After a fierce competition, the second share of current tea after Nai Xue's tea was finally born. Recently, Sichuan Tea Baidao Industrial Co., Ltd. (hereinafter referred to as "Tea Baidao") is officially listed on the main board of the Hong Kong Stock Exchange. It is reported that there are 100 kinds of tea (02555)CryptotornadowemixHK) set the largest IPO of Hong Kong stocks so far in 2024.

But the news was accompanied by the opening and breaking of tea. When Hong Kong stocks opened, the offering price of Tea Road fell below HK $17.50 per share. By the close of the day, the share price had fallen more than 26% to HK $12.80 per share, with a market capitalization of HK $18.91 billion.

In this regard, a number of people in the industry mentioned in an interview with the China Business Daily that for Tea Baidao, the first day of listing may reflect investors' uncertainty about the company's future development, or the market's doubts about its valuation. However, this may also be a short-term adjustment of the market, rather than a negation of the company's long-term value.

However, the newly listed tea Baidao can not be relaxed in the current tea race track, where the market competition is becoming more and more fierce. Gu Ming, Honey Snow Ice City, Shanghai Aunt and other brands have also submitted listing applications, and the whole industry is turning into a new battlefield.

Break as soon as you go public

According to the prospectus, the offering price of Tea Baidao is HK $17.50 per share, with 148 million new shares sold worldwide and an estimated HK $2.59 billion to be raised.

But the share price of Tea Baidao is not going well. As of April 24, the shares fell 33.7% in the two trading days after the listing, and the market capitalization fell by about 8.7 billion Hong Kong dollars (about 8 billion yuan).

In this regard, Zhan Junhao, founder of Fujian Huatze brand positioning consulting, believes that the first day break is a common phenomenon in the capital market, which may be affected by a variety of factors, including the market environment, investor sentiment, the company's fundamentals and IPO pricing strategy. For Tea Baidao, the first day of trading may reflect investors' uncertainty about the company's future development, or the market's misgivings about its valuation. However, this may also be a short-term adjustment of the market, rather than a negation of the company's long-term value. Therefore, it is necessary to look at this phenomenon calmly and pay attention to the company's future operating performance and market reaction.

In addition, a number of industry experts told reporters that IPO pricing is too high may also be an important reason for its break. Outsiders say that on April 23, the price-to-earnings ratio of Tea Baidao's offering price was about 20.77, while Luckin Coffee's price-to-earnings ratio was 17.6. Obviously, the break brought Tea Baidao's valuation back to its due level.

Pan Jun, director of global commodity strategy at Bain, believes that for Tea Baidao, it is necessary to enhance investor confidence and enhance the company's market value in various ways as soon as possible.

In fact, from the performance point of view, from 2021 to 2023, the income of Tea Road was 3.64 billion yuan, 4.23 billion yuan and 5.7 billion yuan respectively, with an annual compound growth rate of 25.1%. In the same period, the adjusted net profit was 900 million yuan, 970 million yuan and 1.26 billion yuan respectively, with an annual compound growth rate of 18.2%.

In addition, the market scale of Tea Bai Dao is constantly expanding. In terms of retail sales in 2023, Tea Bai Dao has a 6.8% share in China's current tea shop market, ranking third. In 2023, a total of 1.016 billion cups of milk tea were sold in 100 tea stores, with a total retail sales of about 16.9 billion yuan. As of April 5, 2024, the number of tea stores has reached 8016, covering 31 provinces and cities across the country.

At the same time, the layout of its stores is relatively scattered. Data show that by the end of 2023, the number of tea stores in first-tier, new first-tier, second-tier, third-tier, fourth-tier and below cities accounted for 10.6%, 26.9%, 20.9%, 19.4% and 22.2%, respectively. Tea Baidao believes in the prospectus that there is a large market space in low-level cities, so it plans to further encrypt stores in second-tier and below cities to seize the sinking market.

Zhu Danpeng, a Chinese food industry analyst, believes that among several new tea brands at the head of the country, there are more or less uneven distribution of regional and urban lines. If the distribution of stores is too concentrated in a certain area, it will reduce the influence of the brand in the whole country. If the stores are less distributed in high-level cities, it is not conducive to improve brand awareness and sound dissemination.

The reporter noticed that on the third day of listing, the share price of Tea Baidao ushered in a rebound. As of April 25, Tea Road closed at HK $12.12, an increase of 4.48%.

Join in to drive the performance

It is worth noting that tea Baidao does not rely on selling milk tea to make a profit, more profits come from franchisees. According to the prospectus, the main source of income of Tea Baidao in 2023 is the sale of goods and equipment to franchisees and the collection of royalties and franchise fees, which account for 99% of the income.

The reporter learned that in the past two years, there are often investors in some county-level markets who have learned about the business of joining existing tea brands through various channels, and tea is also among their assessment goals. In fact, join a current tea brand, the price is more than 300000 yuan.

For example, at the end of 2022, the investment budget of the open and joyful tea store is 408000 yuan, the ice city of honey snow is 370000 yuan, and Lele tea is 400000-500000 yuan. The reporter saw on the official website of Tea Baidao that at present, the minimum investment in opening a franchise store is 300000 yuan, which does not include rent, decoration, employee wages and other expenses.

Yu Runjie, an expert in food and beverage marketing, once said that compared with the direct operation model, in addition to the risk of quality control, there are also risks such as out of control of industrial chain management and out of control of store management. In order to avoid the risk of out of control management, Tea Baidao packages the whole industry chain of raw materials, equipment, and packaging materials, providing the most simplified and standardized terminal product delivery scheme, and reducing the "autonomy" of terminal store operators. It is the core competitiveness of Tea Baidao in franchise store management.

In addition, the reporter learned from the tea hundred aspects, on the basis of the chain operation, tea hundred mainly hit the small shop model and takeout business, saving store costs, rent, decoration, personnel costs and other expenses. At present, Tea Baidao has set up 16 training centers and regional supervision teams throughout the country.

At present, the closure rates of tea franchise stores are 0.2 per cent, 1.1 per cent and 2.3 per cent respectively between 2021 and 2023.

However, since Tea Baidao does not have a self-built supply chain, it needs to purchase raw materials from other suppliers and sell them to franchisees to earn the price difference. According to the prospectus, the suppliers of Tea Baidao mainly include suppliers of dairy products, tea, sugar, fresh fruit, fruit juice, packaging materials and other materials and ingredients used for the production of tea drinks, as well as store equipment suppliers; from 2021 to 2023, the purchases made by Tea Baidao from the five major suppliers accounted for 29.5%, 37.4% and 36.6% of the total purchases during the period, respectively.

Zhan Junhao believes that Tea Baidao also faces some operational challenges, such as cost control, supply chain management and market competition.

Yu Runjie mentioned that the expansion of Tea Baidao is to gain the leading position in the category under the background of the rapid development of the category. During the period of rapid development of categories, grabbing sites is prior to practicing internal skills; after gaining a leading position in categories, the focus of the operation of enterprises has become to practice internal skills before grabbing sites. In this sense, the rapid expansion of the joining model is not sustainable and can only be regarded as a phased strategic means.

Gather together and compete fiercely in IPO industry

After the hundred teas, there are a number of new tea brands lining up on the IPO road, and Gu Ming, Honey Snow Ice City, Shanghai Aunt and other brands have also submitted applications for listing.

In this regard, Jiang Han, a senior researcher at the Institute of Pangu think Tank, believes that listing can not only bring sufficient financial support for product research and development, store expansion, supply chain optimization, but also further standardize enterprise management, improve operational efficiency, and occupy a favorable position in market competition.

Behind the IPO is the increasing competition in the industry. The "2023 New Tea Research report" jointly released by China chain Management Association and Meituan shows thatCryptotornadowemixThe scale of China's new tea consumption market has increased steadily from 53.4 billion yuan in 2018 to 100.3 billion yuan in 2021, but then the growth rate slowed down significantly and the market entered a period of consolidation.

In addition, the industry financing situation is not ideal. In 2021, the new tea industry has a total of 24 financing, with a total amount of 8.322 billion yuan. In 2022, the amount of financing fell off a cliff, to only 4.6 billion yuan. By 2023, the data suffered a double drop, with only two financing lines in Tea and Hetian Water Shop, including 1 billion yuan in financing.

Today, tea has successfully landed in the capital market. Compared with other brands, it has a certain first-mover advantage. Pan Jun believes that Tea Baidao can get more financial support through IPO, further expand market share and enhance brand influence.

But today's competitive environment is no longer a stage that relies solely on scale and price to win. Pan Jun told reporters that the current tea industry has entered a mature period, and the market competition is fierce. In order to stand out, we need to establish advantages in product innovation, brand building, supply chain management, digital operation and so on. In addition, we should also pay attention to the changes in consumer demand, constantly improve the quality of service, and create a unique brand value.

People in the industry generally believe that, on the one hand, the competition in the coffee market is relatively small, and there are not many brands in China that have formed a real scale advantage; on the other hand, the "price war" of the coffee track since last year is completing the cultivation of consumers, and there is a broad market space in the future.

But in fact, the competition in the coffee industry is no less fierce than the new tea race track, jumping from one red sea to another, it will take time to test whether tea can successfully find a new growth point.

(article source: China Business Network)