This is an English adaptation of a FoodBud historical article originally published on January 24, 2022.
Ziyan Foods, the company behind Ziyan Baiwei Chicken, updated its IPO prospectus in early 2022. In the filing, the company positioned itself in “table-side braised foods” rather than the “snack braised foods” category occupied by peers such as Juewei and Zhou Hei Ya. Its closest direct competitor was described as Liaoji, a brand acquired by Juewei.
Ziyan Foods is a scaled Chinese producer of braised foods. Its core products include Fuqi Feipian, Baiwei Chicken and Tengjiao Chicken, made from chicken, duck, beef, pork, vegetables, seafood and soy products. The primary use case is meal accompaniment, with snacking as a secondary occasion. Its main brand is “Ziyan.”
As of the end of June 2021, Ziyan had more than 4,700 terminal stores across more than 140 cities in over 20 provinces, autonomous regions and municipalities. According to Narrow Door data cited in the article, Ziyan Baiwei Chicken’s store count had expanded to 5,483 stores across 31 provinces and 175 cities.
Since 2018, Ziyan’s production capacity had been running at full utilization. To support growth, address capacity constraints, raise mechanization and automation levels, and reduce the cost of decentralized management, the company consolidated regional production sites and shifted capacity from older, smaller factories to nearby larger plants. By the filing period, its national production layout was anchored by five factories in Ningguo, Wuhan, Lianyungang, Shandong and Chongqing.
Ziyan planned to raise RMB 800 million through its listing, mainly to expand capacity, strengthen supply-chain warehousing and R&D, and invest in digitalization and brand building.
In the first half of 2021, Ziyan’s main business revenue was RMB 1.39 billion. Fresh products contributed RMB 1.25 billion, or 90% of revenue. Within fresh products, Fuqi Feipian generated RMB 420 million, or 30.5%, while whole-poultry products generated RMB 400 million, or 28.5%.
Revenue outside fresh products mainly came from prepackaged products, packaging materials and franchise-related fees, together accounting for nearly 10%.
Ziyan’s sales channels consisted mainly of directly operated stores and dealer channels. Franchise stores were primarily developed through dealers.
According to the prospectus, directly operated stores contributed only 1.2% of revenue in the first half of 2021, while the dealer model contributed 93%.
Ziyan used company-operated stores mainly to build and promote the brand image, test new products and policies, gather consumer feedback, and build store-management experience. For strategic reasons, the company gradually closed directly operated stores in Hefei and Suzhou. As of the end of June 2021, it had 25 directly operated stores in Shanghai and Wuhan.
Store-level performance was similar between direct stores and comparable franchised stores in the same regions. In the first half of 2021, direct stores had an average ticket of RMB 37.39 and sales per square meter of RMB 73,300. Comparable franchised stores had an average ticket of RMB 37.15 and sales per square meter of RMB 73,800.
Ziyan’s model differs from the more familiar franchise structures of major duck-braised-food chains such as Juewei and Zhou Hei Ya. Ziyan authorizes regional agents, which then operate franchise stores themselves or sub-franchise stores.
Under this structure, Ziyan charged dealers RMB 8,000 per store per year as a franchise fee. It also set a cap: dealers could charge terminal franchisees no more than RMB 12,000 per store per year, but Ziyan did not mandate the exact amount or charging method. The spread formed part of the dealer’s profit opportunity.
The prospectus stated that Ziyan charged dealers franchise fees, store management fees and information-system usage fees for franchised stores:
All three fees covered a one-year benefit period and were collected once per year from dealers.
Ziyan recognized dealer franchise-fee income of RMB 16.334 million in 2018, RMB 30.946 million in 2019, RMB 24.756 million in 2020, and RMB 18.458 million in the first half of 2021.
Dealer counts rose from 52 in 2018 to 66 in 2019, 77 in 2020 and 98 in the first half of 2021.
Large dealers, defined as those with transaction scale above RMB 10 million in the period, contributed the majority of dealer revenue. Their count was 11, 11, 11 and 12 across 2018, 2019, 2020 and the first half of 2021, contributing 97.23%, 94.44%, 93.45% and 92.88% of dealer revenue respectively. Smaller dealers below RMB 10 million numbered 41, 55, 66 and 86, contributing 2.77%, 5.56%, 6.55% and 7.12%.
In the first half of 2021, eight dealers each had sales above RMB 100 million, and together they accounted for 85.7% of revenue.
Terminal franchised stores also expanded steadily. Store counts at period-end were 2,849 in 2018, 3,511 in 2019, 4,365 in 2020 and 4,725 in the first half of 2021. New terminal franchise stores added in those periods were 940, 1,053, 1,226 and 633. Exits were 193, 391, 372 and 273. Net additions were 747, 662, 854 and 360. The article notes that exits were mainly due to poor operations, municipal demolition and lease expirations.
Average terminal franchise stores managed per dealer declined from 60 in 2018 to 45 in 2019, 40 in 2020 and 31 in the first half of 2021. Average sales per store were RMB 1.074 million, RMB 1.02 million, RMB 934,000 and RMB 930,000. From 2019 to the first half of 2021, average sales per store fell 5.02%, 8.42% and 0.40% year-on-year. The filing attributed this dilution to new stores in newly developed markets, where brand recognition and influence still had room to grow.
Ziyan’s top five customers were all dealers. They handled sales in core markets including Shanghai, Nantong, Nanjing, Hefei, Jinan and Wuhan. The company said the sales contribution of the top five customers was consistent with its terminal sales mix and market position in East China and Central China.
As of the end of June 2021, Ziyan’s top five dealer customers owned or developed 866, 515, 525, 535 and 333 franchise stores respectively across those core regions, for a total of 2,774 stores. A single dealer could drive sales through multiple franchise stores.
On the supply side, Ziyan’s procurement included raw materials, auxiliary ingredients and seasonings, packaging materials, finished goods, low-value consumables and energy. Its top five suppliers included companies such as Wens and COFCO. In the first half of 2021, purchases from the top five suppliers accounted for 24% of procurement.
Ziyan operated mainly through the chain model of “Ziyan Foods - dealer - terminal franchise store - consumer.” Dealers bought products from Ziyan and resold them to downstream franchise stores, which then sold to consumers.
Under this model, franchise stores settled with consumers in real time, then stores settled with dealers and dealers settled with Ziyan. Because settlement cycles were relatively short, Ziyan’s accounts receivable collections were timely and receivables were small relative to operating revenue.
Accounts receivable consisted of product payments as well as franchise fees, store management fees and information-system usage fees, with product payments making up the majority. Product-related receivables were RMB 30.9655 million in 2018, RMB 24.031 million in 2019, RMB 23.466 million in 2020 and RMB 47.931 million in the first half of 2021. These represented 95.4%, 99.9%, 99.5% and 85.5% of total receivables respectively.
From 2018 to 2020, Ziyan strengthened receivables collection management and included payment timeliness in annual dealer evaluations, which improved receivables turnover.
In the first half of 2021, receivables turnover declined for two main reasons:
Among receivables customers in the first half of 2021, Dingdong Maicai ranked first. Its payment cycle was monthly settlement, with payment 30-60 days after reconciliation and invoicing. Hema ranked third, with regular reconciliation and two settlement dates each month.
Prepayments were mainly advance payments to suppliers. Ziyan’s prepayment book value was RMB 25.8248 million in 2018, RMB 34.808 million in 2019, RMB 35.848 million in 2020 and RMB 63.234 million in the first half of 2021, accounting for 2.2%, 2.0%, 1.8% and 3.3% of total assets at each period-end.
Note: IPO fundraising plans, store counts, financial figures and forward-looking capacity/digitalization plans are historical figures from the 2022 article and prospectus period.