Xicha Sails to the Sea, Replicating the Next Honey Snow Ice City

By orchioo Aug26,2022

Recently, Xicha announced that it will open franchise applications in multiple overseas cities in succession, embracing global partners. Calculating the time, it has only been 4 months since Xicha opened its domestic franchise in November last year.
In February of this year, Honey Snow Ice City opened its first overseas store outside the Asian market. According to relevant media reports, the popularity of this Sydney store far exceeded expectations, with coupons sold for more than 100000 yuan during the warm-up period.
Of course, there are significant differences in brand positioning and product prices between Xicha and Honey Snow Ice City. Moreover, Honey Snow Ice City has always been dominated by franchises, while Xicha has always been dominated by direct sales, which also means that the “franchise road” that Honey Snow Ice City can take is not necessarily easy for Xicha.
However, the recent development pace of Xicha is almost stepping on the footprints of the Honey Snow Ice City. If you want to “replicate” the Honey Snow Ice City, how many chances are there for Xicha to win?
1、 “Going to sea” is the antidote to tea?
In fact, the founder of Xicha, Nie Yunchen, publicly stated in his early days that he did not want to become a franchisee. For a long time after the establishment of Xicha, Xicha has always regarded “direct marketing is more conducive to controlling quality” as its selling point. From the perspective of actual effects, Xicha’s product research and development, and product quality, have indeed been well known in the tea drinking industry.
However, in recent years, the repeated epidemic and the continued weakness of the consumer market have had a far greater impact on the tea market than expected. Xicha has also had to bow to reality, and developing towards a sinking market is the common choice of all new tea brands.
On the one hand, the market space of mid to high-end “Xicha” in first and second tier cities has become saturated, and everyone needs to find a “new battlefield” with larger space and lower costs; On the other hand, under the pressure of weak consumption, consumers are more sensitive to prices, and the price reduction is also adapting to the trend of “mid to low end” tea drinking. Data shows that the passenger flow of Xicha has increased by about 10% after the price reduction.
After the brand and products began to “sink”, they also prepared for the opening and joining of Xicha. In fact, after announcing the opening of the franchise at the end of last year, some industry insiders believed that Xicha’s move might be preparing for the listing, hoping to prepare for the business data first.
However, whether Xicha’s franchise model can bring the desired results and whether being eager to move from domestic to overseas is a good choice, Xicha must also be clear about this account.
Let’s first look at the short-term benefits of joining. It has to be said that compared to other tea brands, Xicha’s franchise fee is really not cheap, with the fee to be paid in the first year alone being as high as 413000 yuan.
Looking at the joining fees of Ruixing and Honey Snow Ice City, according to relevant media, the “investment fees” of Ruixing and Honey Snow Ice City for the first year, excluding rent and labor, are about 350000 yuan and 370000 yuan, and have already included a certain amount of raw material procurement fees.
Compared to the hard work of direct marketing, the franchise fee for Xicha is indeed considerable. Xicha once revealed that it received more than 10000 joining applications on the first day of opening up, so what is the actual situation?
Last November, Xicha announced that it would open up its franchise to business partners, mainly promoting store types that are within 50 square meters in size and with a franchise fee of less than 500000 yuan. However, this time, business partners are recruited as “limited” employees, requiring them to be Xicha employees, work in the store for more than 3 months, pass the promotion assessment for four positions in the store, pass the food safety and quality control supervision and inspection assessment for existing store standards for more than 3 consecutive times, and have the ability to serve as a store manager.
Currently, Xicha has not publicly announced the number of franchise stores, but it has been disclosed that there are about 20 franchise stores after the Spring Festival. From this perspective, the domestic franchise situation of Xicha is not very enthusiastic, which may be related to the high requirements of Xicha on franchisees, such as the requirement of less than 1 million yuan, as well as the relatively cold consumer market and more cautious investment sentiment.
Against this background, it is not difficult to speculate on the reasons for liking tea and going to sea. On the one hand, the imaginative space for sinking the domestic market is far less extensive than the overseas market. According to data released by Moten in 2022, Southeast Asian consumers consume up to 3.66 billion US dollars (about 26.8 billion yuan) of new tea drinks a year.
According to data from GrabFood, a delivery service platform, consumers in Southeast Asia consume an average of 4 cups of pearl milk tea per person per month, while Thai consumers consume an average of 6 cups. Compared with China, even in 2020, when new tea was popular, only 30% of consumers could drink 10 cups of milk tea per month, which shows that the habit of “drinking tea” in foreign markets has long been cultivated.
On the other hand, the scale advantage of the supply chain is also one of the goals of Xicha to go to sea. Since last year, the prices of raw materials for most tea drinks have been rising, but the prices of end products have instead been reduced, further increasing the cost pressure on Xicha. Therefore, Xicha also hopes to expand its sales scale through domestic and foreign franchises and gain stronger bargaining power.
Finally, the impact of going to sea on Xicha brand will be more positive than negative. Firstly, the current foreign market for tea is almost blank, and “going to sea” can empower the brand and also “build momentum” for the domestic market.
Secondly, Xicha’s brand influence is mainly in China, and even if its overseas franchise model ultimately fails, its impact on domestic brands is relatively smaller. Since the “franchise model” is imperative, Xicha will start from overseas and instead have the opportunity to preempt the opportunity to overtake at corners.
2、 The “unspeakable pain” of joining a business
The “unspeakable pain” of franchise business
Joining a business seems easy, but doing it well is difficult. Joining overseas is even more difficult.
The first is the issue of franchise management. This time, Xicha launched its domestic franchise plan, and was criticized as “too fast and too urgent.”. Some franchisees stated that Xicha only took about a month from planning to open its store to completing the decoration training, and its management, both in terms of store decoration and personnel training, was not in place.
For example, the decoration of Xicha stores in Chenzhou, Hunan Province, was complained of as being too “grounded”, and some stores were poorly located, resulting in a chaotic surrounding environment. In addition, according to the Times Weekly, some consumers said that the taste of products from franchise stores is different from that of direct stores.
Secondly, how to protect the interests of distributors. In recent years, franchisees have almost become a “scarce resource”. Facing the gradually saturated tea market, everyone’s attitude is more conservative, and the investment return period is the first consideration for everyone.
On the other hand, Xicha’s requirements for franchisees are “not reduced but increased”, such as the aforementioned starting capital of around 400000 yuan and capital verification of 1 million yuan. In addition, when actually landing, the requirement for capital verification is even 3 million yuan, and it is also necessary to ensure that a certain scale of stores can be opened in the future.
With such high requirements, can Xicha help franchisees make money? According to Xicha, its business partnership stores are expected to have a gross profit margin of 60%. However, generally speaking, after deducting various operating costs, the net profit rate of a single store in the tea and beverage industry is about 25%.
To make a simple calculation, the start-up fund for joining Xicha will be around 400000 yuan, and at least 600000 yuan will need to be invested in personnel, water, and electricity. If the franchisee wants to make a profit within a year, the monthly net profit should be around 50000 yuan, and the turnover should be around 200000 yuan per month. Based on the average price of 20 yuan per cup of Xicha, it should sell 333 cups per day.
“Xicha has previously announced that its franchise stores have an average daily sales volume of 2000 cups, but the maximum sales volume of a single store in Honey Snow Ice City is only 3000 cups+. After reviewing relevant reports, some media have calculated that Xicha’s single store daily sales volume can reach around 200 cups, which is quite different from the data released by Xicha. The concerns of distributors are also reasonable.”.https://www.stoneitech.com/
Once the dealer is in a hurry to pay back, there may be more safety hazards. Take Honey Snow Ice City as an example. Many stores have exposed food safety issues. On the Black Cat complaint platform, there are over 200 complaints a month. It can be seen that the larger the team, the harder it is to eradicate the hidden dangers.
Finally, when the pace of joining abroad, the management difficulty will also repeatedly escalate. Taking the investment return cycle as an example, due to different market conditions at home and abroad, labor and rental costs are higher than in China, and the return time may also be longer.
In addition, supply chain costs are another challenge. Currently, most new tea and beverage products cannot be separated from fresh fruit, but to win high-quality fruit, it is necessary to control the source supply chain, and it is a great test for the transportation, storage, and infrastructure of enterprises.
This is also an important difference between Xicha and Honey Snow Ice City. Therefore, although Xicha seems to have become an “advanced version” of Honey Snow Ice City, and its development path is increasingly similar, the supply chain of Xicha has not yet created a moat. Therefore, the uncertainty of Xicha’s “going to sea” remains high.
3、 The “Great Navigation Era” of New Tea Drinks
However, we can also find some inspiration from the “direct sales to the sea” history of brands such as Xicha and Naixue. In fact, brands such as Xicha and Naixue have gone overseas as early as around 2018, but their achievements are not ideal.
Both Xicha and Naixue coincidentally chose Singapore as their first stop at sea, as there are more Chinese in Singapore and their consumption level is higher, which is more in line with the high-end positioning of the brand. In addition, Japan is the second stop for most tea and beverage brands, and settling in Japan can help improve the brand’s fashion and popularity.
However, at present, Naixue’s Singapore store and Osaka store have been closed; Xicha, which once announced that it would march into Tokyo in 2020, has also been delayed due to the epidemic; Machi, a milk tea shop once famous for Jay Chou, has also closed its stores in Tokyo.
In contrast, Honey Snow Ice City also opened its first store in Vietnam in 2018. Currently, it has more than 4000 franchise stores overseas, making it the first tea brand to break out of Asia.
If Xicha wants to “replicate” the Honey Snow Ice City, the first thing to dismantle may be how to smoothly move its stores overseas. Previously, Xicha and Naixue have successively shelved plans for overseas stores.
First of all, it is necessary to consider how to smoothly move the supply chain overseas. Take the example of Honey Snow Ice City, where the transportation of raw materials in China can reach the store within 24 hours, but the logistics and distribution in the overseas market is not as convenient as in China. In addition to domestic to overseas transportation, there may be shortages of raw materials, delayed delivery, and other issues.
In the face of supply chain issues, building factories overseas and going to sea nearby are the most likely solutions. Last July, Miyue Ice City began building its Asian headquarters in Chengdu. After that, its own raw materials such as tea, flavored milk, and so on can be shipped from the nearby transportation network in Chengdu. In addition, there was also news last year that Honey Snow Ice City would invest in a coconut coconut milk base in the Philippines.
These paths may provide some “inspiration” for Xicha, but its future supply chain carding task is still arduous. Currently, Xicha’s domestic supply chain still relies on third-party supplies for some raw materials and distribution, and the supply chain efficiency has not been maximized. The cost pressure of products shipped to the sea will have to be borne by the “high-end brand image”.
In addition, there is a problem with overseas business methods. Previously, Xicha and Naixue’s “direct sales to the sea” suffered setbacks, largely due to their lack of familiarity with overseas markets, such as differences in tastes of overseas consumers, the use of overseas e-commerce and takeaway platforms, and problems with store location.
When a new tea brand has only two or three stores overseas, it is more like a single store battle, lacking support from the decision-making team in the middle and back office, making it difficult for them to respond quickly to product research and development and product promotion. On the contrary, if we can find a powerful general agent in the local area or directly recruit teams overseas, we can improve the operational efficiency of the enterprise overseas.
For example, Honey Snow Ice City has operating companies in Hong Kong, Indonesia, and Vietnam, mainly engaged in procurement, franchise, materials, and other work. When the overseas market reaches a certain scale, these are inevitable demands.
Finally, whether it’s Honey Snow Ice City or Xicha, I’m afraid everyone will face losses in the short term. As of March 2022, more than 200 stores in Vietnam in Honey Snow Ice City have not yet achieved profitability.
When Xicha has only two or three direct stores abroad, it can choose to withdraw from the store without considering profit. However, when Xicha expands its franchise overseas, it means that it can only force its supply chain and overseas teams to achieve optimization and upgrading, even at the cost of short-term losses.
However, it will be difficult for new tea brands to go to sea from 0 to 1, but there are infinite possibilities from 1 to N. Take the first step first, and Xicha can find more possibilities. Otherwise, becoming bigger and stronger will always be empty talk.

By orchioo

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