Honey Snow Ice City is rolling towards the bubble water, and the good days of farmers, mountain springs, are coming to an end?

By orchioo Jul28,2022

Recently, a piece of news shook the beverage industry.
At the 108th National Sugar and Liquor Fair just held, the leading brand in the tea industry, Honey Snow Ice City, was invited to participate and launched a new product: “Snow King Baqi” sparkling water, which has three flavors: white peach cherry blossom, salted plum, and orange. Not surprisingly, the bubble water in Honey Snow Ice City will still go on a low-priced route.
In fact, the advance of Honey Snow Ice City into Bubble Water had early warning signs. In August last year, the bottled water product of “Snow King Love Drinking Water” with a terminal retail price of 1.5-2 yuan was officially launched, which was first sold in supermarkets and restaurants in Henan, the headquarters, and gradually spread to the whole country.
Two months before the launch of bottled water products, the city began to apply for the trademark “Snow King Baqi”. The international classification includes beer, beverage, food and convenience food, and applied for appearance patent authorization.
From the two products “Snow King loves drinking water” and “Snow King Ba Qi”, we see the strategic ambition of accelerating the expansion of Honey Snow Ice City. It should be noted that in the packaging water race, there have already been industry giants such as Nongfu Spring, China Resources Yibao, and Kangshifu, while in the bubble water market, there are also leaders such as Yuanqi Forest and traditional beverage giants accelerating their layout in this market. In this situation, choosing the “hard and rigid” industry giant is undoubtedly worth the market’s expectation.
This article has the following views on the entry of Mixue Ice City into the bubble water market:
1. In the current tea market, high-end tea brands represented by Xicha and Naixue are struggling to achieve stable profits due to the high cost of high-end positioning. However, the cost-effective tea brands represented by Miyue Ice City have already seen a development ceiling due to the rapid promotion of franchise models. Despite achieving profitability, the story of selling raw materials to franchisees in Honey Snow Ice City is clearly not sexy enough in the capital market.
2. In the business world, it is common for tea brands to enter the ready to drink beverage market. More industrialized and scaled ready to drink beverages have lower costs and can bring higher profits. Starbucks launched its ready to drink coffee product early on and has also explored some experience in bottling popular ready-made products. In China, the tea makers of Xicha and Naixue have launched ready to drink beverage products such as bubble water and juice tea, but have not set foot in bottled water. Honey Snow Ice City also wants to leverage the ready to drink beverage market to achieve a dual increase in revenue scale and profitability.
3. For traditional beverage giants such as Nongfu Spring, China Resources Yibao, and Kangshifu, whether it is the previous impact of Yuanqi Forest or the cross-border expansion of new tea beverage brands, there is no doubt that these giants will weaken their dominance. New tea beverage brands have a strong brand advantage, with a vast store system consisting of natural billboards and product display cabinets. At the same time, new tea beverage brands do not need to be as aggressive in channel development as Yuanqi Forest, and can better cultivate channels and enhance control. This also means that the good days of traditional beverage giants seem to be coming to an end.
1、 A tea drink business that is not sexy enough
Since approximately 2016, China’s current tea beverage market has entered a fast lane of development. According to data from iMedia Consulting, the scale of the domestic ready-made tea beverage market has rapidly increased from 29.1 billion yuan in 2016 to 279.6 billion yuan in 2021.
During this process, tea companies have explored two representative routes: one is high-end tea represented by Xicha and Naixue teas, and the other is cost-effective tea represented by Mixue Bingcheng. Tea brands that follow the middle route will be slightly inferior in store size or brand awareness.
However, in the face of the hot market, current tea beverage enterprises are not actually making money.
High end tea drinks represented by Naixue’s tea have not yet achieved stable profitability. In 2022, Naixue’s revenue reached 4.292 billion yuan, which is basically the same as in 2021. However, the operating profit margin of its Naixue tea store was 11.8%, a decrease of 2.7 percentage points. The operating profit margin of another brand’s Taigai store is -14.5%, compared to 13.2% in 2021. Overall, in 2022, Naixue’s tea industry suffered a loss of 476 million yuan during the year.
For high-end tea drinks, maintaining a high-end brand image requires investment in raw materials and services, resulting in high material and employee costs, accounting for over 60% of revenue. In addition, rental costs, advertising expenses, delivery service fees, and other costs further weaken its profitability.
As for cost-effective tea drinks represented by Honey Snow Ice City, its core model is franchise. The main source of income for Mi Xue Ice City comes from selling various ready-made beverages and ice cream products to franchisees, including ingredients, packaging materials, equipment and facilities, operating supplies, and providing franchise management services. In 2021, Naixue’s revenue exceeded ten billion yuan, with food revenue accounting for nearly 70%.
In 2021, Mi Xue Ice City achieved a net profit of 1.91 billion yuan, with a net profit margin of 18.46%. In the capital market, this level of net profit margin is not considered low. However, considering that the number of stores in Honey Snow Ice City has exceeded 20000 by the end of 2021, its business ceiling of selling ingredients through franchise stores is also lower, and the story of cost-effective tea drinks is not easy to tell.
It can be said that in the current tea beverage market, high-end brands are not profitable and face fierce competition in the market. Cost effective brands have already spread throughout the country, and the number of stores is rapidly approaching the ceiling. However, in this development process, both high-end tea drinks and cost-effective tea drinks have formed distinct brands among the consumer group.
In the current market, brands are the most valuable assets of tea drinking enterprises. Leveraging brand advantages to expand business into the ready to drink beverage market has also become a common breakthrough path for tea beverage brands.
2、 Honey Snow Ice City wants to tell a new story
From this perspective, it is not difficult to see that using the brand as the most valuable asset, the expansion of Honey Snow Ice City from ready-made tea drinks to ready to drink beverages is actually a trend of development strategy.
As mentioned earlier, the milk tea chain business of Honey Snow Ice City has already seen the ceiling faintly. After that, a new branch mission was opened in Honey Snow Ice City. Entering the current coffee market with milk tea and launching the “Lucky Coffee” brand, we are also accelerating our penetration into high-end cities where Starbucks and Lucky Lucky have not yet been deeply developed through our franchise model and cost-effectiveness advantages.
But whether it’s milk tea or coffee, its mode has not changed. In this situation, the entry of Honey Snow Ice City from ready-made tea drinks to the ready to drink beverage market can be considered as opening a new story.
In fact, for tea drinking enterprises, entering the ready to drink market is a routine operation. The most representative is Starbucks, which chose to collaborate with Kangshifu to launch ready to drink coffee in China as early as 2016. In April this year, Starbucks launched two bottled beverages, Pink Drink and Paradise Drink, in the United States, sparking a frenzy on social media both domestically and internationally. In the fiscal year 2022, Starbucks’ other revenue, including its ready to drink beverage business, reached $2.019 billion, a year-on-year increase of 14.1%.
In China, as early as 2020, Xicha launched its first portable bottled beverage NFC Juice, followed by multiple categories of bottled beverages such as Juice Tea, Bubble Tea, Light Milk Tea, and Bang Lemon Tea. At the same time, Naixue has also launched multiple products such as bubble water, juice tea, and floral tea.
In 2022, Naixue’s revenue from other products, including bottled beverages, reached 381 million yuan, a year-on-year increase of 24.44%, making it the only positive growth business of Naixue.
From Starbucks to Naixue and then to Mixue Ice City, the launch of ready to drink beverage products is a conventional layout, which is determined by the strong brand characteristics of tea beverage enterprises. The brand influence and popularity have given it a huge traffic base, which is sufficient to support the operation and development of the ready to drink beverage business, thereby expanding the development space of tea beverage enterprises.
More importantly, compared to freshly made tea drinks, ready to drink beverages are a more profitable business. The industrialization and scale of ready to drink beverages are higher, and the raw material costs of products such as purified water and sparkling water are extremely low, with considerable profits. Its business model has already been verified by industry leaders such as Kangshifu, Tongyi, Nongfu Spring, and Yuanqi Forest.
That is to say, whether it is Naixue, Xicha, or Mixue Ice City, the transition from ready-made tea drinks to the larger and more profitable ready-to-drink beverage market has also told an imaginative new story to the capital market.
3、 Ready to drink beverage market ushers in a tornado
For the ready to drink beverage market, the successive influx from Yuanqi Forest to Honey Snow Ice City is actually weakening the influence of traditional beverage brands.
Traditional markets such as packaged water and carbonated beverages have long been controlled by beverage giants, and new entrants need to face comprehensive suppression in terms of brand, channel, and production costs. Therefore, few new beverage brands have emerged for a long time.
The rise of Yuanqi Forest is based on the brand advantage formed by the concept of “sugar free” to break through the offline channel system. It leads the way through offline convenience store channels, grabbing the new generation of consumers with greater discourse power on social platforms, and further entering offline supermarkets and stores with brand influence and market feedback. This model has much less control over offline channels than traditional beverage companies, and it still requires further cultivation of the vitality forest.
For Xicha, Naixue, and Mixue Bingcheng, the core advantage of entering the ready to drink beverage market is the brand, and the disadvantage is also the channel.
However, for tea brands, the tea store system will be a natural billboard and product display cabinet. Like Honey Snow Ice City, which covers more than 20000 stores nationwide and also launches bubble water products, its influence cannot be underestimated.
These stores that produce ready to drink tea may not necessarily provide much assistance in directly selling ready to drink beverage products, but they have saved a significant amount of marketing expenses.
It can be said that the cross-border development of tea brands has already established a certain consumer base, and the channel system can be gradually opened up in the future, which is sufficient for the “sideline” of ready to drink beverages.
More importantly, relying on the product research and development capabilities of the tea beverage system, tea beverage brands may also bottle their star tea beverage products like Starbucks in the future, creating new products to attract popularity.
From this perspective, these new players in the ready to drink beverage market have comprehensively utilized the advantages of the industry chain, brand, research and development, brand marketing, and design, with great hope of breaking the encirclement of traditional giants in the ready to drink beverage market, especially in the packaging water and tea beverage markets.
It is not clear whether the current tea and beverage leaders who cannot make money collectively enter the ready to drink beverage market can make a lot of money. But one thing is certain that the days of traditional ready to drink beverage giants lying down and making money should also come to an end.https://store.stoneitech.com/

By orchioo

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