When an industry enters a new phase of value-based competition, stubbornly adhering to the old strategy of "trading scale for growth" will inevitably fail to find new breakthroughs.
Through employee personal accounts for transactions, massive decoration expenses were completely removed from the listed company's financial system. This "innovative" fraud method is shocking and has pushed the marinated food giant Juewei Food Co.,Ltd. (SH.603517) into the eye of public controversy.
On the evening of September 19, Juewei Food issued a risk warning announcement, acknowledging the company's financial fraud. Its A-share stock will be subject to "other risk warnings." According to the announcement, the company's stock will be suspended for one day on September 22, 2025, resume trading on September 23, 2025, and be officially marked with the "ST" designation. The stock name will change from "Juewei Food" to "ST Juewei."
**Unique Fraud Method: Off-Balance-Sheet Decoration Business**
Juewei Food's financial fraud case presents a rare "reverse operation" characteristic in the A-share market. Unlike other companies' traditional fraud methods of inflating revenue and exaggerating profits, the company chose a completely opposite path: systematically concealing actual revenue.
According to public information, from 2017 to 2021, the company continuously underreported operating revenue for five consecutive years by not recognizing franchise store decoration business income. The proportions of underreported revenue to publicly disclosed annual operating revenue were 5.48%, 3.79%, 2.20%, 2.39%, and 1.64% respectively. Based on Juewei Food's total revenue scale of over 40 billion yuan during this period, the cumulative concealed revenue could amount to hundreds of millions of yuan.
This fraud method demonstrated highly organized and systematic characteristics. Former CFO Peng Caigang directly arranged for finance department employees to lend their personal bank accounts, constructing a complete "off-balance-sheet fund circulation" system. Through employee personal accounts for transactions, the massive decoration expenses that should have been included in the listed company's system were completely separated, forming a hidden fund pool.
Company executives were aware of or acquiesced to this matter. Dai Wenjun, as the then chairman and general manager, clearly knew that the company actually managed franchise store decoration business but failed to fulfill his responsibilities by not incorporating this business into the listed company's operating and accounting system.
The decoration business has long been a gray area in the franchise industry. In franchise models, decoration fees often constitute a more substantial profit source than franchise fees. The industry practice is for headquarters to recommend "designated" decoration companies, whose quotes are typically 20%-30% higher than market prices, with the price difference becoming hidden profits.
Compared to peers who directly set decoration companies outside their systems and operate them through separate companies controlled by actual controllers, Juewei Food's operation appeared relatively "transparent": at least its decoration business still operated internally, with problems only in revenue recognition. The prevalence of such industry practices partially explains why such violations could remain hidden for extended periods.
**Speculation on Fraud Motives: Performance Smoothing or Benefit Transfer?**
Regarding the motives behind Juewei Food's "reverse fraud" incident, analysis mainly focuses on two dimensions: performance manipulation and potential benefit transfer, reflecting capital market concerns about its financial authenticity.
Against the backdrop of intensified competition and slowing growth in the marinated food industry, complex strategic intentions or internal governance issues may be hidden behind Juewei's actions.
"Performance smoothing" is indeed often used as a defensive financial tool in the franchise chain industry. Supporters of this theory point out that the marinated food sector has seen escalating competition in recent years, with Zhou Hei Ya and Huang Shanghuang intensifying offline expansion, while new brands like Wang Xiaolu and Shengxiangting rapidly opened stores with capital backing. If Juewei wanted to hide its true growth rate and reduce competitor vigilance, it could artificially slow current revenue curves by deferring "decoration revenue that could be recognized" to future periods, winning strategic windows for pricing adjustments, store format changes, and product upgrades.
The problem is that from 2017-2021, the company's financial statements consistently showed "double-digit growth," with revenue CAGR of approximately 14% and net profit CAGR close to 19%, showing no deceleration in curves. Additionally, decoration business accounted for less than 5% of total revenue, so even if fully deferred, the "smoothing amplitude" on profit statements would be minimal. With no significant growth pressure and minimal adjustable base, the "reservoir" motive appears reasonable in theory but lacks practical foundation.
Another speculation points to "benefit transfer." Juewei implements a "unified design, unified bidding, designated suppliers" decoration model for franchise stores: stores first transfer money to jointly managed accounts of local "franchise committees," which then pay decoration companies. Since these accounts operate outside the listed company, there's theoretical space for "overpaying suppliers with kickbacks to internal personnel," making audit penetration difficult.
However, current regulatory actions only issued an "Administrative Penalty Advance Notice," proposing to fine the company 3 million yuan and related responsible persons a total of 6.6 million yuan—amounts far lower than recent similar "fund occupation" major cases. Additionally, Juewei has been listed for 16 years with consecutive years of standard unqualified internal control opinions and complete audit and independent director mechanisms. If management truly wanted to embezzle decoration funds, choosing such a transparent, lengthy process would be uneconomical with obviously unbalanced risk-return ratios. Therefore, while the "embezzlement" version fits imagination, it lacks core evidence like key fund flows and return vouchers.
A more fact-consistent inference is "misalignment between historical accounting policies and new revenue standards." Reviewing prospectuses and annual reports, Juewei only listed "franchise fees + management fees" as revenue, never separately listing decoration portions, instead treating them as "advanced costs" or "collection and payment on behalf." The company first negotiated with decorators, franchisees transferred money to jointly managed accounts, and Juewei only handled acceptance and payment, with minimal price differences or gross profit retention.
This treatment fell into a gray area under pre-2017 new revenue standards: as long as companies didn't bear "primary decoration responsibility," they could avoid recognizing revenue. After A-shares fully implemented new revenue standards in 2020, regulators emphasized that "gross vs. net method" must consider whether companies control goods or services and bear primary responsibility; if controlling, revenue and costs must be recognized gross. Juewei failed to timely switch approaches, continuing old treatment methods, leading to off-balance-sheet decoration fund circulation and revenue-cost mismatches, ultimately being determined by regulators as "financial information not truly reflecting business models."
Therefore, this incident appears more like "old accounting meeting new rules" technical deviation rather than systematic, malicious fraud. After penalty implementation, the company only needs to supplementally recognize revenue, pay additional taxes, and adjust statements to remove ST designation—much lighter in nature than "fraudulent listing" or "major misconduct."
**Fundamental Difficulties: Franchise System Collapse in Progress**
Juewei Food's ST implementation not only exposes superficial crises at the financial level but reflects systematic collapse risks faced by its franchise business model. This deep-seated issue is far more lethal than short-term financial flaws, pointing to core growth momentum decline and overall strategic model sustainability difficulties.
Core data directly reflecting operating conditions showed significant declines. In the first half of 2025, Juewei Food's revenue from fresh product categories was only 2.112 billion yuan, a substantial decrease of 500 million yuan compared to 2.612 billion yuan in the same period last year, down over 19%, showing serious main business contraction.
More alarming is the sharp shrinkage in store numbers: currently operating stores number only 10,838, compared to 15,950 announced by the company at the end of 2023, a net reduction of over 5,000 stores. Juewei is experiencing a massive retreat far exceeding normal store iteration ranges.
Closing over 5,000 stores net in just 1.5 years is not ordinary store optimization but a clear signal of systematic franchise system breakdown. Supporting this judgment are comprehensive weakening key leading indicators: as of the end of June 2025, the company's contract liabilities were 143 million yuan, down 9.4% year-over-year. This indicator significantly reflects weakening franchisee payment willingness and stocking confidence. Meanwhile, franchise management income recorded in the first half was 27.12 million yuan, notably down from 34.02 million yuan in the same period last year, further confirming dual declining trends in franchisee quantity and quality.
More concerning is the continued deterioration of single-store profit models. Based on current store numbers and revenue scale calculations, Juewei's average monthly sales per store have dropped from over 30,000 yuan at peak to about 20,000 yuan. Against the backdrop of rigid increases in labor, rent, and other operating costs, this level can barely cover franchise store daily expenses.
To attempt reversing sales difficulties, Juewei significantly increased marketing investment in the first half, with advertising and promotion expenses reaching 92.31 million yuan, a surge of over 14.2 million yuan year-over-year, representing an alarming increase. However, high investment didn't yield expected growth, with sales expense ratios rising from last year's 8.9% to 10%, showing sharp declines in marketing activity marginal benefits and further eroding overall profit margins.
**Investor Divergence: Value Trap or Distressed Turnaround?**
After news of Juewei Food's ST designation was announced, some investors viewed it as a rare "contrarian investment" opportunity. They believe that passive selling pressure from ST designation, especially mandatory reductions or clearances by public funds due to compliance requirements, could likely cause oversold stock prices unrelated to actual operating conditions.
For investors believing Juewei can complete rectification within a year and successfully "remove the hat," current lows constitute opportune positioning timing. Technically, the path to hat removal is relatively clear: companies need to apply for ST cancellation after 12 months from formal penalty decision issuance and completion of financial statement restatement and internal control rectification.
Juewei currently operates normally and has historically maintained profitability and dividends, factors strengthening "distressed turnaround" supporters' confidence.
However, another group of investors holds more cautious or even pessimistic attitudes. They acknowledge high procedural possibilities for hat removal but point out that ST is merely a labeling issue—the real key is whether Juewei can fundamentally reverse operating difficulties after hat removal. Even setting aside financial flaws, systematic challenges like intensified industry competition, failed single-store models, and insufficient growth momentum remain, not solvable through short-term rectification.
Despite Juewei Food still ranking first in the industry by revenue scale, both revenue and net profit show significant double-digit declines, reflecting notably weakened growth momentum. More worryingly, comprehensive category revenue shows systematic slowdowns, with particularly prominent core product declines, indicating challenges in overall brand attractiveness and terminal sales.
Meanwhile, its gross margin levels clearly lag behind major competitors like Zhou Hei Ya and Huang Shanghuang, highlighting shortcomings in cost control, product pricing, or brand premiums. Against the backdrop of intensified industry competition and general cost increases, this continued profitability weakening could further erode market leadership positions.
On the last trading day before September 19 suspension, Juewei Food's stock price fell 2.45% to close at 14.72 yuan, with full-day turnover of 163 million yuan, net outflow of major funds at 29.3964 million yuan, accounting for 18.03% of daily total turnover, and turnover rate of 1.76%.
**Strategic Mistakes: Ten-Thousand Store Model Difficulties**
The systematic crisis currently faced by Juewei Food didn't occur by chance—its roots can be traced to critical strategic decision mistakes during the pandemic. When industry competitors actively adjusted business models to respond to market changes, Juewei chose to continue following scale-first path dependence, laying groundwork for subsequent growth weakness and profit declines.
When the industry overall turned toward quality improvement and innovation, Juewei's strategic choices appeared out of step with the times. When Zhou Hei Ya actively closed inefficient stores, promoted "modified atmosphere preservation + casual light food" dual product lines, and explored new consumption scenarios like "marinated food + coconut water" to enhance brand positioning and single-store output; when Huang Shanghuang resolutely expanded into prepared food and rice product sectors, attempting to create second growth curves, Juewei still persisted with the "ten-thousand store strategy" implemented since 2017, blindly pursuing store numbers and market coverage. It attempted to exchange "quantity" for "momentum" through rapid franchisee expansion and massive marketing investment, ignoring fundamental improvements in brand health, product differentiation, and store quality.
This blind scale-pursuing development model led to serious resource allocation distortions, with supply chain management and capital turnover both under pressure. Heavy asset, high-leverage expansion structures made flexible adjustment difficult when consumption environments changed. The pandemic should have been a window for companies to cultivate internal capabilities and reserve flexibility, but Juewei went against this trend, further intensifying operational vulnerability and financial risks.
Meanwhile, the company attempted to create ecosystems and seek transformation through external investments, serving as an important LP for multiple new consumer brands and funds with cumulative investments exceeding 2.4 billion yuan. However, this layout hasn't brought expected returns, instead dragging performance for consecutive years: investment losses of 94.2185 million yuan in 2022, expanding to 116 million yuan in 2023, and increasing to 160 million yuan in 2024. This "side business" not only failed to become a second engine but showed accelerating decline trends, reflecting dispersed strategic focus and lacking cross-sector management capabilities.
Juewei Food has always operated in the cross-border zone between "traditional consumption" and "new consumption," potentially leveraging existing scale advantages to promote brand rejuvenation and product health upgrades, yet falling into strategic confusion at critical moments. Failing to build genuine product differentiation and emotional connections, blindly relying on channel stuffing and franchisee overdrafts, this outdated business model has completely revealed its unsustainability in an era of rising consumer sovereignty and quality demand improvements.
Fundamentally, when industries enter new phases of value competition, stubbornly adhering to old maps of "trading scale for growth" is destined to find no new paths forward.
Comments