market scrutiny when its sales structure, related-party risks, inventory practices, and food-safety controls raise questions.
In July 2021, among companies from the same IPO application cohort, Qianwei Central Kitchen had already listed successfully, while Asia Fishery Port was still waiting. Sichuan Dingdianer, a Sichuan-style seasoning company, was less fortunate: the China Securities Regulatory Commission did not approve its application.
On July 8, 2021, the CSRC’s 18th Issuance Examination Committee held its 71st meeting of the year. The review result showed that Dingdianer’s initial public offering was rejected.
Dingdianer’s business centered on R&D, production, and sales of Sichuan-style specialty seasonings. Its product system was led by Sichuan-style compound seasonings and Sichuan-style specialty prickly ash oil.
Dingdianer had planned to list on the Shenzhen Stock Exchange main board. It proposed issuing 30.335 million RMB ordinary shares, equal to 25% of total share capital after issuance.
The company planned to raise RMB 430 million, mainly for two projects:
From 2017 to the first half of 2020, Dingdianer reported revenue of:
Net profit attributable to shareholders was:
According to the prospectus, Dingdianer had no state-owned shares and no foreign-owned shares. It had 14 shareholders and no strategic investors.
Ren Kang directly held 15.51% of the company, Zhang Jing directly held 9.89%, and Ren He directly held 4.56%. Ren Kang and Zhang Jing are husband and wife; Ren He is their daughter.
The three also indirectly held and controlled 45.63% through Sichuan Guiyi. Ren Kang controlled another 4.01% through Weidaochang Consulting. Together, the three directly and indirectly controlled 79.60% of Dingdianer and were the company’s actual controllers.
Other shareholders included Zhang Yi, Zhang Jing’s elder brother; Ren Yunchang, Ren Kang’s father; and Zhang Zhanxian, Zhang Jing’s father.
This level of control created the classic risk of a dominant shareholder. The company’s controlling shareholders and actual controllers could potentially influence personnel appointments, business decisions, and other matters through voting rights, which could serve personal interests and harm the company or minority shareholders.
The CSRC challenged the company across three broad areas, issuing 15 questions in total.
The first area was the distributor model. More than 93% of Dingdianer’s revenue came from distributors. Regulators asked the company to explain the relationship between distributors and the company, whether distributor sales were consistent with the distributors’ own business scale, and the rationale for establishing Zhejiang Dingdianer, where minority shareholders held a relatively large stake.
Regulators also asked whether Dingdianer had pushed inventory onto distributors or inflated revenue. They questioned the main reasons why 2020 net profit attributable to shareholders after deducting non-recurring items fell from 2019, whether there was a risk of continued decline, and whether the company’s ability to sustain profitability had materially deteriorated.
During the reporting period, Dingdianer relied mainly on distribution sales. From 2017 to January-June 2020, distributor sales accounted for 95.60%, 97.28%, 94.46%, and 91.06% of main business revenue, respectively. The company itself warned investors in the prospectus about the risk of a single sales model.
The second area was inventory. Dingdianer’s inventory mainly consisted of self-made semi-finished products. Ending balances fluctuated significantly during the reporting period, and inventory turnover was lower than that of comparable companies in the same industry.
Regulators asked whether the ending quantity of self-made semi-finished products was commercially reasonable compared with annual usage, why the production mix of different semi-finished products fluctuated significantly during the reporting period, why inventory turnover was materially lower than comparable peers, and whether it was reasonable that different semi-finished products could substitute for one another in the same product formula while changing substantially over time.
The third area was food production compliance. Because Dingdianer was a food manufacturer, regulators asked whether the company and its subsidiaries had obtained the approvals or licenses required for food production and operations.
They also asked whether the issuer had sound internal food-safety controls across production, distribution, and other links, and whether those controls were effectively implemented. Regulators further requested disclosure on whether the company had faced administrative penalties, media coverage, consumer complaints, or reports related to product quality problems or food-safety incidents, whether any such issues constituted major legal or regulatory violations, and whether the relevant information had been fully disclosed.
Note: IPO, fundraising, shareholding, and financial figures above are historical figures from the 2021 IPO review context.