[Text/Observer.com Zou Xuchen Editor/Lv Dong]
Recently, Gu Ming, known as "China's largest popular freshly made tea shop brand", announced the draft IPO application for Hong Kong stocks, sponsored by Goldman Sachs and UBS.
According to the declaration draft, Gu Ming's merchandise sales (GMV) in 2023 will be 19.2 billion yuan. As of December 31, 2023, the number of stores is 9,001, second only to Mixue Bingcheng, and it is the second largest freshly made tea shop brand in China in terms of full price.
Summary of business highlights, data source: declaration draft
As of December 31, 2023, Gu Ming is more regional, with eight provinces providing 87% of merchandise sales. In addition, there are only 6 directly operated stores of Gu Ming, and the franchised stores contribute about 99.9% of the product sales.
In addition, the draft declaration of Gu Ming shows that the average number of franchisees is 3.1, and 75% of franchisees operate two or more franchise stores.
According to the declaration draft of Gu Ming, the sales of Gu Ming's single-store goods in townships and towns in 2023 will be 2.4 million yuan. In addition, in fourth-tier cities and below, Gu Ming's franchisees' single-store operating profit in 2023 will be 386,000 yuan, which is more than 10 times the annual per capita disposable income in these regions in 2022, bringing considerable income to franchisees' families.
Regarding whether the data is universal, as well as more and more brands to enter the sinking market by means of price reduction and open franchise, and whether the company's single-store operating profit can be maintained, Observer.com sent an interview letter to Gu Ming, but has not received a reply as of press time.
Can the profit of a single store be maintained?
The menu of Gu Ming stores usually keeps around 30 kinds of drinks, mainly fruit tea drinks, milk tea drinks, and coffee.
Ancient tea products are mainly concentrated in the range of 10 yuan to 20 yuan. According to the declaration draft, there are three types of ready-made tea shops in China, one is a high-priced freshly made tea shop with an average selling price of not less than 20 yuan, the second is a public freshly made tea shop with an average selling price of 10 yuan to 20 yuan, and the third is a low-cost freshly made tea shop with an average selling price of no more than 10 yuan. Or because Mixue Bingcheng is classified as a cheap freshly made tea shop, Gu Ming said in the declaration draft that it is "China's largest popular freshly made tea shop brand".
Product summary, data source: Ele.me
Gu Ming's "play" is a regional encryption strategy. That is, to achieve a high-density store network in a certain province, generate scale effects, and then expand to neighboring provinces. From the perspective of history, Gu Ming started in Zhejiang, reached scale in Fujian and Jiangxi in 2019 and 2020, and then reached scale in Guangdong, Hubei, Jiangsu, Hunan and Anhui. These 8 provinces accounted for 87% of Gu Ming's merchandise sales in 2023.
According to the official WeChat mini program of Gu Ming, the areas that focus on the development of franchisees are Shandong, Hubei, Anhui and Yunnan. Among them, Hubei and Anhui are the eight major provinces mentioned above, and Shandong and Yunnan are neighboring provinces. Regarding these 4 areas, Gu Ming said, "There is a large demand, there are many points available, and the recruitment is hot!"
The underlying thinking of Gu Ming to adopt this "playing style" is related to the supply chain. Taking the base camp of Zhejiang as an example, as of December 31, 2023, Gu Ming has 3 warehouses and 53 trucks in Zhejiang, supporting 2,054 stores in Zhejiang. 92% of the stores are located within 150 kilometers of the Gu Ming warehouse. This also facilitates the delivery of ancient tea.
Regarding the difference between Gu Ming and Nai Xue's tea and Mixue Bingcheng in terms of playing style and business model, Zhu Danpeng, an analyst of China's food industry, told Observer.com that there are differences between the three in terms of price bands. Although Nai Xue's tea is priced higher, its profitability is not very good; Gu Ming's stores are relatively concentrated, and its influence in many provinces and cities is not enough, and from the perspective of national and balanced development, Gu Ming is not ideal; Mixue Bingcheng has developed relatively well, not only in the number of domestic stores, but also in thousands of stores overseas, which is an example of domestic products going overseas.
From the perspective of revenue, Gu Ming's operating income from 2021 to 2022 and the first three quarters of 2023 (hereinafter referred to as the "reporting period") was 3.547 billion yuan, 4.505 billion yuan and 4.478 billion yuan respectively. Since the vast majority of Gu Ming's stores are franchise stores, Gu Ming's largest source of revenue is the sale of goods to franchisees, such as fresh fruits, juices, tea, dairy products and packaging materials. During the reporting period, this part of Gu Ming's revenue accounted for the lowest 75%, and the gross profit margin in the first three quarters of 2023 was 19.5%, an increase from 15.1% last year. The reason given by Gu Ming is that economies of scale and the easing of the epidemic.
Summary of operating income, data source: declaration draft
The second largest source of revenue for Guming was continuous support service fees, accounting for 16%, 16.2% and 16.7% respectively during the reporting period. The business of Gu Ming is mainly to provide franchisees with store operations, technical support, marketing and promotion. It should be pointed out that the gross profit margin of this business is relatively high, and the lowest gross profit margin in the reporting period was 81.5%. In this context, the business that provided the most gross profit in 2021 and 2022 is this one. In addition, in the first three quarters of 2023, the gross profit of Gu Ming's merchandise sales business was 813 million yuan, and the gross profit of the continuous support service fee business was 810 million yuan, which is comparable.
In addition, it can be seen that the performance of Gu Ming needs to rely on the majority of franchisees and franchise stores.
From the point of view of the store area, there are Jiangsu and Zhejiang among the eight major provinces in Guming, but there is no Shanghai. Specifically, although the proportion of new first-tier stores is 18%, the proportion of stores in first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen) is only 3%. Gu Ming stores are mainly in second-tier cities, accounting for 30%, followed by third-tier cities with 26%, and fourth-tier cities and below with 23%.
Summary of store cities, data source: declaration draft
According to the draft declaration of Gu Ming, the average number of franchisees opened is 3.1, and 75% of franchisees operate two or more franchise stores. The franchisee of Gu Ming will have a single-store operating profit of 376,000 yuan in 2023. Among them, in fourth-tier cities and below, the operating profit of Gu Ming's franchisees in 2023 will be 386,000 yuan, which is more than 10 times the annual per capita disposable income of these regions in 2022.
Regarding the operating profit of a single store, Gu Ming stated in the declaration draft that the net proceeds from the sales of products of franchised stores recorded by the system are the operating profits of a single store of franchisees after deducting the total cost of raw materials, rental costs, total labor costs (including employee wages), water and electricity bills and miscellaneous expenses.
75% of Guming's franchisees have opened two or more franchise stores, and the operating profit of a single store in fourth-tier cities and below is also 386,000 yuan. With this huge profit, will there be more competitors in the future?
From an external point of view, many new tea brands are open to franchise business, such as Hey Tea, Shanghai Auntie, Sweet Lala, Bawang Tea Ji, Throbbing Burning Fairy Grass, etc. After the opening of the franchise, the main battlefield of the new tea beverage brand has shifted from the first- and second-tier cities to the third-, fourth-, and even fifth-tier cities. For example, according to the "2023 Annual Report" recently released by Heytea, by the end of 2023, the number of Heytea stores has exceeded 3,200, including more than 2,300 business partner stores, and the store scale has increased by 280% year-on-year, becoming the fastest growing brand in the industry.
Even in Shanghai, where the rent cost is high, Heytea has many single products with prices in the range of 10 yuan to 20 yuan, and the price of some single products is only 8 yuan, such as "Pure Green Yan Tea Queen" and "American Style".
So, can the operating profit of a single store of Gu Ming franchisees be maintained?
Price summary, data source: Heytea WeChat Mini Program
He had underpaid tax and surcharges of $23.6 million
From 2021 to 2022 and in the first three quarters of 2023, Gu Ming's net profit attributable to the parent company increased rapidly, with 20.139 million yuan, 387 million yuan, and 990 million yuan respectively.
The main body of Guming's IPO is Guming Holdings, which is registered in the Cayman Islands, and Zhejiang Guming Technology Co., Ltd. (hereinafter referred to as "Guming Technology") is the main operating entity. It is worth mentioning that in December 2021, the Inspection Bureau of the Taizhou Municipal Taxation Bureau of Zhejiang Province found that Guming Technology underpaid taxes and surcharges totaling 23.6 million yuan from June 14, 2018 to January 31, 2020. As a result, the department imposed a fine of 11.6 million yuan and a late fee of 6.5 million yuan on Guming Technology.
In this regard, Gu Ming said in the declaration draft that Gu Ming Technology was established in June 2018. At that time, the company's business was going through a period of rapid expansion. However, in the early days of its establishment, Glossing Technology did not have a comprehensive internal control system in place to adapt to the rapid growth of its business and ensure that it fulfilled all its tax reporting obligations. As a result, some of the receipts received by Gu Ming Technology during the relevant period did not complete the tax declaration, and Gu Ming Technology underpaid the relevant taxes.
From the perspective of the balance sheet, Gu Ming's equity attributable to the parent owner as of the end of 2022 was -832 million yuan. After adding the profits in the first three quarters of 2023, although Gu Ming's equity attributable to the parent as of September 30, 2023 turned negative, it was only 177 million yuan.
Summary of the balance sheet, data source: declaration draft
Judging from the details, the low equity of Gu Ming's ownership attributable to the parent is mainly due to the high current liabilities. The financial liabilities of the current liabilities sub-account measured at fair value through profit or loss were RMB2.901 billion as of September 30, 2023, and were mainly convertible redeemable preferred shares.
If Gu Ming is successfully listed, the convertible redeemable preferred shares will be converted into ordinary shares on a one-to-one basis. However, if the listing of Guming fails, some of the special rights and interests stipulated in the VAM agreement will be restored, including the right of preemption, the right of redemption, the right of preferential liquidation, etc.
In addition, regarding the significance of listing, Zhu Danpeng told the observer.com that under the intensification of competition, Gu Ming can quickly enhance its comprehensive strength by using the capital market, such as quickly expanding stores, optimizing the integrity of the industrial chain, and building a moat.
In this IPO, the funds raised by Gu Ming are intended to be used in six aspects:
First, it will be used to expand the company's information technology team and continue to improve the digitalization of business management and store operations. This includes hiring more software engineers, data engineers, and website and mini program developers;
Second, it is used to strengthen the company's supply chain capabilities and improve the efficiency of supply chain management. Including, investment in warehouses, processing plants, freight vehicles and vehicle management systems;
Third, it is used to strengthen brand building and user operation, as well as to adopt diversified brand image and consumer influence building;
Fourth, it is used to employ experts in product research and development and enhance our product research and development capabilities. These include hiring experts in food science and engineering, food processing and safety, food biology, etc., strengthening cooperation with universities and research institutes, and purchasing advanced equipment;
Fifth, it is used to continue to implement the regional encryption strategy in the company, and at the same time recruit new franchisee management personnel, strengthen the support for franchisees, and further establish a close franchisee group.
Sixth, for working capital and other general corporate purposes.
Since the draft declaration of Hong Kong stocks generally does not disclose the amount of funds to be raised, the specific distribution is still unclear.