NIE2024 | Summit Dialogue: How to Plan the Supply Chain and Consolidate the Fortress Wall of Catering Brands

Against this backdrop, at the event site of this year's Frost & Sullivan New Consumer and Food & Beverage Industry Investment Summit, a roundtable forum titled "How to Plan the Supply Chain and Consolidate the Fortress Wall of Catering Brands" was held. The roundtable was chaired by Yang Sulan, co-head of the consumer investment group at CICC, and invited Dr. Yang Mingchao, chairman of Kouquan and chairman of Huading Cold Chain, Wang Zhengguo, director of Juewei Food and general manager of Netju Capital, as well as Zheng Bo, vice president of Qicheng Capital, to discuss the theme of "How to Consolidate the Fortress Wall of Catering Brands through Supply Chain Planning and Management for Sustainable Development." The discussion focused on the key elements of supply chain success, the supply chain management methods of overseas catering leaders, and how to build a supply chain that reduces costs/increases efficiency.

Yang Sulan, Co-Head of Investment Banking Consumer Group at CICC

Yang SulanMr. Yang is an experienced veteran in the catering industry, having built a chain of ten thousand stores with his 'pot ring' concept over four years, which is considered a major legend in the industry. The success of 'pot ring' is closely related to its successful supply chain integration. Recently, we also saw that 'pot ring''s parent company, Pot Ring Industrial Group, has made a new move by completing the acquisition of Huading Supply Chain. Today, we are honored to invite Mr. Yang to share his frontline experience with us: What is the secret to 'pot ring' growing from four years of effort to a successful chain of ten thousand stores? What arrangements have been made in terms of supply chain and what role have they played in promoting the success of 'pot ring'? What are the reasons for acquiring Huading? How can we use Huading to take 'pot ring' to the next level?

Chairman of Kouquan Group/Huading Group, Yang Mingchao

Yang MingchaoThe success of Kuaquan is inseparable from the strong support of its back-end supply chain. For example, this year, the company suspended franchise expansion last year and in the first half of this year mainly because it had opened a large number of stores in the past three years and now needs to consolidate a standardized store operation system. Currently, the market is in a volatile phase, and the decline in average transaction prices has led to a reduction in profits. To address these challenges, the company has made structural adjustments, relying on the layout of three major infrastructures—industry, supply chain, and digital—striving to stabilize consumer demand under the current market environment. A typical case is our 99 yuan pork belly free hot pot package launched on the Douyin platform, which sold 5 million sets within three months. Despite the price discount, the company and stores were still able to maintain profitability at this price. This is due to the collaborative efforts of the upstream 13 pork belly factories. This product not only increased store revenue but also promoted an overall recovery in average transaction prices.

Although the company's revenue slightly declined in the first half of this year, our profits and gross profit margin remained stable thanks to our upstream cold chain and digital capabilities, laying a solid foundation for development in the second half of the year and the coming years. These factors fully demonstrate that strong supply chain capabilities and digital infrastructure are key to Potouquan's rapid expansion and success.

Yang SulanWe have noticed that NetEase Group has invested heavily in leading enterprises in the food and catering sectors, including brands with strengths in supply chain management such as Qianwei Yangchu, Enxi Village, Hefu Lao Mian, and Yaomaizi. Juewei Food is also a model of successful integration and complementarity between supply chain and chain operation. I would like to ask you to share from the perspective of an industry investor, what three important characteristics a successful supply chain possesses?

General Manager of NetEase Capital / Director of Juewei Wang Zhengguo

Wang ZhenguoChina has become the world's factory, and we have also had the privilege of investing in and accompanying many super-supply chain brands to success. For example, Qianwei Yangchu is a leading supply chain provider of frozen rice noodles, while Enxi Village is at the forefront of frozen baked goods. These companies are very leading enterprises globally. Based on our limited experience, let us share our humble understanding for your reference:

First,product structureA successful supply chain requires a reasonable product structure: a main portfolio of large-volume items + a matrix of new products that can respond quickly. The supply chains of many successful Chinese enterprises are driven by highly advantageous large-volume items or a centralized SKU matrix. For example, Nongfu Spring's drinking natural water and Shuanghui's King Kong Sausages are both large-volume items that have exceeded one hundred billion yuan in sales for many consecutive years. Qianwei Yangchou's deep-fried dough sticks and egg tarts, as well as Enxi Village's Swiss rolls, are also large-volume items with annual revenues in the hundreds of millions. Such a product structure not only facilitates the formation of user mindsets but also generates large-scale profits at the supply chain level, thereby establishing extremely high competitive barriers over time.

Second,Research and development innovationR&D and innovation capabilities are an important support for a successful supply chain. With increasingly fierce industry competition, product innovation has become the core of competitiveness, and what supports product innovation is the underlying R&D system. Take Qianwei Yangchou as an example; the company introduced Huawei's Integrated Product Development (IPD) system, which reduced the cycle from project initiation to nationwide supply from two months to 10 days, greatly improving market response speed and innovation capabilities. In fact, IPD originated earlier with IBM. In 1992, under intense market competition and severe financial difficulties, IBM introduced the IPD process, which reversed this situation. Even in the food/restaurant industry, to form systematic and sustainable R&D and innovation capabilities, more scientific organization, processes, and methodologies become even more important.

Third,Cost advantageEspecially during economic downturns, cost advantage will become a key element in responding to market competition and changes in the external environment. However, healthy cost competition is based on economies of scale, lean management, innovation-driven approaches, or efficiency improvements, rather than homogenized involution. Therefore, in the face of increasing market emphasis on cost-effectiveness, successful supply chains must also possess strong cost control capabilities. To maintain competitive advantage, companies must continuously optimize costs through methods such as large-scale procurement, refined management, continuous innovation, and efficiency improvements.

Yang SulanQicheng Capital has always placed great emphasis on the differentiated research between overseas consumer markets and the Chinese domestic market. Previously, during a visit to Japan for study, Qicheng Capital learned about the unique supply chain logic of Japan's food companies' 'manufacturing-selling alliance,' and has also conducted in-depth research on the growth paths of leading catering brands such as Yumoto and Sushiya. I would like to invite Mr. Zheng:

1) Share with us, what successful experiences in supply chain management do you think are particularly worth learning from for Chinese local catering enterprises by leading overseas catering companies?

2) From the perspective of investors, what are the two aspects of the catering supply chain that you focus on most when making investments?

Firstly, in Japan's catering and retail industries, there is a high degree of collaboration between upstream suppliers and downstream channel partners, resulting in a very stable zero-sum supply relationship. For example, 7-11 collaborates with its upstream suppliers to jointly develop products. This collaboration not only ensures the channel partners' advantages in quality control and cost management but also enables suppliers to quickly obtain market feedback and further optimize their products.

Secondly, Japanese catering companies excel in vertical integration of the supply chain. Take Salya as an example; high efficiency comes from the continuous optimization of both stores and the supply chain. The standardization and prefabrication of the back-end supply chain further simplify the operational difficulties for stores.

They will deeply engage with the upstream supply chain based on the product needs of downstream restaurants, even customizing raw materials suitable for restaurant use. For example, they have improved the lettuce required for salads; ordinary lettuce has a large core and can only be used to make 2 to 3 salads. Salina has developed a new variety called 'Salina No. 18', which reduces the size of the core, allowing for 5 to 7 salads from a single lettuce leaf. This deep integration with upstream resources effectively enhances the operational efficiency and product quality of restaurants.

For enterprises investing in the catering supply chain, we mainly focus on two aspects:

First is the stability of the supply chain. This includes long-term stability in production capacity and prices, which requires enterprises to have strong control over upstream supply chains and make long-term investments. By implementing order-based production or locking in raw material prices further upstream, enterprises can ensure the stable operation of the supply chain.

Second is the ability to match product development capabilities with differentiated customer needs. It is a very important advantage for enterprises to quickly respond to market demands, innovate products, and customize differentiated products for downstream customers.

Yang SulanThrough the above sharing, I believe that everyone present can understand the importance of the supply chain and its significant role in the development of catering. So, how can we 'plan the supply chain well to build a moat for catering brands'? Finally, I would like to invite each of our three guests to give us two valuable suggestions.

Yang Mingchao:The catering industry is not being disrupted; what is being disrupted is the supply chain.

Wang ZhenguoFirstly, brand and supply chain are two sides of a coin for an enterprise's sustained development; both are essential capabilities that require equal attention. In the early stages of development, the importance of the brand may be more prominent, as the enterprise needs to achieve scale growth through products and brands. At this time, the supply chain can be managed through outsourcing, cooperation, and flexibility. As the enterprise develops and its scale increases, the importance of the supply chain becomes increasingly evident: whether it is safety or profitability, the supply chain is of utmost importance. Especially during the current economic downturn cycle, it has become even more critical to solidly enhance supply chain capabilities. Brand and supply chain should complement each other; enterprises need to strengthen both aspects simultaneously to achieve sustained development.

Secondly, in the current market environment, objectively, brand market expansion faces significant challenges. However, improving profits through refined supply chain management may be a more realistic option. That is to say, while opening up sources of revenue is not easy, streamlining costs by focusing inward and strengthening internal capabilities can yield results faster. Just as Chairman Yang introduced the situation of Potan Group earlier, through supply chain optimization and digitization, stable profit indicators have been achieved. In the current market environment, enterprises should appropriately slow down their expansion pace and focus on intensive cultivation and profit improvement, which may be a more feasible goal for most companies.

Zheng Bo:Firstly, catering enterprises should listen more to the voices of consumers. The current supply chain system is already very mature and can meet most needs, but how to better serve consumers remains a key issue that businesses need to focus on.

Secondly, enterprises should reasonably match their supply chain investments based on their actual circumstances. When the enterprise scale has not reached a certain level, it is not advisable to blindly build their own supply chain or factories. Existing open supply chain resources can be utilized to solve problems. After the enterprise scale expands, more in-depth supply chain layout for leading products can be chosen to improve efficiency and form a stronger competitive advantage.