Carote cooks up big growth with own-brand strategy

With a young, second-generation management team in charge, the kitchenware maker has filed for a Hong Kong IPO to keep fueling its recent recipe for strong growth

Key Takeaways:

• Carote’s revenue and profit have grown explosively over the past three years, including 118% profit growth last year to 237 million yuan
• The kitchenware maker has been shifting its focus to higher-margin own-brand products, which contributed 87.2% of its revenue last year

By Ken Lo

There’s nothing like a new recipe to spice up your revenue and profits.

That’s the message coming from Carote Ltd., which has filed for a Hong Kong IPO, hoping to entice investors with its explosive growth under an evolving business model rolled out by its young, second-generation management team. The kitchenware company, originally named Zhejiang Carote, was established in 2007 and now uses Carote as its flagship brand.

The company has made several strategic shifts in its brief lifetime to better serve itself and its customers. It started as an original equipment manufacturer (OEM) making kitchenware using designs supplied by overseas brands that were its earliest customers. Using its acquired product design knowhow, it shifted to original design manufacturing (ODM) in 2013, still cranking out products for other brands. 

In its latest carnation, Carote now designs, develops and manufactures its customized kitchenware not only for international brand owners and retailers, but increasingly for itself.

Strategy U-turn

The company made the risky but ultimately lucrative decision to launch its own Carote brand in 2016. It initially sold Carote-brand products on e-commerce platforms in China during its first year, before adding Amazon (AMZN.US) in North America to its network the following year. It now sells its brands in many major global markets, including not only China and the U.S., but also Western Europe, Southeast Asia and Japan.

According to its listing application filed earlier this month, Carote cooked up revenue of 675 million yuan ($93.8 million) in 2021 and 769 million yuan in 2022, before the figure roughly doubled to 1.58 billion yuan last year. During that period, revenue from its Carote-brand business surged from 283 million yuan in 2021 to 1.38 billion yuan in 2023, rising 121% annually.

As its own brand flourished, that part of the business rose from 42% in 2021 to the lion’s share 87.2% in 2023. More importantly, the self-brand business’ far higher margins lit a fire under Carote’s profits over the last two years.

Gross margin for the company’s own-brand business stood at 45.9% in 2022 and fell to 39.2% last year. But even with the decline, both figures were still far ahead of ODM margins, which fell from 13.3% to 11.8% over that period. Last year’s margin declines came as the company lowered some of its prices to attract more customers and remain competitive.

As the self-owned brand business became its main breadwinner, Carote’s net profit rose 118% last year to 237 million yuan, outpacing the 106% year-on-year growth in its revenue.

Fast U.S. growth 

The company’s wares have become especially hot in the U.S., where its Carote-brand business rose more than fivefold last year to 740 million yuan from 122 million yuan in 2022, now accounting for 46.8% of its revenue. That made the U.S. the company’s largest market, leapfrogging former leader China, where its revenue grew by a slower 18% to 323 million yuan, accounting for 20.4% of its total. The company certainly isn’t alone in seeing weaker growth in China, as local consumers rein in their spending due to a slowing economy.

Rival home appliance maker JS Global Lifestyle (1691.HK), which is far more reliant on the China market, previously warned that its profit fell sharply last year, blaming adverse factors like intensified competition in China, accelerating changes in industry channels, changes in its revenue structure at home and abroad, and unstable revenue from its main categories.

Unlike China, where the market is slowing, the U.S. has been on a post-pandemic rebound for the last two years as consumers engage in “revenge spending” after three years of pandemic restrictions. 

In addition to focusing on its own brand, Carote also made an important shift in its production strategy by outsourcing all of its production to third parties starting in February 2022. Previously, it used a hybrid model of doing some production in-house and some through outsourcing. The new “asset light” strategy not only improves gross margins, but also gives the company more flexibility in allocating its resources. That’s been important for coping with changing trade policies in recent years, as some countries take protectionist measures.

Second generation leadership

Many of Carote’s major strategy shifts have come from its young management team, as it transitions from an older to a younger generation. Especially in an industry as competitive as kitchenware with low barriers to entry, companies need to constantly modify their strategies or risk being overtaken by rivals catering to the latest trends. In such an environment, today’s star management team can quickly become tomorrow’s leftovers.

The original Zhejiang Carote was founded by Li Huiping and Zhang Zhihui in 2007, who were joined four years later by Li’s daughter, Lyu Yili, and Zhang’s son, Zhang Guodong. The two young leaders were both just 23 years old at that time. Li Huiping went on to transfer her 55% of the company’s shares to Lyu in 2013, the year when Carote decided to shift its focus from OEM to ODM services. In 2019, co-founder Zhang Zhihui transferred his 45% of the company’s shares to his son, Zhang Guodong.

In fact, Zhang Guoding and Lyu Yili are not only executive directors and Carote’s current controlling shareholders, but are also husband and wife. So, the two founders, Li Huiping and Zhang Zhihui, ended up becoming not only business partners but also in-laws, keeping things all in the family. Zhang Guodong is currently Carote’s chairman and CEO, responsible for business strategy, while Lyu Yili is chief product officer, in charge of product development. 

Now, this match cooked up in the kitchen is hoping investors will buy into their modern formula for mouth-watering growth.

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