1, compound seasoning industry overview.

Definition and Industry Segmentation of 1.1 Compound Seasoning

The compound seasoning refers to a single seasoning (base seasoning such as soy sauce, vinegar, and salt), and refers to a seasoning prepared by special processing of two or more seasonings. With the development of economy, the optimization of residents' living standards and the improvement of research and development level, compound seasonings have gradually developed into a very important part of condiments. According to the classification of compound seasonings (GB/T20903-2007), according to its form, compound seasonings can usually be divided into three types: liquid compound seasonings, solid compound seasonings and compound sauces. According to the category of compound seasoning, it can usually be divided into chicken essence, hot pot seasoning, Chinese compound seasoning, western compound seasoning and others. According to the characteristics of the product, the compound seasoning can be divided into customized compound seasoning and standardized compound seasoning.

1.2 compound seasoning application scenarios are diverse, hot pot seasoning accounted for about 20%

From the overall structure of compound seasoning, chicken essence is still the largest component of compound seasoning in China, followed by hot pot seasoning. Compared with the Japanese condiment consumption structure, China's compound condiment category still has a large expansion space. According to our grassroots research, there are more than 20 kinds of product series of a compound seasoning enterprise in Sichuan and Chongqing, including boiled series, barbecue series, string series, halogen series, etc. in addition to hot pot base products.

2. Comprehensive benchmarking of compound seasonings and basic seasonings

Compared with the development of more mature basic condiments, the compound condiment industry is still in the early stages of development. We try to compare compound seasonings with basic seasonings from multiple dimensions such as the current state of the industry, the competitive landscape and the industrial chain, so as to look at the compound seasoning industry in all directions. On the whole: 1) the current situation of industry development: we believe that compound seasonings are still in the stage of accelerating expansion and penetration, while the profitability of the industry has not yet entered a steady upward channel and is still a volume increasing market; 2) Industry competition pattern: compound seasonings The industry is mixed with good and evil people, with many participants. At present, there is no leader and the competition pattern is scattered. 3) Industrial chain: In terms of upstream raw materials procurement, there are many kinds of compound seasonings, and the cost of packaging materials is relatively low; production barriers are relatively low, more emphasis on raw materials and formulations; downstream channels, the compound seasoning industry is more dependent on family channels.

2.1 development status: compound seasoning industry rapid growth, penetration rate is still at a low level

From the perspective of the current situation of the industry, we believe that China's compound seasoning is still in the early introduction period, and the main arguments are based on the following aspects: 1) China's compound seasoning industry is the only subdivision track in the condiment plate that maintains double-digit high growth; 2) the penetration rate of compound seasoning in China is still low compared with basic condiments, and there is a big gap from developed countries. 3) the profitability of the industry is relatively stable, did not show a stable upward trend, the industry is still dominated by volume growth.

On the one hand, unlike the single-digit growth of soy sauce, yeast and other industries, the compound seasoning industry maintained a double-digit high growth. We compare the growth rate of each segment of the condiment industry, and we can see that as the industry continues to mature, the growth rate of soy sauce and yeast industries has fallen from double digits to single-digit growth, while in contrast, compound condiments have become the only double-digit high-growth sub-section of the condiment track.

The compound seasoning industry maintained a double-digit increase. According to Frost & Sullivan, the size of China's compound seasoning market was 109.1 billion yuan in 2018, with a compound growth rate of about 14.39 percent from 2013-2018. In terms of sub-categories, Chinese compound seasonings maintained rapid growth, with a compound growth rate of about 15.38 percent in 2013-2018. At the same time, hot pot base material 2013-2018 market size compound growth rate of about 15.36, Sichuan cuisine seasoning due to the wide range of category expansion boundaries, 2011-2018 market size compound growth rate of nearly 20%. At the same time, according to Frost and Sullivan's forecast, Chinese compound seasonings, hot pot seasonings, Western-style compound seasonings, chicken essence and other categories will grow at a compound growth rate of 16.5, 13.8, 14.0, 14.1 and 12.5 percent, respectively, in 2016-2021.

On the other hand, compound seasoning penetration is still at a low level. According to Frost & Sullivan, the penetration rate of compound seasonings in China is increasing rapidly in recent years (from 18.20 per cent in 2015 to 25.97 per cent in 2018), but there is still a big gap compared to the level of over 50 per cent in countries such as Japan, South Korea and the United States, with the penetration rate of compound seasonings in the United States reaching 73 per cent in 2018. From the perspective of per capita expenditure on compound seasonings, China's per capita expenditure on compound seasonings in 2016 was about $9, which has a large room for improvement compared to the United States ($85.5) and Japan ($88.7). At the same time, according to the data of the Prospective Industry Research Institute, the penetration rate of soy sauce in China is as high as 99%.

At the same time, from the perspective of profitability, the profitability of the compound condiment industry has not yet shown a stable upward trend. From the perspective of the basic seasoning industry, the gross profit margin of the leading Haitian and Hengshun is about 45%, while the gross profit margin of Fuling pickled mustard tuber, a condiment, is higher, nearly 60%. As the industry competition pattern tends to be stable, the industry shows the phenomenon of leading price increases and other enterprises following price increases, the profit margin level of the industry leader shows a steady and slightly rising trend. On the other hand, in the compound seasoning industry, the C- end represents the gross profit margin of Yihai and Tianwei of 37%-38%, while the B- end represents the relatively high gross profit margin of Richen shares, at about 50%. Different from the sauce and vinegar industry, which has a relatively stable competition pattern, the compound seasoning industry has not shown a steady upward trend at present. To a certain extent, it reflects that the industry has not yet entered the stage of reshuffle and integration, and the participants are in the growth stage of horse racing enclosure.

We split the product gross margins of each compound seasoning company to remove the disturbance of overall gross margin fluctuations due to changes in product mix. It can be found that the gross margin of each category of Tianwei Food, Yihai International and Sunchen shares are in a relatively stable range. At the same time, according to grassroots research feedback, in the C- end supermarket market in Chongqing, the competition among brands is fierce, and the situation of price competition and terminal promotion is widespread, which further confirms that the industry is in the development stage of horse racing enclosure.

2.2 competition pattern: compound seasoning industry competition pattern is extremely fragmented, there is no leader yet.

The competitive landscape of the compound seasoning industry is extremely fragmented, and no leader has yet appeared. There are many sub-tracks for compound seasonings, of which the hot pot base industry is the most mature and relatively concentrated, but the competitive landscape is still more fragmented compared to other sub-tracks in the food and beverage industry. It is mainly reflected in two aspects: on the one hand, the CR3 of the compound seasoning industry is relatively low, and the CR3 of the yeast industry is about 80%, of which the leading Angel yeast market accounts for 55%, while the CR3 of the pickled mustard tuber industry is about 53%, of which the leading Fuling pickled mustard tuber market accounts for about 30%, while according to 2015 data, the CR3 of hot pot seasoning and hot pot seasoning in China are 24% and 21% respectively; On the other hand, the gap between the top three markets in the compound seasoning industry is small, and the industry competition pattern is variable. In 2015, the top three markets in the hot pot seasoning industry accounted for 9%, 8% and 7% respectively, and the top three markets in the hot pot seasoning industry accounted for 8%, 7% and 6% respectively.

In view of the relatively old data in 2015, and too many industry segments, different companies in the layout of each channel slightly different, we take Tianwei Food and Yihai International as an example, trying to split from the perspective of channel and category, to measure the market share of Tianwei Food and Yihai International in different channels and different categories. After calculation, we estimate that the market share of hot pot seasonings and Chinese compound seasonings in the B- side market in 2019 is less than 1%, and in the C- side market, the market share of hot pot seasonings and Chinese compound seasonings is about 5.9 percent and 6.5 percent, respectively. However, Yihai International has a relatively obvious market advantage in the B- side of hot pot seasoning relying on Haidilao, with a market share of about 13.0 and a market share of about 0.5 for Chinese compound seasoning. From the C- side point of view, with the help of Haidilao's brand advantage, Yihai International Hot Pot Seasoning C- side market share is about 10%, but it only accounts for about 3.3 in the Chinese compound seasoning plate.

At the same time, the non-listed hot pot seasoning plants in Sichuan and Chongqing are in good condition, and the non-listed hot pot seasoning plants have maintained a rapid growth rate. Among some of the compound condiment companies we visited, many are actively carrying out capacity expansion. The industry has not yet entered the consolidation phase, and the industry ceiling is still far away.