Image source @ Visual China
Wen | Beijing Maritime Certificate
On March 17, Nesher's Tea (02150. HK) officially announced a comprehensive price reduction plan, its classic products sharply reduced prices by 10 yuan, its products from a minimum of 9 yuan, and launched a "easy" series of 9 to 19 yuan, promising a new low-priced product every month. In fact, as early as February, another giant in the milk tea industry, Xicha, also announced a comprehensive price reduction plan.
However, since around November last year, the food and beverage industry has set off a wave of price increases, soy sauce, melon seeds, oyster sauce, vinegar, salt, etc. are all rising in price, Nestlé, Coca-Cola, McDonald's, etc. are also rising in price, as well as the recent boiling Starbucks price increase...
In the context of rising global raw material prices, Starbucks has risen in price, but Nesher has chosen to reduce prices, and the reason behind it makes people wonder what to do. Today, Beijing Haizheng will pay attention to this matter with everyone.
01, "noble" Internet red milk tea has put down their bodies
Once upon a time, a cup of milk tea seemed to have become a symbol of people's "fashion" and "consumption ability", and holding a cup of "high-end, atmospheric, high-grade" milk tea seemed to be a very face-saving thing.
At that time, the tea of XiCha and Nai Xue turned out to be a big tea, which raised the consumption level of the milk tea industry in one fell swoop, with a long queue, scalper buying number, high-priced milk tea, high-end consumption, and net red punching card, which became the label of the two milk tea head brands.
However, nowadays, the two milk tea head brands have reached a rare consensus on price reduction. Selling 30 yuan + of milk tea to the country's Xi tea, Nai Xue's tea this time not only personally "ended" the 30 yuan era of milk tea, back to the 2-character era, the two brands directly in place, the product price down to 1 word, or even single digits.
In response to the comprehensive price reduction plan, the relevant person in charge of Naixue's tea said, "This price adjustment is based on the accumulation of brand, digitalization and supply chain, which does not affect product quality and materials, and hopes to provide users with richer product choices in a wider price band." ”
Heytea's response to the price reduction is roughly similar to this, in layman's terms, that is, the cost of dilution after the scale of the enterprise, such as the cost of raw material procurement in 100 stores, and the 500, 800 will obviously be different, the bargaining power after the scale will be stronger, but the industry believes that this statement is not very convincing.
In fact, the price reduction of the two head milk tea brands shows more of the cruel market competition on the "cake" of milk tea!
According to data, the number of domestic milk tea enterprises registered in 2015 was 14,500, and in 2020, it soared to 85,400, with an average annual compound growth rate of 42.57%. More and more competitors have entered the game, making the fight in the milk tea industry more and more "white-edged".
From the pricing point of view, the main "low-end", product price is mainly within 10 yuan of Mixue Bingcheng, has opened more than 20,000 stores in the country; the second echelon of the "mid-end", product prices are mainly in the range of 10-25 yuan, including like the country opened more than 5,000 stores of ancient tea, more than 3,000 stores of tea Baidao, coco can be, etc.; as the two head brands of Xicha, Naixue tea stores the number of more than 900, more than 800 respectively.
Another point is that the growth rate of the new tea market is decreasing. According to the "2021 New Tea Beverage Research Report" released by the China Chain Store & Franchise Association, the growth rate of the new tea market in 2020 is 26.1%, and the growth rate of 2021-2022 will decline to about 19%, and the market growth rate is slowing down in stages, which may also be one of the reasons behind the price reduction of the head milk tea brand.
In addition, the "2020 New Tea DrinkIng White Paper" pointed out that the layout of new tea brands in first- and second-tier cities is basically saturated, and gradually seek new growth points in third- and fourth-tier cities. From 30 yuan + a cup to compete for young people in first- and second-tier cities, to small-town youth who compete for the sinking market with 15 yuan, it seems that new tea drinks can only rely on low customer unit prices to maintain growth.
Industry insiders analyze that whether it is price adjustment or changing store standards, to a certain extent, there is a trend that new tea brands are more oriented to the sinking market!
Especially coupled with the impact of the epidemic in the past two or three years, people's consumption habits have also changed unconsciously. The capriciousness of the epidemic has also affected many industries, and the frequent waves of layoffs have exacerbated people's risk awareness, and people are more inclined to increase savings and reduce spending to cope with the uncertainty of life.
There is also the fact that in recent years, although the storefront of Nesher's tea has been expanding, it is still in a state of loss, and Nesher urgently needs new growth points. Reflected in the capital market, investors are "physically honest".
On June 30, 2021, under the name of "the first share of new-style tea drinking", Nai Xue's tea officially landed on the Hong Kong Stock Exchange. However, on the day of listing, it broke, and then the stock price was all the way down. As of the close of the Hong Kong stock market on 30 March 2022, Nesher's tea was quoted at HK$5.04, a cumulative decline of more than 70% since the first day of listing.
Nasher may also realize that they can no longer stick to the high-end positioning, so they have taken the first step to explore the market - price reduction.
For The same for The Nashers, "surviving" may be more important than "maintaining positioning"!
02, coffee up, milk tea down
In stark contrast to the price cuts of the Nesher, Starbucks has raised prices, in October 2021 and February 2022, Starbucks twice raised prices ranging from 1-2 yuan to many of its products, and said that it will continue to increase prices in the coming months. Luckin and Tims Coffee have also followed suit.
Coffee and tea are two relatively independent tracks, but in recent years, the two have seen mutual penetration in products, and the boundaries have gradually become blurred, so the outside world often compares the two types of enterprises together.
In response to Starbucks's current round of price increases, industry insiders pointed out that the main reason is that its raw materials are in short supply and the cost of circulation has increased, resulting in an increase in the price of coffee beans, "In the face of China's declining performance and increased operating costs, Starbucks can only maintain single-store growth and alleviate profit pressure by raising prices." "In addition, there is pressure to report performance.
For the price reduction of The Nesher, industry insiders analyzed that this is mainly a choice made out of strategic considerations. "Early brands have the attributes of Internet celebrities, and there is no need to reduce prices when consumption needs to queue; the offline market competition is fierce, and the brand returns to the mass catering position, and the price reduction can ensure store traffic and increase transaction volume."
In the first quarter of fiscal 2022, Starbucks' total cost was $6.913 billion, up 16.8% year-over-year. Among them, the largest proportion of storage operating costs increased by 18.6% year-on-year; the product and distribution costs, which had the second largest share of expenditure, grew the fastest during the period, increasing by 23.3% year-on-year.
Starbucks is "over fifty years old" and can be said to have formed a unique pricing method. The Starbucks CEO said that Starbucks can use analytics and artificial intelligence, and is led by a very capable team, through modeling to continue to focus on demand elasticity and pricing behavior.
Obviously, the current product price has been difficult to maintain the company's profit level, Starbucks can only deal with inflation and various cost problems related to the epidemic caused by the squeeze on profits through price increases.
Look at the milk tea side again. Some tea industry experts said that the current net profit margin of Heytea is optimistically estimated at about 10 points, which is already a good level in the case of hundreds of stores; but sales in the fourth quarter of last year have declined significantly, and when the brand power and bargaining space reach the ceiling, only by reducing prices to increase sales to reduce marginal costs, so as to achieve overall profitability.
Heytea is not yet on the market, we can look at the financial report of Nesher's tea that has been listed.
Taking Nesher's tea 2020 data as an example, the annual revenue is 3.06 billion, the material cost is 1.16 billion (37.9% of revenue), the staff cost is 920 million (30.1% of revenue), the depreciation of the right to use assets is 350 million (accounting for 11.5% of revenue), other rent and related expenses are 100 million (accounting for 3.3% of revenue), and other costs such as advertising and promotion expenses, water and electricity expenses, distribution service fees, logistics and warehousing fees are considered, and the loss during the year reached 200 million, and the adjusted net profit margin was only 0.5%.
In addition, it can also be analyzed from the corresponding consumer groups of coffee and milk tea.
Data show that 70% of Chinese milk tea consumers are women, and show the characteristics of youthfulness, the consumer group aged 16-25 accounts for 41%, basically locked in school students or just joined the work population, no income or limited income; the consumer group aged 26-35 accounts for 36%.
The main age distribution of Starbucks consumer groups is 25-34 years old, accounting for 54.1%; followed by 35-44 years old people, accounting for 25.1%; and its users are mainly corporate white-collar workers, accounting for nearly half (48.8%) of the income of more than 20,000, with strong purchasing power.
In contrast, it is not difficult to see that Starbucks does have more "confidence" to increase prices, and Nasher has to choose to reduce prices.
03, Nesher's "Starbucks dream" is shattered
It is understood that when Nai Xue's tea first dried milk tea, it positioned itself as the "third space" of the milk tea industry, and the benchmark was Starbucks, the originator of the "third space" in the coffee industry.
First of all, what does "third space" mean? The so-called "third space" refers to a business model that attracts consumers by providing a third living space in addition to home and company. This is also the "secret weapon" of the rise of Starbucks that year.
Starbucks is positioned in the middle and high-end, the price of coffee is between 30-40 yuan, and the higher product pricing includes the cost of its "third space". That is, consumers pay not only for the cup of coffee, but also for the experience of being able to spend an afternoon at Starbucks with their computers.
Nesher's tea originally followed a path similar to Starbucks. In order to attract consumers to increase the time spent in the store, in addition to aligning with Starbucks in the store area, using a large area of stores and setting up more leisure areas, Nesher has added the category of soft European bags to tea drinks, and added on-site bakeries in the store.
But what Nai Xue did not expect was that the business model of "third space" did not seem to be very bright in the milk tea market, but it became a drag on its performance.
From the perspective of sales gross margin, Nesher's tea has maintained this data at about 30% in the past few years, but the net profit margin on sales has been negative.
It can be seen that the cost of raw materials may not be the main reason for the loss of Naixue's tea, and the excessive store rent and labor costs are the culprits that lead to the continuous loss of Naixue's tea.
Source @ Nesher's Tea Prospectus
Source @ Nesher's Tea 2021 Annual Report
In the catering industry, there is a term called "ping effect", which refers to the size of revenue that can be generated within the area of a unit store. The high efficiency of the ping means that the more efficient the store of this catering company is.
According to data from Guosheng Securities, the ping effect of NaiXue single store is 41,000 / square meter, while the ping effect of Xi Cha's single store is 55,000 / square meter. In terms of the average area of a single store, Naixue is 200 square meters, which is twice that of Heytea.
However, later, Nesher seemed to realize the problem of its own low efficiency, and in order to adapt to the market, it made adjustments, and in October 2020, Nesher began to try to open a Pro store with a half-sized storefront and no baking workshop.
It is also important to note that coffee and milk tea are different in consumption scenarios.
A few days ago, some brokers proposed a "fourth meal" concept for new tea drinks, citing the example of office afternoon tea or dinner after dinner; there are consumption scenarios such as shopping and shopping.
The business-oriented social scene, such as Starbucks, is far from the same as the above consumption scenario, and it may be difficult for tea brands to do so.
So at least in the short term, high-end ready-made tea drinks against Starbucks may not be realistic, and the gap is being widened. Coupled with the price of The Neshers, the "third space" of polishing the tea brand seems to be more and more distant.