With a loss of more than 400 million yuan in the first half of the year, Nayuki's Tea is facing a fork in the road
2024-08-06
한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina
After announcing a loss forecast last Friday, Nayuki's Tea's share price fell 15.91% to HK$1.48 per share on Monday (August 5).
Red Star Capital Bureau noted that Nayuki's Tea (02150.HK) expects to lose 420 million to 490 million yuan in the first half of this year, and the loss is close to the full-year loss level in 2022. And 2022 is the year with the largest loss for Nayuki's Tea since 2018, except for 2021 when it was listed.
"During the rapid development of the new tea beverage industry, although Nayuki's Tea entered the capital market early, it did not fully utilize the industry dividends, which put it at a disadvantage when industry competition intensified. At the same time, Nayuki's Tea faced a two-way squeeze on costs and revenue in store operations. The room for cost optimization at the store end was limited, and consumer demand had not yet recovered significantly, further increasing operating pressure." On August 6, food and beverage industry operator Chen Xiaolong told the Red Star Capital Bureau.
Chain operation expert Li Weihua believes that Nayuki Tea now needs to reposition its strategy.
Red Star Capital interviewed Nayuki's Tea on how it will boost performance in the second half of this year, what strategies it has for the slow growth in the number of franchise stores, and whether it will shift to a small store model in the future. As of press time, there has been no response from the other party.
Image from Visual China
(one)
The expected loss in the first half of the year is close to the loss in 2022
Nayuki’s Tea: Consumer demand has not recovered significantly
Recently, Nayuki's Tea issued a profit warning, showing that its revenue in the first half of 2024 is expected to be approximately 2.4 billion yuan to 2.7 billion yuan, and its adjusted net loss (not measured in accordance with International Financial Reporting Standards) is approximately 420 million yuan to 490 million yuan.
The Red Star Capital Bureau noted that Nayuki's Tea had just emerged from continuous losses in 2023 and turned losses into profits, with a net profit attributable to the parent company of 11.166 million yuan. From 2018 to 2022, Nayuki's Tea was in a loss state. In addition to the fair value change of convertible and redeemable preferred shares of 4.329 billion yuan in 2021, which resulted in a net loss of 4.525 billion yuan attributable to the parent company, the net loss attributable to the parent company in 2022 was the highest, with a loss of about 469 million yuan.
The expected loss for the first half of this year is close to the net loss level for the whole year of 2022, and also exceeds the net loss level in the first half of 2022.
Regarding the losses, Nayuki's Tea stated that consumer demand has not recovered significantly and store revenue is under pressure, while the group's store cost optimization has basically been in place. There is limited room for optimization and adjustment of costs such as labor, depreciation and amortization in the short term, which has led to greater pressure on store operating profit margins.
"The competition in the tea beverage industry is very fierce. External factors will definitely affect its performance, but it also has a lot to do with itself." Chain operation expert Li Weihua told Red Star Capital Bureau on August 5.
Chen Xiaolong, a food and beverage industry operator, told Red Star Capital: "Nayuki's Tea's losses may be mainly related to its own business philosophy and strategic thinking."
(two)
If you don’t move forward, you will fall behind.
New tea beverage sector has companies gaining momentum
If Nayuki's Tea's estimated revenue in the first half of 2024 is 2.4 billion yuan, it will decline compared with the same period last year. If it is 2.7 billion yuan, it will increase by about 110 million yuan year-on-year, which is a significant decline compared to the growth rate of 549 million yuan in the first half of 2023.
In the first half of this year, some companies in the new tea beverage market are still gaining momentum.
According to multiple media reports, in May this year, Bawang Chaji's founder Zhang Junjie said that the company's 2023 annual GMV (gross merchandise volume) exceeded 10 billion for the first time, reaching 10.8 billion yuan, and same-store revenue increased by 88% year-on-year. In the first quarter of 2024, Bawang Chaji's quarterly GMV exceeded 5.8 billion yuan, and it is expected that the annual GMV in 2024 will exceed 20 billion yuan.
"The overall brand momentum of Nayuki is now going down, and it has been surpassed by too many latecomers. Nayuki's tea currently has insufficient exposure and few new co-branded products," said Li Weihua.
In today's tea beverage circle, if you don't advance, you will retreat.
Red Star Capital Bureau learned that Nayuki's Tea is an early Internet celebrity milk tea brand with "soft European bread + fruit tea" as its main product point. In the past few years, under the demand of reducing costs and increasing efficiency, Nayuki's Tea has gradually reduced its European bread product line and focused on the new tea product line. However, the moat of each tea brand is not wide. Nayuki's Tea does not have sufficient advantages in the new tea product line. Heytea, which focuses on fruit tea at the same time and has a similar positioning, has gained effective exposure through joint marketing in the past two years; brands such as Mixue Bingcheng, Cha Baidao (02555.HK), and Shuyi Shaoxiancao, which are positioned lower than them, have price advantages that current consumers value; latecomers Bawang Chaji and Chayan Yuese have become new trend brands for tea drinks in the past two years from the perspective of product innovation.
The data also illustrates the problem. In 2023, the average customer spending per customer at Nayuki's Tea's directly-operated stores dropped from 34.3 yuan to 29.6 yuan, but the price reduction did not bring about an increase in the average daily order volume of each store. The average daily order volume of each Nayuki's Tea store also dropped from 348.2 in 2022 to 344.3 in 2023.
Screenshot from Nayuki’s Tea 2023 financial report
(three)
Reduce franchise store area requirements
Nayuki's Tea faces a fork in the road
The average order volume and average customer spending per store have both declined. "Cost optimization at the store end has basically been in place, and there is limited room for optimization and adjustment of labor, depreciation and amortization costs in the short term." Nayuki Tea has tried to open up franchising and expand stores to improve performance, but the results have not been good.
After one year of opening for franchising, as of June 30, 2024, the number of franchise stores is 297. Heytea, which opened for franchising half a year earlier, has more than 2,300 business partner stores in one year.
At the end of June, Heytea announced on multiple social media accounts that its store count had exceeded 4,000, an increase of 800 stores compared to the 3,200 stores announced at the end of 2023. Nayuki Tea had a net increase of 239 stores in the first half of this year (including directly-operated stores and franchise stores).
"Nayuki's Tea's positioning is very awkward. They want to be the 'Starbucks of the tea industry' and create a third space. But tea and coffee are not of the same nature, and they didn't learn the third space well. Instead, they raised the rent and manpower very high. When it was first opened for franchising, Nayuki's Tea had relatively high requirements, which affected the expansion of franchise stores," Li Weihua told Red Star Capital Bureau.
The large-store model of creating the third space was also a requirement of Nayuki's Tea when it first opened for franchise, and its store area requirement was clearly limited to 90-170 square meters. In terms of investment budget, the budget for opening a Nayuki franchise store starts at 980,000 yuan, while the budget for other franchise stores is around 500,000 yuan.
Nayuki Tea is also aware of the high threshold for joining. In February this year, they lowered the area requirements for franchise stores and the starting investment amount for a single store was reduced to 580,000 yuan.
"Opening small stores is to adapt to market demand, which will promote Naixue's franchise business. But the impact is limited, because its own performance is in the red, and the average customer spending and average customer volume per store are also declining. Why should franchisees choose this brand?" said Li Weihua.
Chen Xiaolong believes that Nayuki's Tea's opening of a smaller store model is an adaptive adjustment to the current market environment, and this strategy may have a positive impact on performance, especially in the sinking market. However, whether this impact can become a way out for Nayuki's Tea still needs to observe the market's reaction and the company's operational management capabilities of the franchise model.
If Nayuki's Tea wants to make a breakthrough, Li Weihua believes that it needs to reposition its strategy. Should the brand tone still adhere to the third space? How to make the business model more flexible? Will it sink or go overseas in the future? These are all issues that Nayuki's Tea needs to reconsider. "The most fundamental thing is the cultivation of talents and teams, because they often 'realize things later'," said Li Weihua.
Red Star News reporter Zhang Luxi
Editor: Yang Cheng
(Download Red Star News and get a reward for reporting!)
