Can a monthly salary of 20,000 RMB afford PAGODA GP?

Author | Wang Xiaojuan

Editor | Zhou Zhiyu

At the beginning of this year, PAGODA GP, which has been listed for a year, ambitiously announced a ten-year GMV plan of one trillion. However, in just half a year, the less cost-effective PAGODA GP became the first to be abandoned by the middle class.

On August 22, PAGODA GP announced its mid-term performance for 2024. In this reporting period, including revenue, profit, and other financial indicators, all showed a double-digit decline.

Over the past few years, PAGODA GP has labeled its own fruits as "delicious" and attached a high price tag to them; however, in the past two years, PAGODA GP has been high-priced but not of good quality, and has repeatedly been embroiled in the "rotten fruit" controversy.

Combined with changes in consumer trends, consumers who fear encountering "fruit assassins" have begun to flee from PAGODA GP.

Faced with the performance "turnaround" brought about by the decline in customer traffic, the management of PAGODA GP also realized the crisis. During the financial report conference call, PAGODA GP stated that they will continue to focus on the B-end market and pay more attention to cost-effectiveness on the C-end.

However, building new consumer awareness is not an easy task; the road ahead for PAGODA GP is still full of challenges.

Escape

Durians priced at 298 yuan each, cherries at 246 yuan per catty, 8 Valencia oranges for 73 yuan, 10 green grapes for 40 yuan, about 30 yuan for 3 kiwis, and even sugar oranges bought by the box outside cost nearly 8 yuan per catty at PAGODA GP.

"Too expensive" has long been a stereotype of PAGODA GP for many people. In an era where people are looking for "consumption parity", PAGODA GP has also become a discarded entity.

In the first half of the year, PAGODA GP achieved revenue of 5.594 billion yuan, a year-on-year decrease of 11.1%; gross profit was 619 million yuan, a decrease of 13.2% year-on-year; the largest decline was in net profit, which decreased by about 66.1% year-on-year to 88.5 million yuan.

During the financial report conference call, the management of PAGODA GP explained that the decline in performance in the first half of the year was mainly due to a decrease in customer traffic entering the stores, while the average customer spending increased due to the addition of product categories, "it is obvious that consumers from different social classes are more rational now."

The reason for the decline in net profit is the increased investment in store upgrades in the first half of the year.

PAGODA GP has always been in the business of premium fruits and pioneered a grading evaluation system in the industry. PAGODA GP categorizes fruits into signature, A, and B grades, with signature and A grades symbolizing the company's high quality. Signature fruits have the advantage of exclusive control of goods, which was also the reason why PAGODA GP was popular with consumers before.

However, the labels of quality and deliciousness for PAGODA GP are also fading.

After all, when people start discussing that something is expensive, they are mainly talking about the mismatch between price and quality. Consumers are well aware that "expensive is not its fault, but mine", but if the price is high and the quality control is not strict, consumers will really abandon it.

During the 315 period this year, a PAGODA GP store in Wuhan was exposed for using rotten fruits to make high-priced fruit cuts, and overnight fruits stored in the refrigerator were sold as fresh fruits the next day. In the exposed video, the store staff referred to this practice as "turning decay into magic".

It is worth mentioning that this is not the first time. Prior to this, PAGODA GP has apologized several times for rotten fruits, and its subsidiary has been fined for pesticide residues Positioned as high-end and pursuing quality, but repeatedly embroiled in food safety controversies, this is an image that Pagoda GP urgently needs to break free from.

Although Pagoda GP is also striving to win over consumers, such as by introducing policies like "unsatisfactory goods can be returned without a receipt" to express confidence in the quality of their fruits and emphasize the importance of consumer experience. However, returning goods is not as easy as one might think, as it involves a series of back-and-forth with the store, making it difficult for Pagoda GP to become the "Fruit Emperor" in the fruit industry.

On the Black Cat Complaints Platform, there are nearly 2700 complaints about Pagoda GP. Most of the complaints are about the quality of fruits, such as substandard quality, moldy and spoiled fruits, and these complaints are all about unsuccessful attempts to return goods to the stores.

The double betrayal of price and quality directly leads consumers to "keep their distance" from Pagoda GP.

Self-Rescue

As a non-standard product, if you want to do well in the fruit business, it poses a great challenge to product quality, supply chain, and many other aspects.

In addition to further strengthening supervision of franchisees, Pagoda GP is also looking for new growth points. For example, direct sales business from the B-end. Compared to managing franchisees, direct sales are also easier to control in terms of quality.

The management of Pagoda GP revealed that the revenue growth from the B-end has diluted the downward trend of the C-end. Implicitly, the C-end is actually declining more. In the first half of 2024, the company's sales revenue from direct sales of fruits and other foods was 713 million yuan, a year-on-year increase of 30%.

Among them, overseas sales also showed good growth, with direct sales of fruits in overseas markets increasing by about 29.4% compared to the same period in 2023.

To better focus on the B-end and expand internationally, Pagoda GP acquired a 19.58% stake in Bangguo B2B platform last year, becoming its controlling shareholder. This acquisition is aimed at solving the pain points of large and fragmented procurement and sales in the fruit industry, and jointly promoting the optimization and upgrading of the supply chain.

In the second half of the year, Pagoda GP stated that it will continue to increase fruit gift boxes and other products targeting the B-end, expand more customers, collaborate with well-known IPs such as luxury brands, and open up the market.

Of course, Pagoda GP's customer base still comes from the C-end, with sales brought in by over 2000 distributors in 6025 stores across nearly 200 cities nationwide, which is crucial.

In the first half of the year, Pagoda GP renovated over 6000 franchise stores, unified the store signage to enhance consumer brand awareness.

Furthermore, Pagoda GP is also trying out some innovative store operation strategies. In the first half of the year, in Yueyang, Hunan Province, Pagoda GP piloted the opening of large innovative stores with an area of over 150 square meters, and currently, 2 large stores have been put into operation.

Based on changes in the consumer environment, Pagoda GP's overall strategy has also shifted. In the first half of the year, Pagoda GP upgraded its strategy from "delicious" to "high-quality fruit expert and leader".

"Delicious" implies not focusing on price, but only striving for taste; while "high-quality fruit expert and leader" has a richer explanation, which the management explained as "quality-price ratio" during the financial report conference call. It seems that the day when high-end fruits are priced lower is just around the corner Based on the new strategy, PAGODA GP, after launching the fruit evaluation system, also aims to establish a scientific and flexible pricing system. This was reflected in the upgrade of stores in the first half of the year. For example, during the upgrade, PAGODA GP suggested franchisees to use electronic price tags.

In the second half of the year, PAGODA GP continues to focus on attracting traffic to stores. Management has stated that they will improve price ranges, divide business districts for combination pricing, enrich SKU, and through online and offline linkage, attract online consumers to stores.

The most direct means of attracting traffic is still through low-priced products.

Recently, many people have noticed that the prices of seasonal fruits at PAGODA GP have decreased compared to before. In a store in Beijing, the price of dragon fruit at the entrance for attracting traffic is 2.99 yuan/500g, which is not much different from nearby supermarkets.

In a huge and fragmented industry, the temptation of a vast market and the challenge of decentralization have always existed. Even as the uncertainty of the consumption environment increases, fruits, as daily consumer goods, still have a huge consumer base. It depends on which people the brand wants to do business with.

The changes in current consumption trends can also be seen in other industries. For example, in the tea beverage track, with product price ranges mainly below 10 yuan, HEYTEA has opened thousands of stores, while NAIXUE'S TEA, priced above 20 yuan, continues to operate at a loss. Similarly, in the catering industry, the resurgence of 19.9 yuan self-service buffets contrasts with the closure of the high-end French restaurant on the Bund, No. 18.

Currently, PAGODA GP has adjusted its strategy to change consumers' previous stereotypes and establish new awareness, but this will require gradual refinement. Of course, while emphasizing cost-effectiveness, they must also prevent falling into the trap of drastic price reductions and subsequently losing brand positioning. Therefore, how PAGODA GP establishes a new image in the future is particularly crucial