We are the largest fruit retail operator in China. According to Frost & Sullivan, we ranked first among all retailers that sell fruits in China in terms of fruit retail sales value in 2021, accounting for 1.0% of total market share in China where the top five participants accounted for an aggregate of 3.6% market share in total. Meanwhile, we also ranked first among all fruit specialty retail operators in China in terms of fruit retail sales value. We have the largest distribution network in the fruit industry in China.
Through internal development and external empowerments, we are able to exert influence and management across the entire industry chain from fruit farming to retail end. We participate in the cultivation phase to secure high-quality fruits, implement professional and standardized quality management throughout the entire industry chain, provide consumers with delicious fruits at affordable prices, and achieve high turnover and low loss rate.
We are committed to becoming the go-to brand for Chinese consumers. We are one of the few companies in the fruit industry in China that have both well-known product brands and channel brands. We primarily sell fruits, and also sell fruit-based products such as dried fruits and juice. We have expanded our product offerings to other fresh groceries, and launched our Panda.F business in 2020. Currently, our offerings of other fresh groceries include vegetables, fresh meat and seafood products, grains and oils, dairy products and others.
We primarily sell fruits to consumers through our offline store network comprising franchised stores supervised by us, franchised stores supervised by our regional dealers and self-operated retail stores. We also distribute through our online channels comprising Pagoda mobile APPs, Pagoda WeChat mini-program, stores on mainstream e-commerce platforms and social commerce platforms or through third-party food delivery platforms we partner with. We also engage in direct sales to certain major customers, such as enterprises, restaurants and high-speed railway companies that have catering needs. In addition, on a limited scale, we engage in fruit wholesale business.
We have built a nationwide community-based fruit specialty retail network with OMO and store-as-warehouse features, which is a store-centric retail business model where a store serves both as a retail front for offline purchase and as a storage for online purchase and delivery services, providing OMO advantages and fulfilling the needs for flexible purchase and delivery options. Please refer to “— Fruit Specialty Retail Operator with OMO and Store-as-Warehouse Features” below for a detailed discussion. As of the Latest Practicable Date, our offline store network had 5,643 stores located in over 140 cities in 22 provinces and municipalities, mainly in residential areas, commercial streets and other high-traffic areas. We mainly adopt a franchise business model with respect to our offline retail stores. Among the total of 5,643 offline stores as of the Latest Practicable Date, 5,624 were franchised stores and 19 were self-operated stores. Among all franchised stores, 4,575 were franchised stores supervised by us while 1,049 were franchised stores supervised by regional dealers. During the Track Record Period, a substantial portion of our revenue was derived from franchised stores supervised by us, accounting for approximately 87.9%, 84.6% and 81.3% of total revenue in 2019, 2020 and 2021, respectively. Revenue derived from franchised stores supervised by us accounted for approximately 81.2% and 80.3% of total revenue for the six months ended June 30, 2021 and 2022, respectively. Within designated regions where we engaged regional dealers, there were no franchised stores supervised by us nor our self-operated stores.
Our franchisees and regional dealers are not our agents but our customers. Legal titles and risks of products are typically transferred from us to the franchisees and regional dealers when the products are accepted by them, which generally cannot be returned. In addition to the purchase amount payable by the franchisees and regional dealers for products purchased from us, our franchisees are also required to pay a one-off fixed sum franchise fee for each franchised store, and each franchised store is required to pay a monthly royalty fee during the term of the franchise agreement subject to a detailed schedule as agreed under the franchise agreement. Regional dealers, on the other hand, are required to pay us a fixed sum of brand franchise fee. During the daily operation of the franchised stores, relevant franchisees are typically responsible for the expenses and costs in connection with store staff’s salaries, store rental fees, store decoration and purchases of equipment. Moreover, logistic costs associated with the product delivery from franchised stores to consumers are generally borne by the relevant franchised stores.
The quality of fresh fruits is largely determined by the quality of original cultivation. As such, identifying and retaining high-quality suppliers is of significant importance to our business. Currently, the vast majority of our products are purchased by us from our approved high-quality suppliers, with a small amount of fruits from the plantation bases operated by us. We then sell products to our regional dealers and franchisees. Our established market position and strong supply chain management capacity have enabled us to generally satisfy the variety, quality and quantity needs of our regional dealers and franchisees. Under limited circumstances, such as a temporary shortage in supply of certain types of fruit in a particular regional market, an unexpected interruption to logistic services to serve a particular region, or seasonal fruits not available in a particular region or in a short period of time, we allow our regional dealers to purchase from designated suppliers in compliance with our product quality standards and re-sell to the franchised stores under their management. Our regional dealers and franchisees are our customers instead of our agents. Relevant revenue is recognized when the ownership of products is transferred, which is usually the point of time when products are accepted by our regional dealers and franchisees.
We have established the first flavor-oriented fruit quality classification system for fruit products in China, which allows consumers to clearly distinguish the quality differences in fruit and enhances the competitiveness of high-quality fruits. As of the Latest Practicable Date, we had successfully introduced to the market 31 self-owned product brands that are exclusively distributed by us in China under our Excellent and Grade A categories. We have launched the instant refund service in the fruit industry, which enhances consumer satisfaction and trust in the brand and reinforces our Pagoda brand recognition associated with high-quality fruits and services among consumers. “Pagoda” is a China Well-known Trademark and has been recognized as a Top 100 China Retail Chain Brand for multiple years.
Individuals are considered as our direct customers if they purchase from our self-operated stores or place orders via e-commerce and social commerce platforms or our Pagoda mobile APPs and Pagoda WeChat mini-program for next day delivery, which are fulfilled by us. Individuals are not considered as our direct customers if they purchase from franchised stores or place orders via third-party food delivery platforms or our Pagoda mobile APPs and Pagoda WeChat mini-program for just-in-time delivery, which are fulfilled by the relevant franchised stores. All consumers could join the membership plans for free at offline retail stores or from our Pagoda mobile APPs and Pagoda WeChat mini-program. All existing members may also pay the subscription fee via our Pagoda mobile APPs and Pagoda WeChat mini-program to join the paid membership plan. Our Pagoda membership program has established a free four-level membership plan and the members may upgrade their membership levels based on different spending tiers by accumulating purchases, which in turn, will unlock various privileges such as discount rates, shopping assistance with priority, birthday special offer, member-only promotional events, exclusive promotional coupons and gift redemptions. In addition to the four-level membership plan, in early 2018, we initiated the Xinxiang (“心享”) paid membership plan. Existing members, despite their original membership level, may subscribe to the paid membership for a 12-month period at a membership fee of RMB99 for a basic package or RMB199 for an upgraded package, respectively, and enjoy certain additional privileges on top of the member benefits described above, such as monthly vouchers, exclusive rewards and discounts for paying members, free product tasting opportunities and invitations to new product trial events. Member benefits of free and paid membership plans can be redeemed or used at offline retail stores or from our Pagoda mobile APPs and Pagoda WeChat mini- program. Our high-quality products and services have attracted a large number of loyal consumers. We have acquired a significant number of loyal and active members. As of the Latest Practicable Date, we had over 73 million members across all distribution channels. Among all these members, over 930 thousand were paying members who paid a membership fee to subscribe for our paid membership plan, with the remaining as non-paying members. The expanding paying membership base does not only contribute to our revenue but also indicates the strong stickiness and confidence in us of our members. According to our records, the higher level members generally present a higher purchase frequency and higher average order value. In 2021, the monthly purchase frequency and monthly purchase amounts of our paying members were approximately 140% and 160%, respectively, higher than those of non-paying members. Through our multi-level membership plans, we provide more differentiated services to consumers and tap into greater user value. Meanwhile, we obtain market insights through consumer data analysis, thereby further optimizing our products and services to meet different consumer needs.
Our nationwide warehousing network currently has 29 preliminary processing and distribution centers across China. In addition to providing storage spaces, we also complete preliminary processing procedures in regional distribution centers. Fruits we purchase are typically delivered in bulk quantities and wholesale packs. Certain preliminary processing procedures, such as cleaning and shelling, are conducted in our regional distribution centers. Furthermore, most of our preliminary processing and distribution centers are equipped with ripening rooms which allow the artificial ripening process under our controlled conditions.
Our revenue decreased by 1.4% from RMB8,976.1 million in 2019 to RMB8,853.7 million in 2020, and increased by 16.2% to RMB10,289.4 million in 2021. Revenue increased by 7.0% from RMB5,525.4 million for the six months ended June 30, 2021 to RMB5,914.7 million in the corresponding period in 2022. Our gross profit decreased by 7.9% from RMB876.4 million in 2019 to RMB807.4 million in 2020, and increased by 43.2% to RMB1,156.4 million in 2021. Our gross profit margin was 9.8%, 9.1% and 11.2% in 2019, 2020 and 2021, respectively. Gross profit increased by 12.7% from RMB601.2 million for the six months ended June 30, 2021 to RMB677.4 million in the corresponding period in 2022. Gross profit margin was 10.9% and 11.5% in the six months ended June 30, 2021 and 2022, respectively.
Source: Pagoda Group (02411) Prospectus (IPO Date : 2022/12/29) |