Chabaidao successfully landed on the Hong Kong Stock Exchange, once falling nearly 40%, and its market value evaporated by about 7 billion

Author: Taylor, Editor: Xiaoichi Mei

On April 23, Chabaidao was listed on the Hong Kong Stock Exchange and broke on the first day.

The company's stock issue price was HK$17.5 per share, down 38.29% at one point, and as of the close of the day, the stock price was HK$12.8, down 26.86%, and the market value evaporated by about 7 billion yuan.

As one of the fastest-growing new tea brands in recent years, Chabaidao's performance is outstanding and it is loved by capital, but it also hides many hidden dangers in food safety, franchise management, supply chain stability, etc., and there are still great uncertainties in the future growth road.

Founded in 2008, Cha Baidao can be called a veteran player of new tea drinks, but until 2017, the company still has only 180 stores, far less than some new brands established later.

The real rise of Chabaidao was during the three-year epidemic. Taking advantage of the opportunity of the gradual breakthrough of new tea drinks, with the help of social media and online transactions, tea Baidao, which has been accumulated in the industry for a long time, has quickly ascended.

From 2020 to 2022, the number of new stores in Chabaidao will be 1,485, 2,844 and 1,817 respectively, making it one of the fastest-growing new tea brands. As of February 18, 2024, Chabaidao has a total of 7,927 stores in China, achieving full coverage of all provinces and tier-level cities in China.

With the expansion of stores, the performance of Chabaidao has risen.

From 2020 to 2022, the company's revenue will be 1.080 billion yuan, 3.644 billion yuan, and 4.232 billion yuan respectively, and the net profit in the same period will be 238 million yuan, 779 million yuan, and 965 million yuan, with a compound annual growth rate of more than 95% in revenue and net profit.

According to the recently updated prospectus, in 2023, the company will achieve revenue of 5.704 billion yuan, a year-on-year increase of 34.8%, and a net profit of 1.151 billion yuan, a year-on-year increase of 19.27%, still maintaining a high growth rate, and its market share will increase from 6.6% in 2022 to 6.8%, ranking third in the industry, second only to Mixue Bingcheng and Gu Ming.

Tea Baidao, which stands out among many new tea brands, is one of the companies that has attracted the most attention from capital in the past two years.

In June 2023, Tea Baidao opened its first public financing in more than ten years since its establishment, with a total financing amount of 970 million yuan, which is one of the largest financings for new tea beverage companies in recent years. Investors include TowerQuality, Zhengxin Valley, New Hope, Tomato Capital, CICC, etc.

After the completion of this financing, the valuation of Chabaidao is as high as 18 billion yuan, which has far surpassed Naixue (the current market value is about 5 billion Hong Kong dollars).

From the perspective of business model, Chabaidao is a typical ToB company, and the company's real customers are actually franchisees, not consumers.

As of March 31, 2023, Chabaidao had a total of 5,591 franchisees, of which 444 franchisees opened more than two stores.

Different from Naixue's direct sales model, Chabaidao mainly expands the store network through the franchise model, with nearly 8,000 stores, more than 99% of which are from franchise stores, and the number of direct stores is mainly for brand display and consumer experience, and the number is even less than 10.

Although franchisees are the company's main customers, the franchise fee is not the main source of income for Chabaidao, and the company's largest business revenue is the sale of goods and equipment to franchisees.

From 2021 to 2023, the sales of tea Baidao goods and equipment will achieve revenue of 3.447 billion, 4.020 billion and 5.42 billion, accounting for 94.6%, 95% and 95% respectively, and the revenue from royalties and franchise fees will be 159 million, 172 million and 232 million respectively, accounting for 4.4%, 4.0% and 4.1% respectively.

The franchisee model has promoted the rapid expansion of Chabaidao, but it has put forward new challenges to supply chain management, and it is not easy to ensure that all stores can standardize their operations.

Open the black cat complaint platform and search for the keyword "tea Baidao", and the number of complaints exceeded 2,000, involving "foreign bodies in the drink", "drinking tea Baidao caused gastroenteritis to seek medical treatment", "product deterioration and peculiar smell", "bad attitude of service personnel" and other issues.

Because of food safety issues, Chabaidao has been on the hot search of major platforms many times in recent years, and some stores have even been closed or included in the list of serious violations and dishonesty. Even a few days after submitting the prospectus to the Hong Kong Stock Exchange in mid-August 2023, the media broke that a consumer in Tianjin found cockroaches in the tea Baidao drink he bought, and the topic entry once rushed to the hot search on Sina Weibo.

Food safety is the "lifeline" of the new tea brand, relying on the franchise model to bring about the brutal growth, it is not easy for tea Baidao to completely eliminate food safety hazards.

Aside from food safety issues, Tea Baidao also faces many challenges in maintaining its current position in the increasingly competitive new tea industry.

From the perspective of brand recognition, the first echelon of the domestic new tea beverage market is still the situation of Naixue, Heytea, and Mixue Bingcheng. Among them, Naixue and Heytea are positioned as high-end, mainly distributed in first- and second-tier cities, mainly directly operated stores, Mixue Bingcheng is mainly positioned in the mid-range, mainly franchised stores, and the number of stores in third-tier and below cities accounts for the largest proportion, reaching 56.9%.

It is also through the franchise model to achieve scale expansion, and it is also mainly in low-tier cities, but there is a big gap between Chabaidao and Mixue Bingcheng in terms of supply chain and cost control.

About 60% of the beverage ingredients provided by Mixue Bingcheng to franchisees are self-produced, which is the highest in China's ready-made beverage industry. Due to the cost advantage brought by the self-sufficiency of raw materials, the price competitiveness of Mixue Bingcheng is extremely prominent, so the coverage rate in the third and fourth tier cities is extremely high, the number of stores exceeds 30,000, and the channel scale is much larger than that of Chabaidao.

In contrast, the tea raw materials and ingredients sold by Tea Baidao to franchisees are purchased by the company from suppliers, of which the top 5 suppliers account for more than 40% of the purchase, the company's ability to control upstream resources is limited, and supply chain security has become one of the important factors restricting the company's development.

According to the prospectus, the revenue of Mixue Bingcheng in the first three quarters of 2021, 2022 and 2023 will be 10.351 billion yuan, 13.576 billion yuan and 15.393 billion yuan respectively, and the net profit will be 1.91 billion yuan, 2 billion yuan and 2.45 billion yuan respectively, which is more than double that of Chabaidao. As the most direct competitor, Mixue Bingcheng, which has crushing advantages in cost, supply chain and scale, has self-evident competitive pressure on Tea Baidao.

The efforts of leading brands such as Heytea and Naixue in the sinking market have also had a great impact on Tea Baidao.

In recent years, Heytea and Naixue have also successively opened franchise models and launched low- and medium-priced products to seize the market share of second-tier brands such as "Tea Baidao" in lower-tier cities.

In 2023, Heytea will enter more than 150 new cities, doubling its urban coverage and opening more than 2,300 new stores, a year-on-year increase of 3 times, becoming the new tea beverage brand with the fastest store growth rate that year.

Since 2024, Naixue has begun to significantly lower the threshold for joining, and the franchise fee has dropped from millions in the past to about 500,000. It can be expected that with super brand recognition, Naixue's stores will see a huge growth rate in 2024.

In addition to the pressure of the head enterprises, the competition of waist enterprises is also extremely fierce, and brands such as Chayan Yuese, Gu Ming, and Bawang Chaji have a very strong growth momentum in recent years, compared with the advantages of tea Baidao.

In fact, the retail sales and average sales volume of Chabaidao's stores have begun to decline in the past two years, and the growth rate of revenue and net profit has gradually slowed down.

To a certain extent, the success of Tea Baidao as the "second share of new tea drinks" is related to the development of the enterprise, the profits of the early capital, and the realization of the net worth of the founding major shareholders, but whether it can bring good returns to investors remains to be tested by the market.

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