In the new tea drinking track, Naixue’s tea seems to have finally stopped breathing recently.
Since its listing, Naixue’s tea, which has been looked down upon by the capital market all the way, has started a “wild surge” after entering February. In less than a month, the share price has risen by 30%, even exceeding the expected net profit of 1.3 billion Haidi in 2022.
However, paradoxically, according to the data performance during the Spring Festival, the recovery of Naixue is not strong. According to the data released by the Deppon Research Institute, the sales volume of Naixue same-store in January 2023 recovered to 80-85% of the same period in 2022, and this figure exceeded 90% during the Spring Festival. Nai Xue explained that the reason why there was no strong recovery signal was because there were a large number of people returning home during the Spring Festival in the main city of Shenzhen (170 Nai Xue stores), eastern China, and other regions, which weighed on the data.
In the eyes of some investors, the reason for the soaring share price is more due to the optimization of other data. In the 2022 financial report released on January 14, the number of newly opened tea shops in Naixue increased by 251 in 2022, compared with 87 in the first half of 2022. In the period of relatively serious epidemic, it seems that Naixue can maintain the speed of opening stores, which is the beginning of opening investor’s goodwill.
At the same time, more positive signals have also been released in the communication between Naixue officials and investors. According to official exchanges, Naixue plans to open 350-400 stores in 2023, with a growth rate of 33%. In order to achieve this goal, Nai Xue claimed that in addition to the stores delayed by the epidemic last year, which will open this year, he also received many invitations from business circles in January. At the same time, the company said that due to the introduction of automatic tea machine, information software, and central kitchen, the company will further optimize the cost of raw materials, labor costs, training costs, and store flexibility. On the other hand, the investment in Lele Tea has further consolidated and strengthened the product advantages of Naixue in East China. The management even said that Naixue, which has been losing money for many years, is expected to achieve its profit goal this year.
As the top stream in the new tea race, the recovery of Naixue has undoubtedly given greater confidence to the consumer market. But at the same time, in addition to the dividend of consumption recovery, Naixue’s internal shift seems to be able to trigger people’s thinking. The founder, Peng Xin, founded Naixue’s tea with the concept of “Chinese Starbucks”, and tried to use tea as the carrier to reproduce the model of Starbucks’ third space.
But under the cost reduction, although today’s Naixue has maintained a certain growth rate, its brand has also changed its appearance. Under the homogenization of products and the assimilation of consumption scenarios, does Naixue still have advantages in the face of the mid-end red sea competition with the convergence of price bands? With the high cost of the direct stores, can Naixue, which intends to compete in scale, outperform its competitors? In addition, how can the story of the third space continue? All have become the unanswered answers in the minds of investors and industry observers.
1、 Change and invariance of Naixue
If we can sort out a complete clue to the change of Naixue, we should start from the optimization of cost.
In 2021, Naixue’s tea industry also experienced rapid expansion, with a net increase of 326 stores, directly driving the revenue growth of 40.5% year on year. However, after the large-scale expansion, the problem of store cost gradually emerged, and the net profit loss reached 150 million, nearly three times the accumulated loss in the previous three years. Among them, the cost of employees increased by 64% to 1.42 billion yuan from 920 million yuan in 2020; The rent cost doubled to 210 million yuan. The high cost of single store has always been the lifeblood of Naixue’s growth.
Under the crisis, the change of Nai Xue also came earlier. In the latest communication, Nai Xue official said that the number of workers in a single store had dropped from 10-11 to 7-8 in the second half of 2022 after the rapid introduction of automatic tea machine (the coverage rate has been nearly 100%). At the same time, the introduction of training software has also increased the number of part-time workers from 20% to 50%, increasing the flexibility of employment and the controllability of costs. According to the data, in June and July 2022, the labor cost of Naixue will drop from 25% to 20%, and according to the official statement of Naixue, this figure may drop to within 20% in the future.
The optimization of personnel costs has also driven a chain reaction of cost reduction in Naixue. In terms of products, Naixue gradually abandoned the original idea of developing and producing Volkswagen models, and began to take the cost performance of supply chain and manual operation as the core consideration to further reduce costs. “So everyone seems to think that in 2021 we can launch such popular products as nectarines and duck droppings, but in 2022, the popular products will be relatively weak, not because we do not promote new products, but because of the low market share of the competition barriers and low imitation costs. Therefore, we will start to refer to products related to the supply chain,
Looking closely at Naixue’s new products, many other popular tea products also have the same elements. At the same time, in order to make up for the decline in product innovation, Naixue has chosen to make efforts in the marketing side, by co naming other IP and excellent brands, and opening up market communication through content.
At the same time, the cost reduction of product ingredients and labor has also indirectly reduced the expansion cost of new stores. In the research report of CITIC Securities, it was mentioned that the area of the back kitchen of the Naixue PRO store has been significantly reduced, and the central kitchen of baked goods has replaced the front and back yard of the store, making the location of the store more flexible, and benefiting from the improvement of the brand’s bargaining power, the rent rate has also been significantly optimized. It is expected that the rent rate will not be higher than 15% under the normalization. The more flexible location and the gradually shrinking store area have also led to the continuous decline of the rental costs that plagued Naixue.
On the other hand, unlike Naixue’s drastic efforts to optimize the cost of products, labor and rent, Naixue shows a persistent attitude in the aspect of scenario-based third space.
As a result, Naixue, which has been reducing costs and increasing efficiency from the inside, sticking to the third space, reducing prices from the outside, and expanding constantly, is presented to consumers.
To sum up, the layout of Naixue during the epidemic period seems to be in the period of cash dividends. While reducing costs in an all-round way, it has made major changes in terms of product strategy, single-store model and personnel costs.
At the same time, from the perspective of external competition pattern, direct competitors like tea, which seems to be polishing the business model from direct marketing to franchise. At the same time, superimposed with the macro factors of consumption recovery, it is not difficult for investors to understand the positive sentiment of Naixue at the moment.
2、 The temptation and crisis of the Red Sea
From all angles, Naixue seems to have a big deviation from the original vision of the founder Peng Xin. Whether it is the cup that once spent 180000 yuan to open the mold, or the champion tea that was bought all over Taiwan and spent 2000 yuan per kilogram, such brand image is hard to find in today’s Naixue. Nai Xue, who has begun to take off her delicate coat, seems to have only the third space of scene for the fantasy of Starbucks in China.
From the perspective of results, such transformation has been recognized by the capital market, but some insiders worry that the brand power and product power are being smoothed.
“In 2023, Naixue took the initiative to reduce the price, and then we also found that more and more milk tea stores in the original range of 10-20 yuan were also opened in the mall. At the same time, the price was closed, and the sales scenarios were more and more similar. How should Naixue maintain its positioning and maintain its customer base?” Wen Xin, an observer of the tea industry, raised such a question.
The tangled high-end positioning and operation seems to have become the main contradiction under Naixue. Among high-end tea brands, the transformation of Naixue is undoubtedly successful, but when the evaluation quadrant comes to mid-range tea, the optimization of Naixue is very tight. In terms of the most eye-catching speed of opening Naixue stores in this exchange, the scale of about 300 stores a year is not too good for the mid-range tea drinks mainly based on the joint venture model. Taking the new Chinese style tea beverage Bawang Tea as an example, about 200 new stores were opened in December last year. Puyin International also pointed out in the research report of Naixue that the current competitive situation in the tea industry has not changed,
From the perspective of product power, the current model of building products around the supply chain does not seem to have advantages. For example, compared to the takeout platform in a new tier city, although the unit price of Naixue’s tea customers is higher than that of Bawang Chaji, Chabaidao, and other brands, from the perspective of comparison of its main products, Naixue has shown a weakness. The largest sales volume. Although the unit price per customer of Naixue’s Baqi grape, Yangzhi manna, and other products is 2 yuan higher than Bawang Chaji’s main product, Boya Juxian, the sales volume is lower than Bawang Chaji.
In addition, there are also widespread sales differences between competing brands at the same price.
Up to now, although the company’s main products still maintain advantages in the advantageous regions of Naixue, such as East China and Guangdong, when Naixue starts the expansion mode of scale, the competitive resistance in non-advantageous cities will also appear in the sales volume.https://www.slw-ele.com/
Entering the Red Sea has achieved the stable expansion of Naixue, but also increased the competitiveness of Naixue.
In Naixue’s official communication, the third space seems to be the company’s biggest leverage on issues such as price closing and integration of consumption scenarios. “Offline scenarios, whether before the epidemic or our future expansion, should be adhered to. The idea of drinking tea is the same as that of drinking coffee and thinking about Starbucks. In fact, Naixue has been cultivating consumers’ offline consumption habits.” “The relevant person in charge of Naixue IR once said.
However, for Naixue, if the third space carries mid-range products with low brand premium, whether to maintain profit space becomes another issue. In the first quarter of 2023, Naixue briefly raised the unit price of customers by virtue of high-priced products such as strawberries and cherries, but then removed the cherries from the shelves in some cities.
In other words, after all, Starbucks, which focuses on the third space, can maintain its net interest rate at about 10%. When the company made profits in the first half of 2021, the net interest rate was only 2.3%. The obsession with the third space seems to have led to the average investment of Naixue’s new stores as high as 1 million yuan and the daily sales profit and loss point as high as 15000 yuan, even at a time when many costs have fallen.
Furthermore, the higher investment scale and the larger sales scale, from another dimension, also limit the scale of the expansion of the sinking market. As the official statement of Nai Xue said, “At present, new stores should focus more on tier 1 and tier 2 cities in 2023, and at least 70% of the stores will be in cities above tier 2. The key layout is still in the business district and near the office building.” This undoubtedly brings greater changes to the already volatile store sales and profits.
After going public in June 2021, in the face of falling share prices, Zhao Lin, the founder of Naixue Tea, said in a public speech: “Many overseas institutions sent me WeChat to say that 50% of retail investors will sell on the first day, which is our best buying opportunity.”
Since then, Naixue’s share price has started to fall for two years. However, in the face of the rising share price, Naixue officials have shown a more conservative attitude. In the latest exchange, both the growth of 2023 and the guidance of profit margin have been clarified by Naixue. Under the economic recovery, from the perspective of the capital market, it seems that Nai Xue has finally waited for a rest, but from another perspective, the pressure of Nai Xue has not really subsided.
