Focus analysis| Xicha Naixue does not want to be a Starbucks

Wen | Yang Yafei

Editor| Qiao Qian

It is not a long queue or food safety problem, due to the initiative to reduce prices, Hey tea, Nai Xue's tea has recently rushed to the hot search.

On March 17, Nai Xue announced a sharp price reduction for the product, on the basis of the new series of low-cost fresh fruit teas promoted in January, "as low as 9 yuan, 19 yuan cap", Nai Xue said that it will launch at least one new tea product within 20 yuan every month.

This part is a response to the price reduction of the old rival Xicha. More than half a month ago, Heytea just announced that it would cut the price of a number of tea products, erasing all the 3-character prices on the standard menu, and the original 32 yuan of Zhizhi berry berries fell to 29 yuan. Heytea also announced that it will not launch new products of 29 yuan or more during the year, and will continue to be listed with new 1-word drinks.

In the matter of price reduction, the two tea head brands rarely reached a consensus. They once sold 30 yuan + tea to the whole country, this time not only turned around to return to the 2-word era, the two brands in one step, the product price down to the 1-word head.

As for why the price is reduced, the reasons given by the two brands are quite similar, mostly due to the dilution of costs after scale. The same cup of tea, the same fresh milk and fruit ingredients, the procurement cost of 100 stores, and the 500, 1,000 stages are not the same. However, this statement is difficult to be convincing, otherwise the expansion of high-end tea drinks will end up in the Honey Snow Ice City below 10 yuan.

This price reduction can be said to be a true portrayal of the fierce competition in the tea brand market. No longer compete in product quality, brand concept, service, price war is in full swing. A signal released behind this is that new brands that take the high-end route have also begun to pay attention to the cost performance of products. But is the high-end tea that has been reduced in price still a high-end tea?

Price reduction, or should it be increased?

In the current special period, price reduction is not a natural choice.

Due to the tight global supply chain, the cost of raw materials has generally risen significantly in the past year. Miles Hurrell, ceo of fonterra, a dairy giant that supplies dairy products to food and beverage businesses, said the average cost of raw milk rose nearly 30% year-on-year in the first half of fiscal 2022, and the purchase price has reached an all-time high.

The pressure of cost Fonterra naturally did not hold on, and the price increase of some products was also transmitted to downstream catering customers, which eventually made Fonterra Greater China's adjusted profit in the first half of 2022 year-on-year decline of 20%. According to wind, the retail price of milk on the market has risen from 12.5 yuan / liter in September 2021 to about 13 yuan at the end of February this year.

For new tea brands that use tea, fresh milk, and fresh fruits, cost fluctuations have a direct impact on profits. The temporary closure of stores brought about by the recurrence of the epidemic and the decline in the flow of shopping malls have inevitably made the performance worse. According to The Nesher financial report, at 21Q3, due to the repeated closures and reduced business hours caused by the epidemic, the revenue of the same store during the period was "significantly lower" than that of the same period last year.

New tea brands have been having a hard time doing business lately. 36Kr learned from a number of industry insiders that the turnover of tea brands generally declined compared with the same period last year. The head brand Xicha is also not spared. In addition, before the announcement of the price cut, Heytea was also exposed to carry out a major layoff involving 30% of employees, although the official debunking was later that the personnel adjustment was still considered to be related to poor performance. According to 36Kr, Heytea's sales in 2021 are still far from the annual target.

Compared with price cuts, price increases are a more common way to survive in the industry, and Starbucks does just that.

In October 2021 and February 2022, Starbucks twice raised prices ranging from 1-2 yuan to many of its products, and said that it would continue to increase prices in the coming months. Subsequently, Luckin and Tims Coffee also followed suit. An important background is that according to the data released by the International Coffee Organization, the average price of the ICO coffee composite index in January 2022 was 204.29 cents / pound, which has risen for 16 consecutive months.

In the face of the continuous pressure of rising costs, Big Brother has chosen to bow his head, and the new tea brands cannot live easily. A common sense is that in the cost structure of a cup of coffee/fruit tea, the proportion of fruit tea raw materials is much higher.

The reason why there is no follow-up price increase, tea brands are worried that this will cause some consumers to resist - Starbucks has also been widely criticized for price increases, and similar situations have also appeared in Xibei Noodle Village, Haidilao, etc., and the results are forced by market pressure to apologize.

Price reduction is what consumers like more, and it is also a good "emotional card" that can earn a lot of goodwill for the brand. Removing the 3-character head product itself also has a marketing component - from the standard menu of Heytea, the proportion of products above 30 yuan is not high, and Nai Xue's previous prospectus shows that the average selling price of the product is 27 yuan. In other words, the two product lines have already entered the 2-word era.

However, from the perspective of operation, the price reduction still reflects the anxiety of brands about sales and performance growth, and in the face of quantity and price, brands unanimously choose the former.

Grow anxiety

The penetration of the 1-word head and the low price range of single-digit unit prices reveals the true side of the cruel competition in the tea market.

From the pricing dimension may be the clearest, within 10 yuan, Michelle Ice City has opened more than 20,000 stores in the country, belonging to the only one; in the range of 10-25 yuan, the brand competition is fierce, both in the country to open more than 5,000 stores of ancient tea, in addition to coco, tea hundred have about 3,000 stores, there are also from Changsha's net red new upstart tea color; and above 20 yuan price, Heytea, Naixue is the two major head brands, the number of stores are more than 900, more than 800 stores.

Analysis of the market positioning of ready-made tea stores, according to the relevant reports of China Insight Consulting

Different price bands, the difference is so big? Probably this is indeed the case.

According to 36Kr, in 2019, Michelle Ice City once asked Nelson to do consumer research to assess the potential impact of Xicha and Naixue on them. One of the survey results showed that many consumers of Mi xue ice city had not heard of Xicha and Nai Xue. In other words, these are two completely different groups.

36Kr once interviewed a catering investor, asked the other party a question about Zhengxin chicken steak, why in the case of KFC penetration into various counties across the country, Zhengxin chicken steak can open more than 20,000 stores, the other party's answer is very crisp, "because eating Zhengxin can't afford KFC."

The difference in the price band of the brands is also the difference in the regional positioning of the tea brand. High-end tea brand stores are still mainly located in first-tier cities and new first-tier cities, and are mainly core shopping malls. According to the financial report of Nesher, by the end of 2021, its stores from first-tier cities and new first-tier cities account for about 70% of the total proportion of stores. The broader sinking market cake is mainly divided by honey snow, ancient tea, coco and so on.

In the future, it is still unknown whether high-end tea can complete the channel sinking, in contrast, it is more pragmatic to make the store density of first-tier and new first-tier cities higher. Price reduction is not only for "profit" old customers, but also hopes to discover new incremental users in the aforementioned stock market.

In fact, Xicha and Naixue have long been exploring at low prices, before the main brand price reduction, Xicha launched the "Xixiaocha" sub-brand in 2020, and the product price is between 10 yuan and 20 yuan; Naixue also operates the "Taigai" sub-brand, with an average price of about 16 yuan. However, at present, they are in the early stages, of which there are about 20 small teas, and most of them are concentrated in Guangzhou and Shenzhen. Taigai's contribution to Nesher's revenue is also very limited, accounting for about 3.6% of revenue as of the first half of 2021.

The price of the main brand has fallen, making the positioning of the sub-brand look quite awkward. If you really want to fight the tea market at a lower price, it seems that you also need the main brand to personally start it.

Behind the price reduction behavior, the positioning of high-end tea drinks has also become a mystery.

Compared with the Taiwanese milk tea of the previous era, the contribution of high-end tea drinks such as Xicha and Naixue to the industry is not only the upgrading of raw materials and the increase of the unit price of the category, but also the opening up of new consumption scenarios for the tea beverage industry, and the core location of the core shopping mall is the best evidence.

This is also quite similar to the coffee consumption upgrade that Starbucks has done with instant coffee. In addition to the improvement of coffee quality, the "third space" around social networking and business has been explored by Starbucks. In the early years, Heytea and Naixue's first stores across the country were also telling similar stories, whether it was the black gold shop in Sanlitun in Beijing or the black gold Lab store in IFC in Chengdu, all of which hid similar ambitions - freshly ground coffee has a third space, and tea drinks should have their own lifestyle.

Because of this, in addition to Luckin, the two brands are often compared with Starbucks.

However, from the perspective of the expansion of national chains in recent years, the "third space" strategy of tea brands has been weakened a lot. Among the new stores added by Heytea in 2020, the Heytea Go store, which is at the end of the efficiency and goes, occupies about 1/3; Nai Xue has also made many attempts in experience and scenes in the early years, whether it is DreamWorks, Nai Xue's gift or bla bla bar, trying to broaden the tea consumption space, but in recent years, it has gradually tilted the focus to the Pro store type polishing.

In the direction of extreme efficiency, the lifestyle of tea drinking seems to be moving closer to allowing consumers to "drink faster". This collective price has dropped, making the "third space" of spending money to polish tea drinks more distant.