A few days ago, COFCO put the Beijing W Hotel up for sale. At the same time, it spent 2 billion to invest in Jiaduobao.
Behind the increase and decrease, what is COFCO doing?
Selling hotel assets
On October 31, 100 shares of COFCO Hotels were officially put up for sale at a price of 995 million yuan. Public information shows that COFCO Hotels is a subsidiary of Joy City Real Estate and mainly operates the W Hotel on Chang'an Street in Beijing.
As of September 30, COFCO Hotels’ operating income was 111 million yuan, and its net profit loss was approximately 92 million yuan. In this regard, some analysts pointed out that the W Hotel on Chang'an Street in Beijing has high construction costs, high management costs, and high liabilities. Coupled with poor management, the losses can be imagined. However, judging from the listing price and investment return, it is not easy to find a taker.
For COFCO, this is not the first time it has sold its hotel assets.
In June this year, COFCO transferred 100 shares of Suzhou Gloria Hotel and Nanchang Gloria Hotel at listed prices of 170 million and 210 million respectively.
Also in June, COFCO also listed the land and above-ground buildings of Qinhuangdao Gloria Resort for transfer.
Judging from relevant data released by COFCO, losses are the main reason for its transfer of Gloria brand hotels.
From the perspective of the domestic mid-to-high-end hotel market environment, in recent years, declining market demand and fierce competition have put pressure on the operations of many high-star hotels. Against this background, companies including COFCO and Beijing Capital have begun to accelerate the divestment of their hotel businesses, and hotel assets have frequently been listed in the property rights trading market.
The person in charge of a star-rated hotel said that for high-star hotels that are losing money, they are experiencing a dilemma: if they continue to operate, they may suffer greater losses; if they withdraw, it will be difficult to find a successor.
Despite this, COFCO is still divesting its hotel business, and selling W Hotel may be just one step. For COFCO, selling the W Hotel on Chang'an Street in Beijing, which has suffered serious losses, can reduce pressure and be more conducive to the rational allocation of capital.
However, the investment return cycle of high-end hotels is relatively long. No matter who takes over the business, there is no guarantee that losses will not expand.
Investing in Jiaduobao to make up for the shortcomings of beverages
While disposing of hotel assets, COFCO is increasing its investment in another battlefield.
On October 31, COFCO Packaging announced that COFCO Packaging Investment will increase its investment in Qingyuan Jiaduobao Herbal by RMB 2 billion and hold 30.58% of its equity. All parties will jointly build a joint venture A comprehensive operation platform integrating Duobao brand, concentrate, and supply and marketing system.
Public information shows that Qingyuan Jiaduobao is mainly engaged in the research, development, production and sales of non-alcoholic beverages such as fruit and vegetable beverages, tea beverages, herbal teas, plant beverages and concentrates. In 2016, Qingyuan Jiaduobao’s net profit after tax was 146 million yuan, compared with 130 million yuan in the same period last year.
For this investment, COFCO Packaging stated that COFCO Packaging’s formal investment in Jiaduobao can improve the group’s profitability and consolidate the group’s leadership in the packaging industry, and will use their respective resources with Jiaduobao Group Company advantages, enhance the market leadership of Jiaduobao herbal tea, and promote the healthy and sustainable development of the herbal tea industry.
The beverage sector is the direction of layout?
COFCO has been in the fast-moving consumer goods industry for a long time. At present, the wine industry has Great Wall, the dairy industry has Mengniu, and the oil, rice and noodles have Fu Linmen. However, what embarrasses COFCO is that the leaders of these three sub-sectors are not COFCO.
Because of this, how to create a hit product in the beverage field is a question that COFCO management is thinking about.
At present, although Coca-Cola, a subsidiary of COFCO, is the leader in the carbonated beverage market, Coca-Cola’s most profitable business is still in the hands of Coca-Cola.
Because of this, it becomes logical to invest in Jiaduobao.
Some insiders believe that after taking a stake in Jiaduobao, COFCO can rely on "two legs" in its beverage business. Although Jiaduobao's sales are declining, the underlying foundation remains. COFCO's investment in Jiaduobao during its trough period can be said to have taken advantage of the bottom.
In addition, the current domestic dispute over red canned herbal tea has come to an end, and the relationship between Wanglaoji and Jiaduobao has tended to ease. The entry of COFCO at this time may help achieve orderly competition between the two major herbal tea brands Wanglaoji and Jiaduobao, and then jointly expand the market, thereby launching a world-class brand for Chinese beverages.
It is worth noting that COFCO is investing in the herbal tea market at this time, and the market environment it faces is not optimistic. According to the "2016 Beverage Industry Overall Operation Report", in 2016, the sales revenue of the herbal tea market reached 56.12 billion yuan, a year-on-year increase of only 4.2%. This number was 10.0% in 2015. Once the herbal tea market bids farewell to high growth, how much dividends can COFCO still enjoy?
After taking the stake, COFCO will become the second largest shareholder of Qingyuan Jiaduobao. As for what the industry has said, whether COFCO will continue to increase capital and seek listing in Jiaduobao is a matter for later. Toutiao bacteria remain Pay close attention.