IPO Observation: JiaNong Group Hits A-Share Market Again, Can Banana Alone Ensure Successful Transformation?

Freshness, fruit, and vegetables have become another hot track in the offline market.

On October 19th, JiaNong Food Holding (Group) Co., Ltd. ("JiaNong Group") filed for a preliminary review with the Shanghai Securities Regulatory Commission to issue stocks publicly for the first time and list on the Shanghai Stock Exchange, with brokerages such as Haitong Securities (600837) as the designated sponsor.

JiaNong Group's business began in 2002, and it has become a leading company in China's fresh food supply chain services. The main products include bananas, meat, seafood, and leisure foods, with new businesses such as fresh fruit and vegetable imports and exports, as well as domestic sales to large-scale retailers, e-commerce platforms, and supermarkets.

This is not the first time JiaNong Group has attacked the A-share market. In June 2019, the company submitted a prospectus for its initial public offering (IPO) to the China Securities Regulatory Commission, but there was no further progress after that. Now, JiaNong Group is at the threshold of transformation.

Single Product

JiaNong Group's business began in 2002, and the company was established in 2010 with registered capital of 3.6 billion yuan. The headquarters is located in Shanghai, providing comprehensive services including cross-border direct procurement, post-harvest processing, customs clearance, cold chain storage and distribution, sales services, and logistics management for domestic and foreign customers.

As a fruit company, JiaNong's bananas are well-known at home and abroad.

According to the company's introduction, JiaNong Group has formed a main business of banana-based fresh fruit imports and exports, as well as new businesses such as meat, beverage, and leisure foods. The company's sales revenue in 2016-2018 was approximately 5.71 billion yuan, 8.43 billion yuan, and 17.13 billion yuan, respectively, accounting for 12.22%, 16.79%, and 30.72% of the company's main business income.

As of 2020, JiaNong Group had a total area of 3.2 million square meters of preserved fruit storage and 1.3 million square meters of ripening storage, with the ability to process bananas at a rate of 290 boxes per week and store cold products exceeding 20,000 tons per day.

The company's chairman, Liu Zijie, has expressed that "watermelon is a fast-moving consumer good with short shelf life, easy spoilage, and high market demand. With the advent of e-commerce and social media, consumers are increasingly demanding freshness and convenience." JiaNong Group will focus on building its brand and upgrading its products based on its existing cold chain system.

Liu Zijie has also revealed that the company's fruit sales revenue in 2021 was approximately 53 billion yuan, with plans to achieve 120 billion yuan in fruit sales revenue by 2025.

Fresh Track

China's fresh food market has been growing steadily and rapidly over the past few years. According to a report by Frost & Sullivan, China's fresh food retail sales revenue increased from 34.68 billion yuan in 2016 to 56.35 billion yuan in 2021, with a compound annual growth rate of 10.2%, and is expected to reach 84.83 billion yuan by 2026, with a compound annual growth rate of 8.5%.

In this context, fruit is one of the major categories. China is the world's largest producer and consumer of fruits. According to the China Fruit Association, China's total fruit production in 2021 was approximately 3 billion tons. According to Frost & Sullivan, China's fruit retail market scale increased from 8.27 billion yuan in 2016 to 12.29 billion yuan in 2021, with a compound annual growth rate of 8.2%. By 2026, the forecast is that the fruit retail market scale will continue to grow, reaching approximately 17.75 billion yuan.

However, there is still much room for improvement in China's fruit consumption per capita. According to the report, China's average fruit consumption per capita was 56.4 kilograms in 2019, which is still far from the level of developed countries, where it is around 105 kilograms.

Although the fruit industry has a lot of room for growth, there have always been problems with small businesses and fragmented industries. Product categories are regionalized, seasonal, and differ in consumer habits, making it difficult for fruit companies to form large-scale operations. For example, C-end company Baogu Garden expanded its stores through franchising from 2001 to 2008, with continuous losses. Mainstream business Hongji Fruit mainly did B-end business from 2020 to 2022 and the first half of 2023, with revenue growth rates of 177.78%, 78.12%, 46.70%, and 19.37%, respectively.

Not only that, but logistics is also a major problem for the fruit industry.

For the distribution end, fruits usually face high costs, high losses, and risks. In terms of logistics, China's fruit industry has many nodes, with fruits requiring multiple transfers and low cold chain coverage rates, resulting in high waste rates and labor costs, which affects the industry's profitability.

For JiaNong Group, which has been immersed in the fruit industry for many years, the current freshness industry is already accelerating its development to a new stage, with companies such as Hongji Fruit and Baogu Garden listed on the Hong Kong Stock Exchange, facing online channels' impact, and China's e-commerce penetration rate of fresh food sales rapidly increasing, bringing about market scale growth.

According to Frost & Sullivan, China's e-commerce penetration rate of fresh food sales increased from 2.9% in 2016 to 12.9% in 2021, with a compound annual growth rate of 48.2%, and is expected to reach 22.4% by 2026, with a compound annual growth rate of 21.1%. By 2026, the forecast is that China's e-commerce penetration rate of fresh food sales will reach 22.4%, and the total revenue of online fresh food retail will reach approximately 18.97 billion yuan.

In this ever-changing freshness industry, transformation has already become inevitable for JiaNong Group.