Food companies see collapsing margins as demand remains weak amid higher inputs costs

Data from Nanqiao Foods, a bakery products company, continues to show the lingering demand impact of China’s zero covid policies even after they were lifted in December.

In January, the company reported revenue of 221m yuan, down 17% year on year.

The company also saw a decline in 2022, which is attributed to reduced demand due to the zero covid policy. However, sales have not bounced back. The company stated that “the offline customer flow to physical retail stores has not yet recovered” in their announcement on February 10th.

At the same time, the company has seen its margins squeezed as agriculture product prices have remained firm, including wheat prices in China remaining at elevated levels. The company also saw margins hit due to much higher palm oil prices in 2022.

Net profits in the second half of 2022 fell by an estimated 57-76% and its Q3 net profit margin was just 1.1%, down from 11.3% in Q3 2021.

Agriculture and food demand in China remains lackluster as consumer behavior hasn’t returned to pre-Covid levels and consumers are being more frugal due to the slowing commodity. Companies like Nanqiao, therefore, find it difficult to raise prices to pass along higher costs in the same way that companies involved in staple food production can.

Nanqiao had an IPO in 2021 which saw its stock go limit up daily for nearly three weeks before hitting an all-time high of 76.17 yuan per share.

Since then, the company’s stock has continued steadily declining, closing on Monday at just 22.63 yuan per share.