The recent results released by Joyoung Co., Ltd., the leading domestic small appliance manufacturer, reveal a startling development: the company has recorded a loss of CNY 77.33 million in the third quarter of 2023. This marks a significant turning point, as it is the first time since the company's listing in 2008 that it has reported a quarterly deficitWhat could have led to such a decline for a brand that has been synonymous with the soybean milk maker in Chinese households for nearly three decades?

The history of Joyoung is quite remarkableFounded by Wang Xuning in 1994, the company revolutionized breakfast routines for millions with its invention of the first fully automated soybean milk machineThis innovative appliance had the capability to produce a variety of drinks, including soy milk, fruit and vegetable smoothies, and corn juiceWith features such as automatic cleaning and continuous service, it was a game-changer, rapidly gaining a solid foothold in the market.

Despite years of positive growth propelled by the popularity of the soybean milk maker, recent trends indicate that the company faces mounting challenges that have eroded its competitive edge within the small appliance sector in China

A surge of competitors has significantly diversified the market, making it increasingly difficult for Joyoung to maintain its previous levels of profitabilitySince 2021, the company has seen a steady decline in revenue and net profit, leading to significant losses this yearFor instance, in the first three quarters of 2024, Joyoung’s revenue dropped to CNY 6.182 billion, a decrease of 8.84% year-on-year, while net profit fell to CNY 98.0639 million, a staggering reduction of 73.02%.

In fact, the figures for the third quarter alone highlight just how steep this decline has beenRevenue plummeted by 27.12% compared to the same quarter last year, reflecting shifting consumer behavior and increasing operational costsJoyoung’s net profit for this quarter transitioned from a positive CNY 116 million last year to a negative figure, underscoring the urgency for the company to address its challenges.

The root of Joyoung’s struggles can be traced back to an increase in various expense ratios that have cut into their profitability

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In the third quarter of 2023, the company's overall expense ratio reached 27.89%, significantly above the previous year's ratioNotably, the sales expense ratio alone surged to 19.12%, a jump of 8.1 percentage pointsMeanwhile, management and R&D expenses also contributed to the financial strain, indicating that Joyoung's operational efficiency is under scrutiny.

Despite attributing their financial difficulties to rising operational costs from industry pressures and escalating raw material prices, a comparative analysis with peers in the market reveals that Joyoung’s profit margins are significantly lagging behind competitorsWhile other brands such as Supor and Xia Bear Electric reported stable to growing profits and revenues, Joyoung’s performance starkly contrasts with this trend.

Moreover, while Joyoung has embarked on a diversification strategy—essentially aiming for a more premium positioning within the appliance market—its success has been lackluster

In 2022, it introduced its Space Series appliances, touted as embodying the 'Space Kitchen' conceptHowever, after three years of product updates, the company has failed to disclose any specific sales data for this line, raising questions about the efficacy of its high-end initiatives.

Despite these efforts, it has also expanded into the cleaning appliance sector, acquiring stakes in companies like Shark NinjaHowever, even this move has not provided the expected financial uplift, as Joyoung's cleaning appliance revenue has been lumped into a broader category without specific financial reporting, culminating in an overall uninspiring contribution to company growth metrics.

The question of international expansion is another facet that Joyoung has struggled to tackleThe overseas market presents both challenges and opportunities for small appliance brands, yet Joyoung’s international revenues did not exhibit the growth seen by its competitors

With a decline of nearly 9.69% in overseas business revenue this year, Joyoung's low-margin ODM model has come under considerable scrutiny, raising red flags regarding its ongoing viability in the global market.

A recent move to address these challenges involves a strategic partnership with JS Global Trading HK Limited, aimed at bolstering its Hong Kong subsidiary's resources to enhance R&D and market penetration of smart home productsWhile this strategy hints at a renewed focus on international growth, Joyoung must ensure it creates robust pathways for its products in competitive foreign markets rather than solely relying on its existing ODM structures.

In navigating these tumultuous waters, the path forward for Joyoung may hinge on leveraging its existing product lines while innovating to meet evolving consumer preferencesThe company must adopt a clear strategy that balances cost management and market expansion with the goal of regaining its position as a frontrunner in the small appliance industry