This is an English adaptation of a FoodBud historical article originally published on February 9, 2022.
In 2021, Qianwei Central Kitchen, a Tier-1 supplier to Yum China, went public. Its core products include youtiao, sesame balls, and egg tart shells. At listing, its market capitalization was RMB 1.9 billion; by the time of the article, it had risen to RMB 4.27 billion. Another long-listed Yum China Tier-1 supplier is Sunner Development, China’s largest white-feather broiler company.
At the end of 2021, another Yum China Tier-1 supplier, Baoli Food, updated its prospectus for a planned listing on the Shanghai Stock Exchange Main Board.
Yum China classifies suppliers as T1, T2, and T3 based on performance. T1 is the top tier; T3 indicates room for improvement. Yum China rewards T1 suppliers, provides improvement consulting to T2 and T3 suppliers, and removes suppliers that fail to meet requirements.
Baoli Food resembles Qianwei Central Kitchen in one important respect: Yum China has been the largest customer for both companies in recent years, contributing roughly 23%-33% of their sales revenue.
Baoli Food supplies food seasonings. Its current product areas include compound seasonings, light-cooking solutions, and beverage and dessert ingredients. Its major customers include KFC, Pizza Hut, McDonald’s, Dicos, Burger King, Domino’s, Sunner Food, Tyson China, Cargill, and CP Foods. The company mainly builds customer relationships through direct sales.
Beyond compound seasonings, Baoli has expanded into light-cooking sauce packs, soup packs, jams, popping boba, crystal balls, tapioca pearls, and other beverage and dessert ingredients. Its R&D and production now cover more than ten subcategories, including batter and coating powder, breadcrumbs, marinades, sprinkle seasonings, sauces, salad dressings, jams, prepared meal packs, canned fruit and vegetables, baking premixes, and ready-to-drink products. It supplies more than 1,000 SKUs to customers each year.
Many foodservice supply-chain companies follow a path similar to Baoli’s: first attach themselves to a large anchor customer, then optimize capabilities around that customer’s needs, build credibility in a niche, and use that reputation to win the second- and third-ranked players in the market.
Baoli’s relationship with Yum China spans nearly 20 years. It began as an indirect supplier, became a direct supplier in 2007, became a T1 supplier in 2013, and in 2014 became one of Yum China’s five major seasoning suppliers. After 2016, the relationship broadened into full cooperation across all Yum China brands, including participation in new-product development and menu design.
Baoli started by supplying coating and batter powder to Yum China. Its products later expanded into marinades, sprinkle seasonings, sauces, salad dressings, jams, prepared packs, beverage inclusions, and light-cooking food for Yum China’s new retail business.
With the reputation built through Yum China, Baoli entered qualified-supplier systems for other chain-restaurant companies, including McDonald’s, Dicos, Burger King, Domino’s, and Kungfu. It also works with food processors in restaurant supply systems, including Sunner, Tyson China, and CP Foods. Sunner and Tyson are also Yum China suppliers.
B2B supply-chain companies often want a consumer-facing business. For many compound-seasoning companies, once transaction scale reaches several hundred million yuan, breaking through toward RMB 1 billion becomes difficult. Some B2B suppliers have already tested consumer businesses, including Chuanwazi and Yihai International, which is linked to Haidilao.
Chuanwazi upgraded its brand and continued using that brand to develop the consumer market. Yihai International took a different path: it initially relied on Haidilao’s brand awareness and licensing to make consumer products, but that created limits. It has since been reducing reliance on the Haidilao brand and building a new brand, Kuaishou Xiaochu, for consumer expansion.
Baoli also built its own consumer brand, Baoli Kezi, but it had little brand influence and contributed very little revenue. In March 2021, Baoli acquired 75% of Kitchen A-Fen for RMB 42 million, implying a valuation of RMB 56 million. Kitchen A-Fen’s core holding is Kongke Pasta; it holds 70% of Kongke Network.
Kitchen A-Fen’s valuation was not high. Kongke Pasta generated RMB 68.266 million in revenue in 2020, and Kitchen A-Fen’s revenue was likely above that number, yet its valuation was only RMB 56 million, below 1x price-to-sales.
Kitchen A-Fen was consolidated into Baoli’s accounts starting in April 2021. According to Baoli’s prospectus, Kitchen A-Fen generated RMB 220 million in revenue and RMB 2.065 million in net profit in the first half of 2021.
Kongke Pasta’s growth accelerated sharply in the first half of 2021, with revenue of RMB 180 million, compared with RMB 68.266 million for all of 2020.
Baoli’s total revenue in the first half of 2021 was RMB 720 million. Kitchen A-Fen contributed RMB 220 million in the same period. Given typical e-commerce seasonality, including Singles’ Day and year-end sales, the article estimated Kitchen A-Fen’s annual revenue could reach around RMB 500 million, making it a significant part of Baoli’s business.
Baijia Akuan, another convenience-food company, had already submitted a prospectus and reported RMB 600 million in revenue for the first half of 2021. If Baoli wanted its consumer business to grow alongside its B2B business, it would need to place more bets, such as expanding offline retail channels through distributors.
However, Baoli’s planned RMB 460 million fundraising was mainly intended to supplement working capital and expand capacity for the B2B business.
According to Baoli’s prospectus, compound seasonings contributed more than 70% of main-business revenue from 2018 to 2020. In the first half of 2021, the mix shifted: light-cooking solutions rose to 29.8% of revenue, while compound seasonings fell to 57.7%.
Geographically, sales remained concentrated in East China, mainly because major customers are located there.
Net profit attributable to the parent company was RMB 92.393 million in 2018, RMB 81.498 million in 2019, RMB 130 million in 2020, and RMB 96.492 million in the first half of 2021.
Baoli’s business is divided into direct sales and non-direct sales. Direct sales accounted for more than 85% of revenue.
Under the direct-sales model, Baoli’s customers are mainly domestic and international restaurant chains and food-industry companies such as Yum China, McDonald’s, and Dicos. Kitchen A-Fen and its subsidiary Kongke Network are mainly e-commerce businesses. They sell directly to consumers through self-operated stores on third-party platforms including Tmall, Taobao, JD.com, Douyin, and Xiaohongshu. Kitchen A-Fen also works directly with a small number of offline supermarkets, but the amount and share are small.
In 2018, 2019, 2020, and the first half of 2021, the number of customers with sales of RMB 10 million or RMB 5 million reached 9, 10, 15, and 20, respectively. Revenue from these large customers exceeded 60% of main-business revenue in each period, indicating high concentration.
Customers with sales between RMB 1 million and RMB 10 million, or between RMB 500,000 and RMB 5 million, numbered 59, 77, 75, and 102 in those periods. Their combined share of main-business revenue was 21.96%, 26.48%, 22.84%, and 19.90%.
Customers with revenue below RMB 1 million were numerous: 1,050, 1,048, 1,093, and 981 in the same periods. They contributed no more than 15% of main-business revenue in any period. This reflects the lower concentration of the downstream restaurant industry and the large number of small and midsize operators.
Baoli’s business is mainly custom-product sales. From 2018 to 2020, custom products accounted for more than 80% of sales revenue.
Among Baoli’s top five customers, Yum China’s custom-product share exceeded 96%, Dicos exceeded 90%, Domino’s Pizza via PIZZAVEST exceeded 98%, and McDonald’s China, through Lexin, was 100% custom products.
Baoli’s top five customers mainly included Yum China, Jiaxing Wuwen Xidong, Sunner Development, Dicos via Dingqiao, and Domino’s Pizza via PIZZAVEST. Yum China remained the largest customer throughout.
Jiaxing Wuwen Xidong rose to become Baoli’s second-largest customer in the first half of 2021. This was mainly because Kitchen A-Fen entrusted Jiaxing Wuwen Xidong to purchase light-cooking sauce packs from Baoli, assemble complete product sets, and arrange warehousing and delivery based on Kitchen A-Fen’s orders. Jiaxing Wuwen Xidong has two subsidiaries: one supplies Kongke, and another supplies JInmiantang.
Baoli Food, Jiaxing Wuwen Xidong, Dalian Hangshi, and Kitchen A-Fen cooperate by using their respective strengths. Baoli develops and produces pasta sauces and other seasonings based on its compound-seasoning and light-cooking R&D experience. Kitchen A-Fen’s team builds the Kongke Pasta brand through online and offline channels. Assembly, warehousing, and delivery, which are simpler, lower value-added, space-intensive, and labor-intensive, are outsourced to Jiaxing Wuwen Xidong and Dalian Hangshi.
In 2018, 2019, 2020, and January-June 2021, sales to the top five compound-seasoning customers were RMB 260 million, RMB 280 million, RMB 290 million, and RMB 200 million. These represented 50.68%, 48.45%, 44.42%, and 49.18% of compound-seasoning revenue.
In 2020, Cargill increased purchases of Baoli’s salted egg yolk seasoning sauce because of growth in related end-market chain-restaurant products, entering the top five compound-seasoning customers for that year.
In 2018, 2019, 2020, and January-June 2021, sales to the top five light-cooking solution customers were RMB 21.452 million, RMB 36.493 million, RMB 130 million, and RMB 96.009 million. Their share of light-cooking solution revenue was 91.32%, 85.51%, 93.31%, and 44.85%.
From 2018 to 2020, the top five customer share in this segment stayed above 85%. In January-June 2021, it fell to 44.67%, mainly because Baoli’s March 2021 acquisition of Kitchen A-Fen added a consumer market to the light-cooking solutions segment, significantly increasing revenue from individual consumers.
As noted above, Jiaxing Wuwen Xidong mainly purchased relevant products from Baoli, assembled them, and supplied Kongke Pasta and Jinmiantang. In the first half of 2021, Jiangsu Fanshu became the fourth-largest light-cooking solution customer and JD.com self-operated became the fifth-largest, mainly through online sales of Kongke Pasta products. Jiangsu Fanshu also established a joint venture with Mr. Soup.
In 2018, 2019, 2020, and January-June 2021, sales to the top five beverage and dessert ingredient customers were RMB 160 million, RMB 94.696 million, RMB 92.048 million, and RMB 74.115 million. These accounted for 90.4%, 81%, 83%, and 82.2% of segment revenue.
Lexin is a company controlled by McDonald’s. Baoli’s sales to Lexin mainly changed with McDonald’s new-product promotion cycles. In 2018, McDonald’s focused on new fruit tea products, and Baoli supplied grapefruit slices, mango jam, passionfruit-mango jam, and other fruit tea raw materials. Baoli’s sales to Lexin Trading were high that year, reaching RMB 61.23 million.
In 2019, after the fruit tea promotion period ended, McDonald’s beverage lineup changed and fruit tea sales declined, reducing Lexin’s purchases of fruit tea raw materials compared with 2018. In 2020, Baoli and Lexin began a new phased beverage project, which drove rapid growth in beverage inclusion sales compared with 2019. In January-June 2021, after that phased project ended, Baoli’s beverage and dessert ingredient sales to Lexin declined.
Yum China was consistently the largest customer for beverage and dessert ingredients, but its sales amount also fluctuated like McDonald’s. Drivers included consumer trends, Yum China sales strategy, costs, year-to-year changes in long-running products, and different limited-time product cycles.
Baoli’s 2018 sales to Yum China were high, then declined in later years mainly because sales of corn sauce fell. As KFC launched and promoted other new hot beverages, corn juice sales declined, reducing Yum China’s purchases of corn sauce raw materials.
In the first half of 2021, Baoli’s beverage and dessert ingredient revenue from Yum China grew quickly because more new products were launched and well received, including cherry jam for KFC cherry egg tarts, and flavored rice wine and crystal ball inclusions for KFC Kowloon Golden Jade Milk Tea.
Baoli uses many raw materials, including fruit and vegetable ingredients, flavoring and seasoning materials, spices, flour, starch and rice flour, liquid flavors and colors, fresh meat, and specialized inner packaging.
Its top five suppliers were not highly concentrated. In the first half of 2021 and in 2020, the top five suppliers accounted for about 21% of purchase value.
According to Baoli’s prospectus, cash and cash equivalents at the end of the first half of 2021 were only RMB 48.37 million.
Accounts receivable remained high and continued to rise. As of December 31, 2018, December 31, 2019, December 31, 2020, and June 30, 2021, Baoli’s accounts receivable book balances were RMB 130 million, RMB 170 million, RMB 200 million, and RMB 220 million. Bad-debt provisions were RMB 6.812 million, RMB 9.122 million, RMB 10.006 million, and RMB 11.334 million. Book values were RMB 130 million, RMB 160 million, RMB 190 million, and RMB 210 million.
In the first half of 2021, the top five receivables customers accounted for 48% of total receivables. Yum China was the largest, accounting for 19%.
By receivables turnover, Baoli Food and Richen were both below the industry average, making cash flow more likely to tighten. Of Baoli’s planned RMB 460 million IPO proceeds, RMB 170 million was intended to supplement working capital and support business development.
In 2020, Hosen Capital, part of the New Hope system, invested in Baoli Food at a valuation of RMB 866 million. Hosen Capital contributed RMB 96.035 million and held 11.09% of Baoli.
Baoli disclosed its prospectus in July 2021. After half a year without receiving CSRC inquiry questions, it updated the prospectus again at year-end. At the article’s publication date, the listing timing still required further waiting.
Note: IPO, valuation, fundraising, and forward-looking listing figures are historical and reflect the source article’s February 9, 2022 context.