New tea drinks are still a good business, but also a difficult one.
The industry's internal competition has been extending from the consumer end to the upper end. While competing for users at low prices, various brands also need to introduce various preferential policies to attract more franchisees.
As the requirements at both ends of B/C become increasingly stringent, the days when brands can make easy money are no longer there.
In the first half of this year, the only two listed companies in the industry, NAYUKI turned from profit to loss, and CHABAIDAO's performance declined significantly, which is a true portrayal of the industry's situation.
<h2>Decline in Performance</h2>
Within a week, the only two listed companies in the new tea drink industry, NAYUKI and CHABAIDAO, successively issued profit warnings, allowing the outside world to see that this hot track has turned from sunny to cloudy.
CHABAIDAO (02555.HK) expects to record an adjusted net profit of RMB 380 million to 410 million in the first half of this year, a decrease of no more than 36.45% from the same period last year's RMB 598 million; the net profit is expected to be around RMB 220 million to 250 million, a significant drop of no more than 63.03% year-on-year.
As the representative of high-end tea drinks in China and the industry's leading stock, NAYUKI's situation is even less optimistic.
In the past, NAYUKI has been continuously losing money and finally managed to turn losses into profits in 2023. However, in the first half of this year, the company once again turned from profit to loss, expecting to record an adjusted net loss of RMB 420 million to 490 million. During this period, the company's revenue is around RMB 2.4 billion to 2.7 billion, which makes it difficult to achieve significant growth compared to RMB 2.594 billion in the same period last year.
In the relevant announcement, NAYUKI (02150.HK) admitted that consumer demand has not shown a clear recovery, and store revenue is under pressure. With cost optimization at the store end basically in place, there is limited room for further adjustments in costs such as labor, depreciation, and amortization in the short term, leading to significant pressure on store operating profit margins.
At the same time, the company plans to close some stores that have underperformed expectations, which will result in the provision of asset impairment.
Direct stores are NAYUKI's core source of revenue. As of the end of June this year, it has a total of 1,597 NAYUKI direct stores, an increase of only 23 stores from the beginning of the year, while in the same period last year, the net increase in direct stores was 126.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/64edabc3-cc56-4828-858a-f530b50018ba.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/64edabc3-cc56-4828-858a-f530b50018ba.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw"/>
CHABAIDAO is the second largest player in the new tea drink market and was listed on the main board of the Hong Kong Stock Exchange on April 23 this year. In the new tea drink track, CHABAIDAO won with its profitability. In 2023, the company achieved RMB 5.704 billion in revenue and RMB 1.26 billion in net profit (adjusted).
Unexpectedly, the first mid-year report after listing dealt investors a heavy blow.
Regarding the significant decline in performance in the first half of this year, CHABAIDAO has its own explanation: during the period, the company increased support policies for franchisees and the discount intensity of selling equipment and goods, while also increasing overall market investment expenses. The company's management believes that the above adjustments were made to respond to changes in consumer habits due to external environmental changes, which have affected the company
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/18e9ba36-4833-4ee8-8675-50c2eb4b2322.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/18e9ba36-4833-4ee8-8675-50c2eb4b2322.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw"/>
<h2>Competition for Franchisees</h2>
In the past decade, China's ready-to-drink tea industry has taken the lead and grown rapidly, becoming the fastest-growing segment in the catering industry, with the number of stores nationwide exceeding 400,000.
During this period, the industry has undergone several iterations, leading to a severe trend of overcapacity.
The low-end market was dominated by HEYTEA, while brands like NAYUKI and HEYTEA, which were originally positioned as high-end, adjusted their prices to squeeze into the mass market, resulting in intense competition. Various brands rolled out tea, fruit, milk, toppings, and even co-branded products.
With the return of rational consumption, end users are increasingly pursuing value for money and quality-price ratio, making price the most powerful weapon for brands in the war.
Zhejiang Securities' &#34;Monthly Catering Special Report&#34; continues to monitor changes in key indicators in the catering sector. According to its latest report, in June of this year, among 16 mainstream new tea drink brands, 10 brands saw a year-on-year decrease in average spending per customer, 2 remained the same, and only 4 increased. Among the brands that saw a decrease, HEYTEA, LELE TEA, NAYUKI, and HEILONGTANG all experienced a decrease of over 10%.
After a long period of price wars, we have seen that in the past 3 years, the proportion of tea drink brands with a consumption below 10 yuan has increased from 7% to 30%; while those above 20 yuan have decreased from 33% to 4%.
As product homogenization becomes more serious and the era of explosive product launches fades, the growth space for individual stores has become extremely limited. The focus of each brand has shifted from competing for users to attracting franchisees. Only by reducing costs through brand momentum formed by increasing the number of stores can they attract more franchisees and create a &#34;flywheel effect.&#34;
Since HEYTEA and NAYUKI, which have always insisted on direct operations, opened up to franchising in 2022 and 2023 respectively, the new tea drink sector has basically become fully franchised.
Faced with numerous brands, franchisees now have more choices. They will vote with their money for the brand with the better single-store model and more favorable conditions.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/b89f9420-b749-41e5-a8ba-2a634f7cea60.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/b89f9420-b749-41e5-a8ba-2a634f7cea60.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw"/>
In January of this year, HEYTEA was the first to announce multiple franchise incentive policies, including temporary fee reductions related to signing contracts and subsidies for multiple store decorations.
In February, CHABAIDAO quickly followed suit with multiple fee reductions and incentives such as material rebates.
In the past, NAYUKI, which has always been obsessed with &#34;spatial experience,&#34; had to compromise with reality and announced a reduction in single-store investment from millions to a starting point of 580,000 yuan, along with temporary marketing subsidies. After significantly lowering the threshold, it immediately attracted more potential franchisees to submit applications
In the fiercely competitive mass tea beverage market this year, the competition for franchisees has become more intense, and the periodic zero franchise fee policy is frequently seen.
<h2>Collective Exploration</h2>
As various brands compete to seize lower-tier cities and even towns, the sinking market quickly turns into another &#34;battlefield.&#34;
In the current made-to-order tea beverage market in China, the growth rate has significantly slowed down, and the overall trend from incremental to stock market is unstoppable.
What to do? Industry players are turning their attention to a broader overseas market, attempting to create another &#34;golden age.&#34;
Leading the way is HEYTEA. The brand opened its first store in Hanoi, Vietnam in 2018, and then embarked on a large-scale overseas expansion.
Almost at the same time, HEYTEA, Nayuki, and others chose to enter overseas through Singapore. In August of the following year, HEYTEA opened its first store in Malaysia.
By 2023, the trend of Chinese made-to-order tea beverages going overseas reached a climax, with brands like CHABAIDAO, 7 Leaves, Shanghai Auntie, and Sweet LaLa all venturing abroad. The Chinese tea beverage overseas war is about to begin.
After 5 years of cultivation, HEYTEA has become the vanguard of Chinese tea beverages going overseas. By the end of 2023, it had approximately 4,000 overseas stores.
In major cities in China, scenes of various tea beverage stores engaging in close combat in densely populated streets and shopping malls are very common. High-quality locations are becoming increasingly scarce, showing a saturated state.
By the end of 2022, the density of made-to-order tea beverage stores per million people in first-tier cities was 460, while in third-tier and below cities, the density was 247 per million people. At this point, leading tea beverage brands have gradually completed their penetration layout in first-tier cities, and the sinking market has instantly become the main battlefield.
According to institutional data, in recent years, third-tier, fourth-tier, and below cities have seen rapid growth in made-to-order tea beverages, with the market size increasing from 163 billion yuan and 214 billion yuan in 2018 to 716 billion yuan and 735 billion yuan in 2023, with CACRs of 34.3% and 28.0% respectively. It is expected that in the next 5 years, the growth rate will be higher than in first and second-tier cities.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f2466e65-367b-49fd-aa40-8993fa9dec47.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f2466e65-367b-49fd-aa40-8993fa9dec47.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw"/>
As various brands compete to seize lower-tier cities and even towns, the sinking market quickly turns into another &#34;battlefield.&#34;
In the current made-to-order tea beverage market in China, the growth rate has significantly slowed down, and the overall trend from incremental to stock market is unstoppable.
What to do? Industry players are turning their attention to a broader overseas market, attempting to create another &#34;golden age.&#34;
Leading the way is HEYTEA. The brand opened its first store in Hanoi, Vietnam in 2018, and then embarked on a large-scale overseas expansion.
Almost at the same time, HEYTEA, Nayuki, and others chose to enter overseas through Singapore. In August of the following year, HEYTEA opened its first store in Malaysia
In 2023, the trend of Chinese ready-to-drink tea going global has reached a climax, with brands like CHABAIDAO, 7 Leaves, Shanghai Auntie, and Sweet LaLa all venturing overseas. A fierce battle for Chinese tea drinks abroad is about to begin.
After 5 years of cultivation, HEYTEA has become the vanguard of Chinese tea drinks going global. By the end of 2023, it had approximately 4,000 overseas stores.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a17ecb00-6185-4fc7-9001-2a4ec9c2b24b.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a17ecb00-6185-4fc7-9001-2a4ec9c2b24b.png/query-aW1hZ2VWaWV3Mi8yL3cvNjQw"/>
In the past few years, the rapid expansion of top new tea drink brands has been fueled by strong support from various capital sources. Now, they are all at the stage where they aim to profit and exit.
Following NAYUKI, CHABAIDAO, brands like HEYTEA, GUMING, Shanghai Auntie, etc., are queuing up on the Hong Kong stock market, waiting for the opportunity to ring the bell for listing.
If all the top brands successfully go public in the future, the ample cash reserves + additional fundraising may bring about new expansion models. Will they move up the supply chain or down the marketing chain? At that time, it will be the most exciting era for new tea drinks.
However, the capital market has not shown too much enthusiasm for new tea drinks. When NAYUKI went public, its market value once approached HKD 30 billion, but now it is only HKD 2.569 billion.
In April this year, CHABAIDAO issued shares at HKD 17.5 per share, falling below the issue price on the first day of listing. Yesterday, the company's stock price plummeted by 12.38%, closing at HKD 6.30 per share, with a market value of HKD 9.309 billion.
Author: Chen Xiaojing, Source: Zebra Consumer, Original Title: &#34;It's Getting Harder to Make Money in New Tea Drinks&#34;

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The intensifying internal competition in the new tea beverage industry has led to a decline in performance for two listed companies, NAYUKI and CHABAIDAO. CHABAIDAO expects a decrease in net profit in the first half of the year of no more than 36.45%, with a significant drop in net profit of no more than 63.03%. NAYUKI is expected to incur a net loss of 420 million to 490 million yuan in the first half of the year. The intensified competition within the industry, with low-price strategies to attract users and the introduction of promotional policies, has put pressure on store revenue. NAYUKI plans to close some underperforming stores, but the number of new directly operated stores added is relatively small

- The tea beverage industry faces challenges despite being a lucrative business. Intense competition and the need to attract franchisees while offering discounts have led to a decline in profitability for major players like Nayuki Tea and ChaBaiDao.
- Nayuki Tea and ChaBaiDao, the only two listed companies in the industry, issued profit warnings, reflecting the sector's downturn. Nayuki Tea's shift from profit to loss and ChaBaiDao's declining performance depict the industry's current struggles.
- Market saturation and price wars have led to a significant drop in profits for tea beverage companies, prompting a shift towards attracting franchisees and exploring overseas markets for growth opportunities.

The money in the new tea beverage industry is becoming harder to earn