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look for increment before listing.
In July this year, Xi tea completed a new round of financing of US $500 million, with an investment valuation of up to 60 billion yuan. This new tea brand with the largest share of domestic high-end tea market (from burning knowledge consulting data) once again led many competitors in valuation.
However, it is worth pondering that after obtaining a large amount of financing, Xi tea did not continue to invest in large-scale store opening, but opened a series of business expansion.
These initiatives include: overweight the bottled beverage business and launching new categories and products of bottled beverages such as fruit juice tea, milk tea and lemon tea; investing in four companies: chain coffee brand seesaw, plant-based brand yeplant, tea brand and peach, and pre mixed wine brand wat.
Capital money is not easy to get. Corresponding to the highest valuation in the industry, Xi tea must prove its growth to capital. This requires it to expand its scale as much as possible and maintain rapid growth in performance. However, various signs show that after the accelerated run in the past two years, Xi tea seems to have gradually entered the platform period of development.
New business has become the way for hi tea to seek new increment. According to Euromonitor data, the annual sales growth rate of hi tea in 2020 is 18%, which is quite different from that in the same period in 2019.
Zhu Yue, partner of bright knowledge consulting, said in an interview that the essence of a series of actions of hi tea is still seeking the second growth curve of the business. With the increasing market competition, the head tea brand is also facing the challenge of how to maintain the brand heat and how to attract consumers for a long time.
The bloody listing and continuous losses of rival Naixue’s tea (HK: 02150) also reflect the problem of happy tea. A series of investment actions of happy tea mean that it has begun to turn to the cross category development mode of “tea + X”.
After the rapid expansion, Xi tea is trying to repair some problems in the business model and industrial law of the tea industry with a new incremental strategy, and copy one or several brand-new ones.
can’t escape the “inside volume” of the industry
The market competition is becoming increasingly fierce and the industry is becoming more and more “internal”. It is very difficult to continue to attract consumers.
According to the publicly available data of Xi tea, as of December 30, 2020, it had 695 stores in 61 cities at home and abroad. According to the consulting report, Xi tea ranked first in China’s high-end tea store market in terms of total retail consumption in 2020, with a market share of 27.9%.
However, in this fast-growing track, there are not only happy tea, but also more than 160 large and small new tea brands and about 450000 stores to share the industry dividends. Due to the characteristics of low threshold and product homogeneity, players continue to enter the market, and the market competition is becoming increasingly fierce.
According to incomplete statistics, in the first half of 2021, a total of 18 financing events occurred in the new tea industry, with the total amount disclosed exceeding 5.2 billion yuan. The number of financing events and the amount disclosed have been higher than that in 2020, reaching the peak in recent 10 years. Even traditional beverage brands such as Wahaha and Wang Laoji have begun to set foot in new tea.
Although both Xi tea and Naixue have certain brand potential and the media are keen to describe them as “Starbucks challengers”, it is still very difficult for the two enterprises to continue to attract consumers in the fierce competition for new tea.
According to the listed Naixue’s tea data, although it is positioned as a high-end and the per capita tea price is higher than 25 yuan, it has not yet achieved sustainable profits. From 2018 to 2020, Naixue recorded net losses of 69.729 million yuan, 39.68 million yuan and 203 million yuan respectively.
Among them, the main costs of Naixue include material costs, employee costs and depreciation of use right assets (composed of tea shops, headquarters offices and warehouse leases). The three costs together account for more than 75% of the revenue. Superimposed with advertising costs, logistics storage costs, utilities and other costs, the cost remains high.
Similarly, hi tea, which adopts high-end positioning and direct marketing mode, is also experiencing this problem.
In the article “there are not so many Starbucks in China”, cnchao once pointed out that Starbucks China’s profit margin is about 15.9%, but part of its excess return comes from rent negotiation rather than products – for the purpose of attracting people, properties often give powerful brands like Starbucks longer rent-free period and lower price.
However, neither hi tea nor Naixue has such strong brand potential, and even Howard Schultz is difficult to rebuild a Starbucks. At present, the rental cost of Naixue’s tea is 15% – 18%, which is much higher than Haidilao and Taier. The root cause lies in the high reproducibility of tea and the high competition intensity of the industry.
In addition, the persistence of the epidemic and the sluggish overall consumption in the Chinese market also have a negative impact on the growth of new tea brands.
According to the performance forecast recently released by Naixue, the performance in the third quarter of this year will turn from profit to loss, and a loss will be recorded in the whole year, which is partly due to the epidemic.
The 2021 new tea research report released by China chain operation association also points out that under the influence of multiple internal and external factors, the growth rate of new tea will slow down periodically in the next two to three years, adjusted to 10% to 15%.
Relying on the growth path of large-scale store expansion is difficult to continue to work, and the growth of Xi tea has encountered a bottleneck.
The brand potential is not strong enough, and consumers can’t continue to pay the bill, which not only affects the profit performance of new tea enterprises, but also further hinders the expansion of their store scale – there may be risks if they hasten to open stores when the benefits are not good.
According to the publicly available data of Xi tea, it has 390 stores in 2019 and 304 new stores in 2020, including 202 main Xi tea stores and 102 go stores, with a very rapid growth.
However, while the number of stores has expanded significantly, its operating efficiency has declined. Euromonitor data show that when the number of new stores nearly doubled in 2020, Xi tea’s net profit did not increase in the same proportion. Its average annual sales per store are also affected by the fierce competition in the industry.
One of the coping strategies of Xi tea is to enter the sinking market with “vice brand”.
In April 2020, Xixiao tea, a sub brand of Xixiao tea, was launched in Shenzhen. Relying on smaller stores, Xixiao tea provides tea drinks with a unit price of more than ten yuan, forming a clear distinction from the main brand (with an average price of about 25 yuan), aiming to extend to third and fourth tier cities and improve penetration.
This strategy is in line with the current market development trend. According to the 2020 new tea white paper, the growth rate of new tea stores in the first and second tier cities has slowed down, and the proportion has decreased significantly, showing a downward trend to the third and fourth tier cities. Guohai Securities also pointed out that geographically, the market of new tea brands in the first and second tier cities has reached saturation, and it is necessary to turn to the sinking market to seek new growth points.
However, when entering the sinking market, xixiaocha has to face a little bit of competitors that have been entrenched here for a long time, coco can, honey snow ice city and so on. Although Xi tea has a good brand appeal in the first and second tier cities, whether consumers can buy their sub brands in the sinking market still needs a verification process.
In the past year, Xixiao tea has entered 6 cities in Guangdong Province and opened 18 stores, which is not as fast and scale as the main brand.
In addition, in the sinking market, rivals such as honey snow ice city and Gu Ming have woven a dense store network with a flexible franchise model. Moreover, due to asset light and capital support, the competitiveness can not be underestimated.
The 2021 new tea research report also points out that in the next 2-3 years, the income growth of the new tea market will slow down periodically. One of the reasons is that the consolidation of the sinking market and the development of the western and northern markets need market verification.
“tea + X”
At present, Xi tea does not fully pursue more stores, so more surplus funds are used in businesses such as investment and new bottled beverage products.
In addition to infiltrating the sinking market, Xi tea’s new initiative to find increment is quite similar to several head brands. Zhu Yue, a partner of burning knowledge consulting, calls it “tea + X”.
In this development model, Starbucks may still be the teacher with unified new tea brands. Like Starbucks, hi tea has developed retail line commodities, including not only ice cream, tea bags, water cups, but also Festival commodities such as zongzi. Naixue also has similar product lines.
Among them, the bottled beverage business is more prominent. It can not only help improve the floor efficiency of a single store like other packaging products, but also has stepped out of the store and gradually moved towards the shelves of supermarkets and convenience stores.
Public information shows that Xi tea began to prepare bottled drinks in 2019. At present, it has launched a variety of products such as bubble water, fruit juice tea, light milk tea and lemon tea. At present, there are more than 30000 offline sales outlets of Xicha bottled drinks, covering mainstream convenience stores represented by 7-Eleven and the whole family, as well as new retail channels represented by HEMA and dingdong.
At present, Xi tea has not released the clear operation data of the bottled beverage business, but as a new business, there is still a gap between its network scale and nongnongshan spring and Yuanqi forest.
Like xixiaocha, Xicha bottled beverage business also benefits from Xicha’s brand reputation to a great extent. However, to gain a foothold in the bottled beverage market, it is obviously not enough to rely only on brand spillover effect.
In addition to developing retail products, Xi tea has made investment in the end, which is quite similar to new tea brands – peers such as honey snow ice city and tea Yan Yuese have picked up investment tools.
It can be seen that among the four start-up companies in the consumption field in which Xi tea shares, the plant-based brand yeplant and the pre blending brand wat can cooperate with Xi tea in the supply chain or channels; The investment in chain coffee brand seesaw, tea brand and peach is more about expanding brands and categories.
Through several investments of Xi tea, it is not difficult to see that Xi tea is no longer fully pursuing more stores, so more surplus funds are used in businesses such as investment and new bottled beverage products.
As these businesses are still in their infancy, whether bottled drinks or investment business, their contribution to revenue and profits will not be obvious in the short term. It will help to improve the company’s capital value, but it will not have a direct and clear impact on the company’s financial data in the short term.
is written at the end
220 stores will be opened in 2019 and 304 stores in 2020. Happy tea has been running all the way in the past two years. However, before the IPO is launched, a new growth engine is necessary to support sufficient valuation.
Nie Yunchen, founder of Xi tea, once made a comparison in an interview with the media: “we open hundreds of stores a year. Brands with such a large base as Starbucks and McDonald’s open hundreds of stores a year.”
The large-scale new stores have successfully won the industry-leading valuation level for Xi tea. However, the limitations of tea business model have been affecting the growth of happy tea and the value recognition of capital market.
In this context, Xi tea chooses to slow down, cultivate internal skills, give up the pursuit of store size and make up with various incremental businesses.
Are capital willing to accept this “new normal”? It can be predicted that for the current happy tea, the success of any of the strategies of sinking, bottled products and investment is victory.
Author: Jing Yu; Source: tide Business Review (ID: tide biz), reprint has been authorized. Reprint authorization and media business cooperation: Amy (wechat: 13701559246);
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