Summary of Key Points
In the first half of 2026, a number of small and medium-sized food processing plants faced a survival crisis due to three major pressures: weak demand, rising costs, and aggressive price cuts from distribution channels. This led to issues such as unpaid wages, production halts, and legal actions against company owners. Meanwhile, there was a clear divergence among the leading companies in the industry. Those that successfully targeted bulk sales or discount stores (such as Yanjin Puzi) had sufficient cash flow to repurchase shares, while those that missed these opportunities (such as Taoli Bread) saw declining performance. The smallest and least competitive plants were ultimately eliminated from the market, with workers bearing the brunt of the consequences.
The Dilemma of Small and Medium-Sized Food Plants: Unpaid Wages, Equipment Sales, and Legal Consequences
A food plant in Jinshan, Shanghai, owed 1.5 million yuan in wages to 14 workers and could only scrape together some money by auctioning its machinery; the remaining amount was settled over two years through IOUs. A food company in Lianjiang, Guangdong, owed 379,000 yuan to 44 workers, and it was only after the company owner was arrested for "refusing to pay labor wages" that the wages were finally paid. Another plant in Tieling, Liaoning, simply ceased production, leaving no wage disputes in its wake. These small plants were like machines deprived of their vital functions—either struggling to survive or completely shutting down.
For the workers, the process of demanding their wages was akin to gambling: they either received uncertain IOUs with installment payments or had to wait for the company owner to be arrested before receiving a portion of their wages, which amounted to less than 9,000 yuan each. This situation reflected the small plants' lack of a parent company, cash reserves, and any form of financial cushion.
Three Pressures Driving Small Plants to Collapse
The collapse of these small plants was not accidental but resulted from three converging forces:
1. Weak consumer demand: Consumers were buying less, making it difficult to sell products.
2. Rising upstream costs: The prices of raw materials increased, leaving manufacturers unable to reduce their costs.
3. Aggressive price cuts by distribution channels: The rise of bulk food stores and discount shops forced manufacturers to lower their supply prices.
Even industry leaders like Taoli Bread could not withstand these challenges: its revenue decreased by 10% in 2025, with net profit nearly halved, and its gross margin dropped to just 22.5%. In the fourth quarter, it even ended up in a loss despite being very busy (net profit margin of -1.02%). Its production capacity in South China was only utilized at 43.79%, yet it continued to invest in new capacity, with depreciation further eroding its profits. Without the scale and brand presence of leading companies, smaller plants could not survive.
Industry Divergence: Some Repurchase Shares, Others Cannot Even Pay Wages
Despite the same industry downturn, there was a stark difference between the top companies:
- Those who succeeded: Companies like Yanjin Puzi earned a net profit of 748 million yuan in 2025 and had 900 million yuan in cash flow, using 218 million yuan to repurchase shares and cancel them. Jinza Food also planned to spend 50 million to 100 million yuan on share repurchases. They capitalized on the benefits of bulk sales and discount channels, building up a financial buffer for the tough times.
- Those who failed: Companies like Liangpin Puzi and Laiyifen struggled with declining profits or losses due to their failure to adapt to changes in distribution channels. Even Taoli Bread, despite its size, faced overcapacity and mismanaged channel strategies, to the point where it neglected to resolve wage disputes with its subsidiaries.
The difference between success and failure did not lie in the quality of their products but in whether they were able to effectively utilize the right distribution channels. Those who succeeded built up financial strength, while those who failed were eliminated along with the smaller plants.
Who Bears the Cost of Market Purification?
The market's natural process of elimination is accompanied by consequences borne by the most vulnerable:
- The "dignity" of the capital market: Companies like Yanjin Puzi, through share repurchases, presented a positive image of increased earnings per share, benefiting their shareholders.
- The harsh reality in the workshops: Workers ended up with IOUs that might never be fulfilled, and 44 workers had to wait for the company owner to be arrested to receive their wages. The closure of these plants left them without employment.
This divergence highlights that while the capital market may appear respectable, it is the workers who suffer the most during this process of transformation. The healthy development of the industry requires attention not only to the success of leading companies but also to the plight of the smaller players and their workers.
In summary, the difficulties faced by small and medium-sized food plants reflect the challenges of an industry in transition. With changes in distribution channels and increasing costs, only the best-equipped and strategically positioned companies survive, while the weaker ones and their workers bear the burden of the transformation. For the industry to thrive, we must not overlook the sacrifices made by those often overlooked elements of the ecosystem. After all, a respectable story for capital should not be built on the backs of workers who are forced to rely on uncertain financial arrangements.