Ruixing Coffee, which has turned upside down, recently released its latest financial report, announcing two firsts: the revenue scale in fiscal year 2022 exceeded 10 billion for the first time, and the overall operating profit of the whole year turned from loss to profit for the first time. In the face of the future, Ruixing said that “to complete Ruixing’s first 10000 store goal in 2023”, “we will continue to maintain competitive pricing strategy”. Taking a comprehensive view of the coffee market, Ruixing’s low price war and the sinking strategy of increasing store density have become the common strategy of almost all domestic coffee brands in 2023. Whether it’s the Big Brother Starbucks, the “Five-yuan Coffee” in Snow City, or the Kudi Coffee, which has a deep relationship with Ruixing, it seems that they have jointly built an invisible encirclement network for Ruixing Coffee. However, according to insiders, Ruixing also has its own space in the bustling coffee market.
1、 Two “first times”
On the evening of March 2, the “reborn” Ruixing Coffee released its fourth quarter and full year financial results for 2022. According to the financial report, the total net profit of Ruixing Coffee in the fourth quarter was 3.695 billion yuan in the first quarter, a year-on-year increase of 51.9%; The net profit was 54.5 million yuan, a year-on-year decrease of 94%; In the 2022 fiscal year, the total net profit was 13.293 billion yuan, a year-on-year increase of 66.9%, and the net profit was 488 million yuan, a year-on-year decrease of 15.7%.
Such a set of data includes two firsts for Ruixing Coffee – the first time that the revenue scale exceeded 10 billion yuan in the 2022 fiscal year, and the overall operating profit for the entire year turned into profit for the first time. Regarding the significant decrease in net profit, Ruixing Coffee pointed out that it had reached a settlement with the United States Securities and Exchange Commission (SEC) regarding the previous allegations of financial fraud, and paid a fine of about 1.1465 billion yuan under the Securities Act. agreement.
It is worth noting that in the fourth quarter of last year, several operating costs of Ruixing Coffee significantly increased. Among them, material costs increased by 52% year-on-year to about 1.493 billion yuan, rental and other operating costs also increased by 28% to about 811 million yuan, transportation expenses increased by 62% year-on-year to 379 million yuan, and sales and marketing expenses increased by 74% to 173 million yuan. Overall, the operating cost of Ruixing Coffee increased by more than 800 million yuan to about 3382 million yuan in the fourth quarter of last year, a year-on-year increase of 32%.
Although it was a year of “burning money”, Ruixing Coffee also made many breakthroughs in “people, goods, and market”. The financial report shows that the user stickiness of Ruixing Coffee has maintained a rapid growth. In the fourth quarter of 2022, the average number of trading customers for Ruixing Coffee was approximately 24.6 million, a year-on-year increase of 51.3%. In 2022, the monthly average number of trading customers for the entire year was about 21.6 million, a year-on-year increase of 66.2%.
Last year, Ruixing launched a total of 140 new SKUs, continuously launching blockbuster products. In addition to raw cheese lattes, the Ruixing Coffee SOE series also introduces high-quality coffees such as Rosette and Paradise Manor to meet the needs of users at different levels. Another “edge tool” is co-branding, including cases such as the Spring Festival co-branding of Han Meilin to create the China-Chic concept, the Valentine’s Day “Ruixing x Line Dog” peripheral map, and DIY design. https://www.stoneitech. com/
Guo Jingyi, Chairman and CEO of Ruixing Coffee, summarized our past performance with “strong” performance: “Despite the impact of the major pandemic in the fourth quarter, we have still achieved strong operational and financial performance this year. Our team has continuously improved key operational and financial indicators, further improving our profitability, while achieving sustainable revenue growth.”
2、 Capacity expansion and low price
Expansion and re-expansion seem to be the theme of Ruixing at this stage. “The business model of Ruixing Coffee has rebounded from the bottom.” Guo Jinyi said that the company is currently in the stage of rapid growth, and the coffee market in China has shown great potential. Therefore, Ruixing Coffee will pay more attention to expanding stores and seizing market share at the current stage, while maintaining a reasonable level of store profitability, “first covering, then improving the level (efficiency).”
The figures show that Ruixing Coffee will open an average of 2190 stores every six days in 2022, with a year-on-year increase of 36.4%. By the end of 2022, the number of Ruixing coffee stores reached 8214, including 5652 self-operated stores and 2562 joint stores. Ruixing has also become the largest coffee chain brand in China.
Restarting the recruitment of associate partners is seen as an important means for Ruixing to accelerate the expansion of store coverage. By the end of December 2022, Ruixing Coffee will start recruiting in 41 cities in 9 provinces. At the end of January this year, Ruixing Coffee expanded the scope of partner recruitment to 80 cities in 15 provinces. In the past year, franchise store revenue has increased by about 135% year-on-year. In the fourth quarter of last year, franchise store revenue increased by nearly 88%, accounting for 23% of the company’s total net revenue during the same period.
Self operation and joint operation are highly complementary, which is the expansion idea of Ruixing Coffee. Guo Jinyi pointed out that the former covers first and second tier cities, while the latter mainly covers lower tier cities. He hopes to continue expanding in tier 1 and tier 2 cities through a reasonable pace of openness and consistent standards, while offline cities will rapidly sink
Zhu Danpeng, an analyst in the Chinese food industry, said to consumer titanium that he is optimistic about the future of Ruixing Coffee: “Ruixing relies on the continuous development of the entire Chinese coffee market and the expansion of consumer dividends, which is not difficult to see that it has fully exerted its brand effect and scale effect in the overall operation process. In the future, with the continuous acceleration of Ruixing’s scale, this will provide a strong backing for Ruixing’s future return to the capital market.”
Based on scale, price is also emphasized by Ruixing: “In the future, we will continue to maintain a competitive pricing strategy.” Guo Jingyi pointed out that at a competitive price level, we can create profits by improving efficiency and controlling costs. He believes that as Chinese consumers gradually develop coffee consumption habits, the consumption frequency is expected to further increase, thereby achieving sustainable same-store sales growth.
3、 Are there any major enemies?
Taking a comprehensive view of the coffee market, even Ruixing, which has achieved a reversal of the headwind, is facing a fierce market competition environment of “wolf in front of tiger behind tiger”. Ruixing’s low price war and sinking strategy of increasing store density have become a common strategy for almost all coffee brands in 2023.
According to public reports, “Big Brother” Starbucks is implementing an expansion strategy to enter new cities in China. Although its operations were affected by the epidemic in 2022, its growth plan for its stores in China remains unchanged, which is to achieve the goal of opening 9000 stores by the end of 2025. Tims, which has been listed in China, will open more than 2750 profitable stores in the US stock market in 2026, and will open an average of 500 to 600 new stores per year in the future.
According to data from Narrowgate Restaurants, in 2022, when the epidemic was the most severe, the top two coffee brands with the largest number of stores in China were Ruixing Coffee and Ruixing Coffee. These two coffee brands were Ruixing Coffee and Ruixing Coffee, owned by the former Chairman of the Board of Directors. Ruixing Coffee, Lu Zhengyao. In 2022, Kudi, who had just entered the bureau, opened 390 stores.
In terms of price, Ruixing Coffee also faces an invisible encirclement net: compared to Ruixing’s per capita unit price of around 15 yuan per person, the price of a cup of American Ruixing Coffee under the Xuecheng brand is as low as 5 yuan, while the price of beverage coffee such as coconut latte is around 10 yuan. Kudi coffee, which has a deep relationship with Ruixing, is sold for 11-13 yuan, with promotional periods of 9.9 yuan and 8.8 yuan, respectively. In addition to the same disguised price reduction through large coupons and event subsidies, the coincidence rate between Kudi’s products and Ruixing is also high, and similar products are two to three yuan lower than Ruixing’s.
In the opinion of industry insiders, there is still room for imagination in the market in the process of crazy “horse racing and enclosure” of coffee brands. Some analysts said that the domestic coffee market is still in the growth stage, and chain coffee brands have not entered a zero sum game state. 2024 may be the year when coffee brands truly feel competitive. Zhu Danpeng also pointed out that the current domestic coffee market capacity is still very considerable, and the brand opportunities in the coffee market will end around 2025.
Regarding the question of whether five yuan coffee can kill Ruixing, Zhu Danpeng said, “The coffee market in China has formed a very segmented track, including six levels: ultra high-end, high-end, mid high-end, mid high-end, mid low end, and low end. Ruixing mainly focuses on the mid end and mid high-end. Ruixing coffee mainly focuses on people friendly and cost-effective, with different positioning and consumer groups, so there is not much overlap or conflict during the expansion process.”
Another analysis pointed out that for Ruixing in 2023, whether it can seize the opportunity to sink the market, defend the low-price coffee war, and create a more stable upstream and downstream supply chain for the coffee industry is particularly crucial.
