Special Invitation |Zhang Baoliang
Reading Professor Greene Ward's book "Competitive Advantage: Perspective on the Enterprise Moat", the author believes that the economies of scale effect are the true subset of the scale effect, and the connotation of the scale effect is greater than the scale effect. For local economies of scale, it should be a true subset of economies of scale. Enterprises that also have the characteristics of economies of scale only exist in the part, the so-called partial, space, field and link.
Space is somewhere, such as the leading position of the local provincial market relative to the national market, which is what we often call the "head snake";In the field, it is the leading segment of a certain industry;The link refers to the leading position of the local industrial chain relative to the overall industrial chain. The relationship between the three is: the advantage of local economies of scale is less than or equal to the economies of scale effect and less than or equal to the scale effect.
Investors can understand this through banks and the FMCG industry.
The banking sector in developed regions has a local competitive advantage
The non-performing loan ratio is one of the important criteria to measure a bank's competitive advantage. Non-performing loans will inevitably arise in the operation of banks, and risk control of non-performing loans is the focus of banking business.
Domestically, the bad debt ratio of banks located in developed regions is significantly lower than that in the central and western regions under the same operating conditions, and the asset quality of banks in economically developed regions is better overall. This can be clearly seen in Table 1 of China Merchants Bank's non-performing asset ratio. The defective rate in the Yangtze River Delta and Pearl River Delta regions is better.
Another example is the 2022 annual report, which shows that the non-performing loan ratio of Bank of Lanzhou is 171%, and the non-performing loan ratio of Bank of Xi'an is 125%。Of course, the criteria for determining non-performing loans of each bank may be different, and this non-performing loan is a comparison of book figures, but it can also reflect the overall advantages of the banking industry's non-performing loan ratio with local (regional banks) economies of scale.
In addition, it should be noted that the banking industry is a relatively complex business, and in terms of non-performing assets, the risk control of banks is also very important, and the non-performing loan ratio has the impact of bank operations in addition to the above regional economy.
Enterprises that focus on low-temperature milk have local competitive advantages
Dairy enterprises are generally divided into two forms, one is the dairy enterprise with closer milk source, with a national brand and channel, known as the "base dairy enterprise", represented by the two leading milk enterprises in Inner Mongolia.
The other type is known as "urban dairy enterprises", which are closer to consumers, represented by New Hope, Sunshine Dairy, etc. In terms of business development of low-temperature fresh milk, these enterprises and the two leading enterprises in Inner Mongolia follow different models. New Hope's annual report disclosed that the gross profit margin of its low-temperature milk business was higher than that of its ambient milk business.
The author once called the two major base-based national milk faucets in Inner Mongolia, and the reply was that the low-temperature milk business was basically not profitable. It can be seen that in the low-temperature fresh milk business, local dairy enterprises have local economies of scale.
Like New Hope, the profit margin of low-temperature milk has been higher than that of the ambient milk business for a long time (see Figure 1).
Low-temperature milk is characterized by a regional preference, i.e., a customer preference, and locals are familiar with local milk from an early age and are more comfortable with a certain brand and taste. Regional dairy enterprises do not need to invest too high sales expenses and advertising costs, and can achieve customer lock-in effect in the region.
It can be seen from Ele.me's "Fresh Milk Takeaway Report" that the preference for fresh milk has obvious regional characteristics. For example, the Yangtze River Delta region likes Guangming, Beijing likes Sanyuan, Chengdu likes New Hope, Guangzhou likes Yantang, Kunming likes Xuelan, Northeast likes Huishan, Nanjing likes Weigang, Hangzhou likes Shuangfeng and Guangming, and so on.
Due to the need for cold chain transportation and short shelf life, the transportation radius is limited, and the loss is large, and the national expansion is limited to a certain extent. In response, some companies have expanded through mergers and acquisitions of local dairy enterprises.
For example, through mergers and acquisitions of some local dairy enterprises, New Hope has a number of operating subsidiaries in Southwest, East China, North China and other places, such as Xinhua West Dairy, Diequan Dairy, Kunming Xuelan, Hangzhou Shuangfeng, Suzhou Shuangxi, Hebei Tianxiang and so on.
Due to the differentiated competition strategy of adopting the coordinated development of multi-enterprise brands and product brands, and relying on the regional advantageous market to establish consumer loyalty, the popularity of many of its brands has a high reputation in the above-mentioned regions with the operation of subsidiaries.
There are also enterprises that operate in a certain area, such as Sunshine Dairy. According to the characteristics of the low transportation radius of pasteurized milk, the company is not large, adopts the mode of sales and production, has less loss, higher operational efficiency, and profitability is much higher than that of national dairy enterprises.
There are also some enterprises that deliver fresh milk to the door, which also has a certain customer lock-in and local economies of scale.
Economies of scale advantage from the perspective of marketing expenses
For some consumer goods, the production cost is not high, or the fixed cost is not large, but the sales expenses are relatively high. The channel and advertising costs in the sales expenses are fixed, and the larger the sales scale of the product, the lower the advertising costs or sales expenses on a single product, and the more obvious the local economies of scale advantages. Let's try to analyze the situation in the condiment and dairy industry.
From Table 2, Haitian Flavor is much higher than other soy sauce companies in terms of total sales expenses, but the sales expense ratio is much lower than that of competitors, and the sales expenses and management expenses per unit of product are lower than those of competitors, but they have an overall advantage.
In terms of advertising costs, Haitian Flavor Industry is much higher than its competitors, and its advertising cost rate is also low, especially compared with Qianhe Flavor Industry, but why are the advertising costs of Jiajia Food and Tianwei Food lower?The author believes that according to the sales and production model barriers formed by the previous scale advantage, Jiajia Food, Tianwei Food, etc., due to their small scale and small revenue, have not carried out nationwide advertising.
To sum up, Haitian Flavor Industry has obvious local economies of scale advantages, which exist in the sales link and are local economies of scale in a certain link.
Looking at the situation of the dairy industry, from the total sales expenses in Table 3, Inner Mongolia, a dairy company listed on the A-share market, is much higher than its competitors, and the sales expense ratio is also much higher than that of competitors, and the sales expenses per unit of product are higher than those of competitors.
From the perspective of total advertising costs, this company is also much higher than competitors, and the advertising cost rate is also much higher than that of competitors, and the advertising costs on the unit product are higher than those of competitors, and it is obvious that Haitian Flavor Industry, which is different from condiments, has local economies of scale in the sales process of other condiment companies, and in the dairy industry, the above-mentioned company is compared with its competitors, and the local economies of scale in this sales link do not exist, which may be due to the fact that the dairy industry is worse than the condiment business model or the dairy industry is more competitive, which is reflected in the economies of scale advantage of sales expenses。
(This article was published in the December 9 issue of Market Weekly.) The views in this article only represent the author's personal and do not represent the position of this journal. The ** mentioned in this article is for analysis only and does not constitute investment advice. ）