Pagoda Group Profit Attributable to the Owners of the Company Surges 40.4% in FY2022
For the Year, the Group’s revenue increased by 9.9% over the same period last year to RMB11,312.0 million. Revenue generated from the sales of fruits and other food products accounted for 97.1% of total revenue in 2022. The Group’s gross profit increased by 13.6% to RMB1,314.3 million for the Year, and gross profit margin improved by 0.4 pp to 11.6% for the year ended December 31, 2022. Pagoda Group continued to expand its retail store network across the country, and succeeded in expanding its customer base by offering high-quality fruits and establishing a favorable pricing strategy. The Group’s profit attributable to the owners of the Company increased by 40.4% YoY to RMB323.3 million, with basic earnings per share at RMB0.216 (FY2021: RMB0.154). The Board has recommended the payment of a final dividend of RMB0.076 per share for the Year.
Mr. Yu Huiyong, Chairman and Executive Director of Pagoda Group said: “I am very pleased to report that the Group has delivered stellar performance in 2022. We completed the global offering and listing in early 2023 and our H shares were successfully listed on the Main Board of The Stock Exchange of Hong Kong Limited on January 16, 2023, representing a significant milestone in our corporate history. We are thrilled to present such outstanding first full year results after our successful listing. Pagoda Group is one of the few companies in the fruit industry in China that have both well-known product brands and channel brands. We adopt a multi-brand strategy and customer-centric approach and has mapped out development strategies that support our mission and core value of offering delicious fruits and enjoyable lifestyle to people in order to attract consumers of different demographics, rapidly capture market share, and continuously seize growth opportunities.”
Offline Store Network Development
Despite the critical retail environment in 2022 arising from the pandemic, the Group succeeded in continuously expanding its retail store network across the country. As of December 31, 2022, the Group’s offline store network had a total of 5,650 stores (FY2021: 5,249 stores) located in over 140 cities covering 22 provinces and municipalities in China.
The Group has the largest community-based fruit specialty retail network in China with OMO and store-as-warehouse features, providing consumers with a highly convenient consumption experience. It has established an extensive nationwide offline retail store network, comprising franchised stores supervised by itself, franchised stores supervised by its regional dealers, and a limited numbers of self-operated stores. Franchised stores currently consists the majority of the Group’s offline store network. The Group has strategically built the franchise business model with a high degree of autonomy, a strong support system and a standardized management mechanism.
The Group provides its franchisees with strong brand, supply chain and operational support, creating a favorable entrepreneurial platform for many who dream of starting their own business. It has also established a district-based operation system. Based on the dynamic data of the surrounding shopping districts in which the stores are located, such system provides personalized product portfolio, pricing and promotional activities for stores through a smart ordering system to help franchisees achieve delicacy operation of stores and reduce their operational difficulties, and allow franchisees to grasp the operation status of their stores in real time through the store assistant information system. It implements highly uniform operation management guidance for franchisees to achieve standardized operation of stores to ensure product quality, consumer experience and the healthy development of franchisees.
Coverage and Upgrades of OMO Model
The Group continued to optimize its OMO operational model in all aspects, provide highly integrated and convenient consumption experience through online sales platforms and offline stores. During the Year, the Group had accumulated over 74 million members across all distribution channels with over 967,000 paying members, and the cumulative number of users of the WeChat mini-program reached 54 million.
The Group’s offline retail stores are mainly located within 15-minute walk from the target end consumers, with significant advantages such as certain path dependency, ease to meet the personalized needs of consumers in the community and flexibility and low cost in store opening. The Group maintains a smart location identification system which can integrate parameters such as changes in the surrounding shopping district, customer traffic and spending power, helping to advise its franchisees to efficiently and precisely identify their store locations in communities with high density of residents and strong consumption. Meanwhile, the Group’s offline retail stores operate with an efficient store-as-warehouse feature, enabling in-store pickup and home delivery services under the just-in-time and next-day delivery options.
Pagoda Group continued to explore online opportunities and has enabled convenient and diverse online shopping options to consumers through mobile APPs, WeChat mini-program, storefronts on e-commerce and social commerce platforms, as well as storefronts on third-party food delivery platforms. The Group offered differentiated products to customers opting for home delivery or in-store pickup services to effectively increase purchase frequency and coverage of consumers in the community, while encouraging consumers through social marketing and group promotions to place orders online and pick up in stores to enhance cross-selling. During the Year, approximately 27.2% of the Group’s orders were placed through various online channels. The Group had approximately 10.6 million WeChat followers with its official account, 1.8 million Douyin followers and 336,000 Weibo followers. In addition, it guided store managers to establish approximately 22,500 store-based WeChat groups, pushing interesting and interactive product promotions and membership activities, and interacting and communicating with over 12.9 million community WeChat community followers in real time. Leveraging the OMO model together with strong industry expertise and insights, the Group believes that it is well positioned to satisfy the needs of consumers with evolving and increasingly fragmental consumption behaviors.
Moreover, the Group continued to develop its business-to-business (2B) fruit business by expanding 2B customer base. As of December 31, 2022, the Group’s revenue from sales of fruits and other food products derived from direct sales increased by approximately 38.5% YoY to RMB723.8 million.
Brand Portfolio and Product Offerings
As one of the few companies in the fruit industry in China that have both well-known product brands and channel brands, the Group adopts a multi-brand strategy to attract consumers of different demographics and to quickly acquire market shares. Currently, the retail stores nationwide are mainly operated under two channel brands, namely “Pagoda” and “Guoduomei” . As of December 31, 2022, among all 5,650 offline retail stores, 5,533 were operated under Pagoda brand and 110 were operated under Guoduomei brand.
Pagoda Group adopts a customer-centric approach and has mapped out its development strategies supporting its mission and core value. With respect to delicious fruit products, the Group pioneered in China in establishing a comprehensive and systematic written flavor-oriented 4-grade fruit quality classification system for fruit products. In accordance with the proprietary quality system with various key metrics, fruits are rated and labeled under four categories, namely Excellent, Grade A, Grade B and Grade C, with different prices catering to different consumers. Aggregate sales of fruits under Excellent and Grade A categories accounted for approximately 70% of the total store retail sales of Pagoda stores. As of December 31, 2022, the Group had successfully introduced to the market 31 self-owned product brands that are exclusively distributed by it in China under the Excellent and Grade A categories. Pagoda Group introduced four product brands to the market and aggregate retail sales of all self-branded fruits increased by approximately 36% from 2021, and accounted for over 11% of total store retail sales of Pagoda stores in 2022.
Smart Warehousing and Supply Chain Management
For the year ended December 31, 2022, the Group had established a nationwide warehousing network that currently has 29 warehouses across China which also function as local preliminary processing and distribution centers. These preliminary processing and distribution centers were located in 29 cities with an aggregate floor area of more than 194,700sq.m. Out of the 29 preliminary processing and distribution centers,16 centers were operated by the Group, and the remaining 13 centers were operated by the Group’s regional dealers by strictly following the Group’s quality requirements.
Pagoda Group has established a standardized fruit quality control system across the entire industry chain from orchard to store, to ensure an advanced freshness and loss control mechanism. Through continuous optimization of operation details, the Group managed to maintain the quality and freshness of fruits from warehouses to stores, while improving the efficiency and accuracy of the delivery. On the sales side, the Group has implemented a smart product freshness management system which sets the selling time for each product according to its shelf life, helping stores make timely price adjustments and promotional strategies to reduce losses and ensure the quality and freshness of fruits to consumers. Leveraging its experience and expertise, the Group continued to strategically participate in the upstream of the industry chain. By empowering its plantation base partners with agricultural technologies, IT and capital resources and by enforcing strict quality management throughout the entire growth period of fruits, the Group is able to cultivate high-quality fruits, improve yields, and in turn, establish a Pagoda-centered large-scale, standardized network of high-quality suppliers.
The Group had received the ISO 22000 Certificates for Food Safety Management Systems from SGS SA, a world’s leading testing, inspection and certification company, in the second quarter of 2022. It demonstrates the Company’s ability to implement food safety protocols and requirements in connection with supplier management, compliance and risk analysis.
Mr. Yu Huiyong, Chairman and Executive Director of Pagoda Group, concluded “Going forward, China’s economy is expected to continue its recovery and growth in the post-pandemic era. Capitalizing on the Group’s well-recognized brand reputation, broad and diversified product offerings, stringent quality controls, sophisticated OMO operations and stable supply chain management, the Group aims to realize its vision of becoming the world’s largest fruit company. The Group will continue to devise development strategies that focus on advancing its distribution channels, product brands and membership operation so as to further increase its market share and market position in the future. This would, in turn, enable Pagoda Group to enhance its competitiveness, adapt to market changes and meet consumer needs, as well as create greater value for shareholders in the long run.”
About Shenzhen Pagoda Industrial (Group) Corporation Limited
Shenzhen Pagoda Industrial (Group) Corporation Limited (“Pagoda Group”, HKEX stock code: 2411) is the largest fruit retail operator in China. According to Frost & Sullivan, Pagoda Group ranked first among all retailers that sold fruits in China based on fruit retail sales value in 2021. Pagoda Group has built a nationwide community-based fruit specialty retail network with OMO and store-as-warehouse features. It has also adopted a multi-brand strategy, as of December 31, 2022, its nationwide network of retail stores mainly consisted of two channel brands, namely “Pagoda” and “Guoduomei”. Among all 5,650 offline retail stores, 5,533 were operated under the “Pagoda” brand and 110 were operated under the “Guoduomei” brand.
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