At the beginning of 2024, Mixue Bingcheng and Gu Ming coincidentally submitted listing applications to the Hong Kong Stock Exchange. Interestingly, both brands are one or two of China's top ready-made beverage companies, so who is the "king" of the ready-made tea industry in the future has become a hot topic in the market.
Analyzing the two companies, there are many similarities between Mixue Bingcheng and Gu Ming, for example, both are aimed at the sinking market, and both adopt the franchisee model. The difference is that in terms of supply chain, the former adopts global procurement, self-built raw material base and logistics system, while the latter is the only company that can frequently distribute raw materials to stores in lower-tier cities. The differentiation of supply chain models is an important influencing factor for the future market trend of the two.
Both aim at the "sinking market"
Gu Ming and Mixue Bingcheng enjoy a good reputation among freshly made tea brands under 20 yuan, and the price range of the former's products is 10 yuan to 18 yuan. The latter focuses on providing affordable ready-made fruit drinks and other products with a unit price of about 6 yuan, and the price of core products is usually 2 yuan to 8 yuan.
The price of the main products of Mixue Bingcheng
Source: Mixue Bingcheng Hong Kong stock prospectus
Although the price of Mixue Bingcheng's products is not high, its revenue scale is not small at all. From January to September 2021, 2022, and 2023, its revenue reached 10.380 billion yuan, 13.599 billion yuan, and 15.420 billion yuan respectively, with year-on-year growth rates of 31.01% and 45.99% respectively in the latter two periods. In the same period, Gu Ming's revenue was 4.388 billion yuan, 5.570 billion yuan and 5.579 billion yuan respectively, and the year-on-year growth rate in the latter two periods was 26.92% and 33.93% respectively.
In the early years, Zhang Hongchao, the founder of Honey Snow Ice City, opened a small shop called "Cold Stream Shaved Ice" in Zhengzhou, and started the road of entrepreneurship in the field of ready-made beverages with a homemade shaved ice machine; in 1999, the brand of "Honey Snow Ice City" was officially launched, in 2013, it developed the first product made from fresh fruits, chilled lemonade, and in the first nine months of 2023, the total domestic sales of chilled lemonade were about 913 million cups, which has become the best-selling evergreen product in China's ready-made beverage industry.
The development history of Mixue Bingcheng
Source: Mixue Bingcheng Hong Kong stock prospectus
The rise of Mixue Bingcheng is due to its huge franchisee scale. According to the prospectus, as of September 30, 2023, the store network developed by Mixue Bingcheng through the franchise model has more than 36,000 stores, covering 11 countries in China and overseas. In the first nine months of 2023, its store network achieved a total of about 5.8 billion cups. According to the CIC report, it is the No. 1 ready-made beverage company in China and the world's No. 2 in terms of the number of stores as of September 30, 2023 and the number of drinks produced in the first nine months of 2023.
In addition, Mixue Bingcheng has an industry-leading penetration rate in the sinking market, with the number of stores in third-tier and below cities accounting for 58.7%, 57.2% and 56.9% respectively from 2021 to 2023.
The proportion of Mixue Bingcheng is divided by county-level cities
Source: Mixue Bingcheng Hong Kong stock prospectus
The founder of Gu Ming is Wang Yunan. More than ten years ago, Wang Yunan opened the first "Gu Ming" store in his hometown of Daxi Town. Daxi Town is a small town located in Zhejiang Province, which is a typical sinking market, and has also laid the development strategy of Guming to continue to cultivate the sinking market. According to the prospectus, as of December 31, 2023, the number of Gu Ming's stores in second-tier cities and below accounted for 79% of the total number of stores, in addition, 38% of its stores are located in towns and villages far away from the city center.
According to the CIC report, in terms of merchandise sales (GMV) in 2023 and the number of stores as of December 31, 2023, Gu Ming is the second largest freshly made tea shop brand in China by all price bands. In 2023, its GMV reached $19.2 billion, an increase of 37.2% from 2022. As of December 31, 2023, its store network totaled 9,001 stores, an increase of 35.0% from December 31, 2022.
Ancient tea highlights display
Source: Gu Ming Hong Kong stock prospectus
All of them are expanding rapidly in a franchisee model
Different from the TO C model adopted by some tea companies, Gu Ming and Mixue Bingcheng mainly adopt the TO B franchisee model. According to the prospectus, Gu Ming's revenue mainly comes from the sale of goods and equipment to franchisees and the provision of services, and the stores are mainly operated through the franchise model, and as of 2021 to 2023, its franchise stores contribute about 99.9% of the GMV. In contrast, it has very few directly operated stores, and as of December 31, 2023, it only directly manages six directly operated stores.
According to the prospectus, at the end of each period from 2021 to 2023, Gu Ming has 5,689, 6,664 and 8,995 franchise stores respectively. Taking 2023 as an example, the number of "base camp" stores in Zhejiang accounts for 23% of the total, and the number of stores in Fujian and Jiangxi accounts for 21%, accounting for almost half of the stores in Guming.
The number of Gu Ming stores and the growth of same-store GMV
Source: Gu Ming Hong Kong stock prospectus
The above-mentioned regional distribution is related to Gu Ming's strategy of taking Zhejiang as the center and laying out in the surrounding area, and it said in the prospectus that more than 500 stores in a single province indicate that the region has the basis for highlighting the scale effect, which is called the key scale. Leverage the experience and strengths gained in provinces that already have a critical size to strategically enter neighboring provinces. It was the first in Zhejiang Province to reach a key scale and has continued to grow to more than 2,000 stores today. As of December 31, 2023, it has established a network of stores with more than key size in eight provinces, which together contribute 87% of GMV.
However, Zhu Danpeng, an analyst of China's food industry, said: "Strictly speaking, Gu Ming is not a real national brand, and it still has 19 provinces that are blank, so it will have many shortcomings, and it will be difficult to form a combination of brand effect and scale effect." ”
In 2023, the operating profit of its franchisees reached 376,000 yuan, and the operating profit margin of franchisees reached 20.2%, according to the CIC report, the estimated single-store operating profit margin of China's mass freshly made tea shop market was about 10%-15% during the same period.
According to the prospectus, as of September 30, 2023, among the franchisees who have opened Gu Ming stores for more than two years, each franchisee operates an average of 3.1 stores, and 75% of franchisees operate two or more franchise stores.
Compared with Gu Ming, Mixue Bingcheng has a more extensive store network, with more than 36,000 stores in China and overseas. As of September 30, 2023, its store network has spread to 31 provinces, autonomous regions and municipalities directly under the central government, about 300 prefecture-level cities, 1,700 counties and 3,100 townships in China, covering all first-tier cities. In addition, it has opened about 4,000 stores in 11 countries overseas, building a large and growing store network.
As of September 30, 2023, more than 99.8% of its stores are franchised stores.
However, there are also points to note under the reliance on the franchise model. Zhu Danpeng reminded that it is necessary to pay attention to whether the operation of the operator is strictly in accordance with the company's quality internal control system. Mixue Bingcheng also said in the prospectus that the operation and continuous expansion of the huge store network requires excellent management capabilities to ensure consistent quality and service.
The supply chain is the key to competition
Under the franchisee model, the management ability of the supply chain of the ready-made tea enterprises will directly affect the profit level and the ability to expand stores.
On the supply chain side, Gu Ming said in the prospectus that it insists on making freshly made tea with high-quality ingredients with short shelf life, and continues to build industry-leading cold chain logistics capabilities. According to the CIC report, as of 30 September 2023, among the top 10 freshly made tea shop brands in China by GMV, Gu Ming was the only company that was able to frequently deliver short-shelf life fresh fruits and fresh milk to stores in lower-tier cities. Its average warehouse-to-store delivery cost is only about 0.9% of GMV, well below the industry average of 2%.
On the raw material sourcing side, for some of the other major raw materials such as fresh fruits (such as lemons and mangoes), tea and beverages, Gu Ming purchases directly from the manufacturers rather than through intermediate distributors. With economies of scale under the geo-encryption strategy, it is able to provide fresh and high-quality ingredients to stores at a competitive cost.
It said in the prospectus that it will continue to expand its global procurement network, integrate high-quality resources, and establish a cooperative planting base to ensure the stable supply of agricultural products from the source. Taking lemons as an example, according to a report by CIC Consulting, it was the largest lemon buyer in China in terms of purchase volume in the first nine months of 2023, and in the first nine months of 2023, it supplied about 44,000 tons of lemons to its cooperative planting base in Anyue, Sichuan.
In 2014, in order to meet the needs of franchisees to open stores in the country and solve the worries of long-distance logistics costs, it began to establish its own logistics system, and implemented the national free logistics fee policy to franchisees, becoming the first enterprise in China's ready-made beverage industry to implement this policy.
In terms of logistics coverage, according to the prospectus, as of September 30, 2023, the logistics network of Mixue Bingcheng covers 31 provinces, autonomous regions and municipalities directly under the central government, about 300 prefecture-level cities, 1,700 counties and 3,100 towns and towns. As of September 30, 2023, more than 90% of county-level administrative divisions in China have been reached within 12 hours.
"In contrast, Gu Ming's supply chain play has a certain guarantee in freshness, but it is difficult to go far, and it belongs to the operation of a large capital and heavy asset model. As for Mixue Bingcheng, it is a global supply chain, so from the perspective of the entire future enterprise going overseas, Mixue Bingcheng has a greater advantage, its brand effect, scale effect, fan effect, and the integrity of the supply chain are much stronger than its opponents. Zhu Danphong said.