China Consumer

Very private

Why Laoganma says “no” to an IPO


The godmother of chilli sauce

One of the greatest surprises during New York Fashion Week in September was the debut of a hoodie – sold at a pop-up store on Broadway – that celebrated China’s best-known chilli paste Laoganma. The garment featured a portrait of its 71 year-old founder Tao Huabi. On its right sleeve was printed “Sauces Queen” in English and on the left “National Goddess” in Chinese.

The hoodie was priced at $120, or 100 times the retail price of a bottle of Laoganma’s flagship sauce. Does this indicate a growing appeal for the brand overseas – with the Guizhou-based company now selling its products in over 30 markets internationally?

“Anything can be made edible with some Laoganma!” is the verdict of Simon Stahli, a Swedish artist who created the Facebook page “Laoganma Appreciation Society” in 2016. His view echoes those of Peter Meehan, a US-based food writer who once called the sauce “probably the greatest thing sold in a jar anywhere on the planet”. Even John Cena, the World Wrestling Entertainment (WWE) star, said recently on video-sharing site Miaopai that he loved having broccoli with the sauce – basically a mix of dried chillis and crunchy soybeans in an oniony, spicy, mala oil.

Laoganma’s sales crossed Rmb4.5 billion ($650 million) in 2016, having multiplied more than 600 times since 1997 when it started out, according to Guizhou Daily. Based on the tax that Laoganma paid, it is estimated that its net profit reached Rmb1.2 billion last year. A CCTV report in September also noted that Laoganma’s brand alone was worth Rmb12.15 billion as of 2017, second only in the food and beverage market to the state-owned baijiu label Kweichow Moutai.

Thus, when the Shenzhen stock exchange went looking for companies to go public this year, it was a no-brainer for the local government to recommend Laoganma as a candidate. In anticipation of the condiment giant’s listing, a local securities firm had already initiated coverage on Laoganma back in 2016. The analyst found that the company had a relatively healthy financial position compared to its peers due to its strict adherence to a “zero debt” principle.

However, the response from the chairlady was tepid. “[My philosophy is] no lending, no outside shareholder, no financing, and no public offering of shares. I’ll be good, making do with whatever I have in hand,” Tao told a local broadcaster last month, adding that she has asked her son and grandchildren to stick with the same business principle when they take over the family business in the future.

In fact, Tao the “old godmother” has a history of rejecting local government advice to get her company listed (see WiC143). “All I know is that once my company goes public, I might risk everything I have,” she said in an interview in 2013, adding that she considered a share sale a “downright swindle”.

Laoganma is sometimes categorised alongside Huawei and beverage producer Wahaha. They are all well-run companies that have preferred to stay private, aware that public disclosure and market sentiments can complicate long-term business planning.

A case in point would be Zhou Hei Ya, a braised food company based in Wuhan. Listed in Hong Kong in late 2016, it has seen its share price fall 58% since February and reported its first net profit decline in August. Now the company is trying to rekindle investor confidence with a nationwide expansion plan.

“We are now building manufacturing facilities in southern China, north China, southwest China and east China… Once they are completed, we can quickly add more points of sales. The relatively short shelf life of our products means that the travelling distance between our production base and retails outlets has to be reasonably short”, Zhou Hai Ya’s founder Zhou Fuyu told WiC in July, who added that up to 300 outlets will open every year (see our interview with Zhou in our Sinopolis guide to Wuhan; downloadable from our website).

Meanwhile state media is irked that a high-quality firm like Laoganma refuses to go public. An op-ed by the People’s Daily described Tao as “stubborn” and said if her firm faced more competition she would be less dismissive of an IPO.

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