By ZHAO Xiaojuan
A court has ordered Shenzen-listed infant formula company Beingmate to liquidate 48 million pledged shares to pay back 316 million yuan (US$45.85 million) worth of loans. In a public response to an inquiry by the Shenzhen Stock Exchange, Beingmate acknowledged that it is in “significant financial distress” and is looking for “willing partners with resources to address the shortfall.”
The 316 million is only the tip of the iceberg of Beingmate’s debt crisis. Its 2022 mid-year balance sheet showed 1.1 billion yuan of loans, about half of which is due within a year. Total liabilities amounted to 1.6 billion yuan.
To pay off its debt, Beingmate has resorted to auctioning off investment holdings and selling its own stocks – 55 million shares were sold for 300 million yuan in early 2021 – but now there’s hardly anything left to sell. Close to 97 percent of its shares are either pledged or frozen.
Teething troubles
Beingmate was founded in 1992 in a defunct cookie factory that founder XIE Hong bought for 180,000 yuan. For years its main products were teething biscuits and rice cereal. It was only in 2001 that the first infant formula was launched. Beingmate was one of the few brands that came out unscathed – stronger, in fact – from the 2008 baby formula scandal. In 2011 it became the first domestic infant formula company to go public. Sales exceeded 6 billion yuan in 2013.
The next year, however, sales were down by 17 percent. Profit plummeted by 90 percent to the 2008 level. Beingmate blamed fakes and “policy changes” but failed to fix the situation. In 2016, it recorded a net loss for the first time in years, triggering an inquiry from the Shenzhen Stock Exchange. Other formula brands were also victims of fakes and policy changes, regulators asked. Why did Beingmate alone suffer such losses?
Too many cooks
The real reason lies with distributors, whose number went from a few hundred to several thousand right before the IPO. When Beingmate tried to slim down in 2015, many who never had to reach beyond a handful of small towns suddenly found themselves in charge of entire regional markets.
Unsold cans piled up, which didn’t stop more cans from being sent on credit. Receivables increased by 220 percent to 1.3 billion yuan in 2015, of which 1 billion were sales on credit, and have remained at this level since. Some of the receivables are never to be paid back. About a third – 124 million of 345 million – of Beingmate’s 2020 losses were due to “bad debt.”
Distributors who manage to get by are caught in the middle. A distributor told Jiemian News that he was owed a million yuan and only got the money back after a year-long lawsuit. He signed Beingmate through a friend. But it was only when the operations were up and going that he became aware of the fine print buried in the contract. Promises were never fulfilled either. When he tried to contact Beingmate, the reply was always that the person he last spoke to had already left the company.
Beingmate’s distribution mess also kept it mired in lawsuits, shareholder disputes and PR crises while competitors took off at the loosening of China’s one-child policy in 2017. From 2017 to 2022, Dannon’s market share went up from 9 percent to 14 percent, and Feihe, now the biggest infant formula brand in China, more than doubled its market share from 7 percent to 20 percent. Beingmate, on the other hand, occupies a mere 1.6 percent.
Baby ecosystem
Founder Xie Hong stepped in last year after celebrity executive Bao Xiufei, hired in 2018 at 9 million yuan a year, failed to turn the tide. Xie set two goals for Beingnmate. The first is to return to the top three; the second is to build a 100-billion-yuan baby product ecosystem. Neither will be easy given China’s declining births.
The first order of business is to cut losses, estimated between 120 million to 180 million yuan for 2022. One promising path is to bypass distributors and sell online. Another is contract manufacturing, which saw a 40-percent increase in revenue in the first three quarters of 2022.
Beignmate now makes formula and milk powder for a host of buzzy dairy startups including Adopt A Cow, which in 2021 contributed 63 million yuan, or 2.5 percent, of total revenue.
