The gross profit margin of Chinese feed companies and their competitive strategies

Generally speaking, the business model and competitive strategy of an enterprise are formulated based on the life cycle stage of the industry and the competitive landscape.

iNf China Feed Industry Information Network-Based on feed, serving animal husbandry

According to its commercial use, we can divide the feed into self-consumed feed for the company's own downstream breeding (such as all feeds produced by Wen's and Muyuan, and some feeds for its own pig and poultry farming produced by New Hope), and for external use Sell ​​profitable export materials.

1.

iNf China Feed Industry Information Network-Based on feed, serving animal husbandry

It can be seen that the current gross profit margin of full-price poultry feed is very low, but the overall market is very large.

Then why is there no feed variety with large market scale and high gross profit? This is mainly determined by the life cycle stage of the feed industry and the full competition in the market.

It is true that the feed industry is already a red sea of ​​fierce competition, and it is difficult to have categories with high gross profit margins and large market scales.

2.

iNf China Feed Industry Information Network-Based on feed, serving animal husbandry

It can be seen that in terms of feed sales, New Hope and Haida are the first echelon, and far exceed the second echelon Tongwei, Tang Renshen, Dabeinong, Zhengbang, Hefeng, etc.

At the same time, we also see that sales and gross profit margins are not positively correlated.

The full price of livestock and poultry feed, especially the full price of poultry, has high homogeneity and relatively low technical threshold.

The business model of aquatic feed is very different from the full price of poultry feed.

Here, I will focus on Dabeinong, which has the highest gross profit margin among feed companies with annual sales of tens of billions.

Dabeinong has a large-scale pig farm on-site service team, and in order to be better close to customers, the company has increased the proportion of direct sales in recent years.

Among other feed companies, Tiankang also mainly uses pig feed, and the factory is close to the raw material producing area.

Comparing the 2015 data of the above major listed companies (Figure 4), it can be seen that as the entire industry is in a period of recession and the concentration of the industry continues to increase, the median sales of this sector has increased from 4.
99 billion yuan in 2015 to 6.
34 billion yuan, and the median gross profit margin dropped from 13.
4% in 2015 to 12.
6%.
iNf China Feed Industry Information Network-Based on feed, serving animal husbandry

　　In summary, the gross profit margin of feed business is more determined by the target market, competitive strategy and product mix of feed companies.
It should be noted that the level of gross profit margin does not necessarily reflect the level of its net profit margin, because different companies have different levels of sales expenses, management expenses, and financial expenses.
We cannot equate the gross profit margin with the core indicator of the company’s operating profitability—return on equity (ROE).
For example, the gross profit margin of Haida Group’s feed business is below the median in the feed sector of A-share listed companies, and its ROE has long been at the top of this sector.
iNf China Feed Industry Information Network-Based on feed, serving animal husbandry

　　Due to the length of the article, we have not compared the gross profit margins of the same feed varieties of different feed companies.
Interested readers can compare them by themselves and believe that they can gain more insights and thoughts.
iNf China Feed Industry Information Network-Based on feed, serving animal husbandry

　　Finally, we calculated the sales, gross profit margin, feed revenue/total revenue of the above 14 companies in 2015-2019, and compared the data of each company in 2019 with 2015 (2015=100) (Figure 5) ).
It is also worth noting that, with the exception of China Animal Husbandry and Haida, the proportion of feed income of other listed companies has declined to varying degrees.
Tianbang, Tongwei, and Zhengbang have fallen by 63%, 53%, and 40% respectively.
%.
This shows that the listed companies realized the bottleneck of the feed business a few years ago and are actively transforming.
For example, Tongwei Co.
, Ltd.
expands to the photovoltaic industry, and more companies are extending to the downstream breeding end of feed, such as Zhengbang, Tianbang, New hope and so on.
iNf China Feed Industry Information Network-Based on feed, serving animal husbandry

　　Author: Every autumn, farmers and industry veteran, Animal Science and Master of Business Administration dualiNf China Feed Industry Information Network-Based on feed, serving animal husbandry