China Food

Milk tea enters “passive roll” mode

“ 
The rising price of
may be the beginning of the top bubble for the whole tea industry.
 ”

Text: Bai Lu

Source: Jingzhe Research Institute (ID:)

 
Milk tea lovers are in a mixed mood these two days.
The traditional brewing milk tea brand Xiangpiao announced on January 4 that due to the continuous rise in the costs of main raw materials, labor, transportation and energy, the price of solid brewing milk tea products will be increased from February 1, with the corresponding price increase ranging from 2% to 8%.
The next day, tea Yan Yuese also announced that it would increase most milk tea products by 1 to 2 yuan from January 7, of which the adjusted prices of ACE products “Youlan latte” and “Shengsheng Oolong” were 17 yuan and 16 yuan respectively.
In the face of the price rise of milk tea products, some netizens said that “milk tea freedom is deprived” and “simple happiness is gone”. Compared with the pain of consumers losing happiness, this round of price rise is having a greater impact on the milk tea industry.
 
Forced price increase
As early as in the semi annual report of 2021, Xiang Piao had warned about the possible risks caused by the price fluctuation of raw materials. The financial report mentioned that the main raw materials for brewing milk tea include skimmed milk powder and vegetable fat powder, sugar, tea powder, red beans, coconut, etc. the packaging materials mainly include milk tea cup, cup cover, straw, packing box, gift box, etc., and the cost of these raw materials accounts for a large proportion of the production cost.
Xiangpiao, as the “first share of Chinese milk tea” that landed on the Shanghai Stock Exchange in 2017, can usually ensure its bargaining power in the procurement link by virtue of its industry-leading market share and centralized procurement mode. However, Xiang Piao still suggests that if the supply and demand of main raw materials change greatly or the price fluctuates abnormally in the near future, it will have a certain impact on the operation.
As for the tea Yan Yuese, who was involved in the price rise, the last price rise was five years ago.
Tea Yan Yuese official said that the reason why there was no price increase in the past five years was not because of feelings, but because there were two advantages of brand bonus and procurement bonus brought by scale expansion as price support. Therefore, tea Yan Yuese did not choose to increase the price because of the increase of raw materials and other costs.
It is worth mentioning that with the development of “online red city” Changsha, it has been moving towards the national tea Yan Yuese. In the past period of time, relying on the advantages of “online red brand”, it has brought continuous flow supply to the operation of its offline stores, which has saved a lot of marketing costs. It is precisely because of this that the tea Yan Yue color, which is positioned in the mid-range market and priced lower than Xi tea and Naixue tea, has also successfully “dug out” a market space in the new tea track with the business model of small profit and quick sales.
However, after the continuous expansion of the scale of tea Yan Yue color, the continuous rising cost has also caused a relatively large burden on it. Chayan Yuese mentioned in the announcement that the cost space obtained by large-scale centralized procurement is used to replace higher quality tea and other raw materials, and hopes to bring better consumption experience to consumers through the upgrading of product quality. This leads to the large-scale of the “walking volume” tea Yan Yuese, and the improvement of profits is still limited. Therefore, when the cost of raw materials rises, the product price has to rise.
 
How much did the cost of milk tea rise?
Milk tea is not the first industry to be invaded by the rising price tide. Since the second half of 2021, many food companies have issued price increases. Among them, the price rise of Haitian flavor industry, known as “Maotai in soy sauce”, ranges from 3% to 7%, and the price rise of Qiaqia melon seeds ranges from 8% to 18%. In addition, edible oil, salt, rice noodles, vinegar and other categories have joined the “price army”.
In the price increase announcements of many food enterprises, the continuous rise in the costs of main raw materials, packaging materials, labor and transportation is the main reason for the price increase, and the milk tea industry is also facing the cost pressure brought by the whole raw material supply chain.
As the main dairy supplier in the upstream of the milk tea industry, Shanghai Hairong Food Technology Co., Ltd., the “first share of cream”, announced on January 4 that in view of the continuous rise in the cost of main raw and auxiliary materials, the ex factory price of some products will be increased by 5% – 8%. Panda Dairy Group Co., Ltd. also announced recently that the ex factory price of the company’s main condensed milk related products will be increased by 3% – 10%.
At the same time, public data show that as the main raw material of milk tea products, the price of white sugar is also rising from the second half of 2020. At the beginning of 2021, the average price of primary white sugar was 5630 yuan / ton, and at the end of the year, the average price of primary white sugar was 5718 yuan / ton, with a price increase of 1.56%, up 5.82% compared with the same period last year. At the same time, the rise of shipping costs and the reduction of sugarcane production caused by successive drought and frost disasters in Brazil also led to the rise of global sugar prices.
In addition, the “plastic restriction order”, which officially took effect nationwide from January 1, 2021, has increased the operating cost of the milk tea industry. In response to the policy, new tea brands such as honey Snow Ice City, Xi tea and Naixue’s tea have been replaced with paper straws and fully degradable plastic straws since the second half of 2020, which has sharply increased the daily operation cost of the store.
According to the relevant report of Guolian securities, the unit price of ordinary plastic straw is about 0.065 yuan / piece, the price of paper straw is about 0.09 ~ 0.14 yuan / piece, and the price of PLA straw is 0.18 ~ 0.25 yuan / piece in fully degradable plastic straw. Compared with ordinary plastic straw, the cost of supplying PLA straw alone increases by 2-3 times.
Naixue’s tea once mentioned in the prospectus that the average daily order volume of a single store in the third quarter of 2018-2020 was about 608 orders. If calculated according to the conservative data of using one straw per order and considering the loss rate of 10%, the monthly cost of a single store caused by replacing the PLA straw would increase by about 3000 yuan, while the paper straw would only increase by about 1000 yuan, The replacement cost difference of 340000 tea stores in China is about 8.16 billion yuan / year.
 
The rising price tide accelerates the internal winding of the industry
In fact, the price rise of milk tea did not start with the fragrance and pleasant color of tea. In the first quarter of 2020, the prices of Xi tea and Naixue tea both increased due to the rising cost, and the price increase range at that time was also within 1-2 yuan.
At present, the price of milk tea is hot, and the tea of Xi tea and Naixue have not been involved. Perhaps it is because they are favored by capital for a long time and have enough funds to deal with the short-term cost rise. However, this also reflects that the rising price tide of the supply chain experienced by the milk tea industry will also accelerate the internal roll of peers, and even encounter industry reshuffle. Tea Yan Yuese is positioned in the mid-range market, and the milk tea brand with lower gross profit may face the test of life and death.
In the past 2021, chayan Yuese accelerated the pace of national expansion and opened new stores in Beijing, Shanghai, Wuhan, Changde and Zhuzhou. However, due to the repeated business pressure brought by the epidemic, chayan Yuese had to close the store temporarily to stop the loss in time. In 2021 alone, chayan Yuese conducted three centralized temporary closures.
Not long ago, tea Yan Yuese was ridiculed by netizens because of employee dissatisfaction caused by salary adjustment. From this point of view, tea Yan Yuese must be under great pressure. However, because tea Yan Yuese has always had good brand attention and customer stickiness, unless it is a price sensitive consumer, the price increase of 1-2 yuan will not lead to the loss of a large number of users. In other words, the existing price increase will not have a significant impact on the sales of tea Yan Yuese.
As for the former milk tea giant Xiangpiao, it has suffered a decline in gross profit margin caused by rising costs.
According to the financial report of the third quarter of 2021, the gross profit margin of Xiangpiao’s sales decreased by 13.63% to 32.23% year-on-year. Although the revenue in the first three quarters increased by 4.29% year-on-year to RMB 1.974 billion, the net profit attributable to the parent was only RMB 39.4 million, down 11.45%, and the loss was RMB 22.64 million after deducting non recurring profits and losses.
The rapid rise of new tea brands has also posed a certain threat to the sales of fragrant instant tea products. Among the main operating data of Xiangpiao in the first three quarters of 2021, the revenue of brewing milk tea was 1.412 billion yuan, a year-on-year increase of 9.05%. The income of ready to drink milk tea decreased by 7.56% year-on-year, only 531 million yuan.
Whether it is a new tea brand or a traditional brewing milk tea giant, after nearly two years of rapid development in the milk tea track, the competition situation of low industry threshold and lack of core competitiveness of a single brand has been further highlighted.
In the future, milk tea brands will face more and more pressure on costs, channels and stores, and the marginal effect of capital assisted flow guidance and scale is also emerging. The current price surge may be the beginning of the top bubble for the whole milk tea industry.
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