Author: Zhai Caihua
Tea Baidao was listed on the Hong Kong Stock Exchange yesterday, as the largest IPO on the Hong Kong Stock Exchange in 2024, and the second stock in the new tea beverage industry after Nai Xue's tea, which has attracted widespread attention. The IPO was priced at HK$17.5 per share, with a total of 148 million shares issued, and the market valuation was as high as HK$25.9 billion.
As one of the fastest-growing and most demanded branches in the current consumption field, the new tea beverage market has naturally attracted the attention of many capitals, looking forward to finding a new ladder of investment through the listing of Tea Baidao. Brands in the same industry, such as Mixue Bingcheng, Gu Ming, Shanghai Auntie, Chayan Yuese and Bawang Chaji, are also closely watching this event, expecting Tea Baidao to bring positive market signals.
However, the performance of Chabaidao on the first day of listing unexpectedly brought a chill to the entire industry and the capital market. Soon after the opening of the market, its share price fell rapidly, falling by more than 30% on the first day, closing at HK$12.80 per share, down 26.86% from the issue price, and its market value shrank to about HK$18.91 billion.
01. The market is not as expected, and retail investors have been hit hard
In recent years, the new tea beverage market has shown strong growth momentum in the consumer sector, especially in the catering industry. Many leading brands have accelerated their expansion, pushing the industry towards the "era of 10,000 stores", and jointly creating a prosperous era of tea drinking. The new tea beverage industry has developed a mature and diversified business model, covering from the upstream food ingredients, packaging supply chain to the downstream franchise model, and then to the terminal retail, so the new tea beverage industry has also become a hot choice in the primary market.
Especially in 2024, a large number of leading brands have begun to actively deploy and prepare to land in the capital market to prepare for future expansion. On April 23, Chabaidao, founded in 2008, was listed on the Hong Kong Stock Exchange, becoming the second new tea brand to be listed on the Hong Kong stock market after Nai Xue's tea, and marked the largest Hong Kong stock IPO so far in 2024 with a fundraising amount of nearly HK$2.6 billion. It is generally expected that the listing of Tea Baidao will bring new vitality to the entire new tea industry.
However, the reality is a blow to the blow. On the first day of listing, the share price of Chabaidao suffered a break, falling by more than 35% intraday, which almost wiped out its net profit in the past three years. Even the topic of "Tea Baidao fell to net profit for 3 years in one hour after it was listed" quickly rushed to the first place on Baidu's hot search list. By the end of the day, the stock price had fallen by 26.86%, and its market value had evaporated by about HK$7 billion, which surprised the market.
Although Chabaidao is the largest IPO of Hong Kong stocks this year, its popularity in the market is far lower than expected, and it has even been undersubscribed. According to the disclosure, in this public offering, the winning rate of retail investors in the IPO is 100%, which means that all retail investors who participated in the IPO have obtained shares. According to the announcement of the distribution results of Chabaidao, an investor subscribed for 1 million shares, and based on the closing price on the first day, the investor's book floating loss reached 4.7 million Hong Kong dollars.
On April 24, the share price of Chabaidao continued to fall by 8.5%, and the total market capitalization fell to HK$17.3 billion. Obviously, the first day of the listing of Tea Baidao not only failed to enhance the market's confidence in the new tea beverage industry, but was like a cold rain, turning the expected spring into a cold reality.
02. Business expansion driven by franchise model
In the Chinese tea market, the rise of Tea Baidao can be said to be a business legend. From opening its first store in Chengdu's Wenjiang District in 2008 to now having more than 8,000 stores, Chabaidao has written an impressive growth story in just 15 years with its innovative franchise model.
The location chosen by founders Wang Xiaokun and Liu Weihong was very strategic: close to the school, directly targeting the younger student population. Tea Baidao's combination of tea, fruit, milk and various on-site condiments is not only novel in taste, but also very attractive, coupled with the clever combination of new tea drinks and Chengdu giant panda cultural IP, Cha Baidao quickly gained recognition in the local market and won popularity among teenagers.
In China's tea market, the rise and expansion of tea Baidao is a textbook case. As of April 2024, Chabaidao has 8,016 stores nationwide, of which only 6 are directly operated and the rest are franchised stores. This franchise model not only accelerates the market expansion of Chabaidao, but also significantly increases its market coverage, allowing Chabaidao to respond quickly to market changes and maintain operational flexibility.
Tea Baidao avoided direct competition with Nai Xue's tea and Hey Tea in the high-end market, and did not choose the price war strategy of Mixue Bingcheng in the low-end market, but chose to make a fuss in the mid-range market, and this strategy seems to have worked. According to the prospectus data, the compound annual growth rate of Chabaidao's revenue from 2021 to 2023 reached 25.1%, showing a strong business growth momentum. In terms of profitability, the company's gross profit also continued to grow during the same period, and the gross profit margin remained stable at 34.4%, much higher than the industry average. According to the data of 2023, the total retail sales of tea Baidao reached about 16.9 billion yuan, the annual sales of tea drinks exceeded 1 billion cups, the average retail sales per cup was 27.4 yuan, and the net profit increased from 779 million yuan in 2017 to 1.151 billion yuan in 2023.
Although Chabaidao has achieved rapid expansion and profit growth in a short period of time through the franchise model, it lacks enough "moats" to maintain a competitive advantage in a highly competitive market, which may be one of the important reasons for its stock price breakdown. As the tea market becomes increasingly saturated, what challenges will Tea Baidao face?
03. Capital market challenges and supply chain problems
The first experience of the listing of Chabaidao can be described as a cold water topping, which also reveals a reality of the new tea beverage industry: despite the rapid expansion of the market, the capital vision is becoming more and more critical. Let's explore, what factors cause Chabaidao to be cold in the capital market?
The first is the slowdown in store growth. The growth rate of Chabaidao's stores seems to be slowing down in the past few years. According to the prospectus data, the number of stores opened by Chabaidao each year is 1,485, 2,844, 1,817 and 1,441 respectively, which not only marks a sign of market saturation, but also indicates the difficulty of future growth.
At the same time, the market sinking speed of tea Baidao is also slowing down. Although the proportion of stores in fourth-tier cities and below reached 22.2%, this is insufficient compared with the rapid decline of the tea industry as a whole. This sinking speed limits the penetration and competitiveness of Chabaidao in a wider market.
In addition, the supply chain strategy of Tea Baidao is its weakness. For the new tea beverage brand, it is a typical B2B business, and in addition to the franchise fee, the profit largely depends on strong and effective supply chain management. Although the industry generally agrees with the concept of "supply chain first", the actual operation of Chabaidao has exposed some shortcomings.
According to the prospectus, Chabaidao maintains cooperative relationships with as many as 333 suppliers, covering a wide range of fields from dairy products, ingredients to packaging materials and even fruit juices. This extensive external dependency has led to high operating costs, and about 60% of Chabaidao's revenue needs to be spent on these basic materials. Not only does this model increase costs, but it also has the potential to introduce instability at every step of the supply chain, which can affect the cost and quality of the final product.
More critically, this model of relying on external suppliers makes it difficult for Chabaidao to provide cost-effective raw materials for franchisees, thus limiting its profit margins to a certain extent. There are market rumors that the price of materials provided by Chabaidao to franchisees is high, and franchisees need to pay up to 40,000 yuan in a turnover of 100,000 yuan, which is undoubtedly a major burden for franchisees.
Not only that, but the high dependency and high material cost may also be one of the reasons for the high 10% net closure rate of Chabaidao. This situation reflects a deeper problem: in the fierce market competition, the franchise model without the support of a solid supply chain may be difficult to sustain.
Tea Baidao has recognized this and plans to dedicate approximately 51% of the funds in its recent capital raising to improve operational efficiency and strengthen supply chain management. This is a positive direction, but whether it can be quickly implemented and produce results needs to be further verified by the market. At the same time, peers such as Mixue Bingcheng have made significant progress in supply chain optimization, which undoubtedly adds more pressure to Chabaidao. In this race of supply chain and cost control, it is clear that Chabaidao needs to speed up the pace to avoid falling further behind in the competition.
Although Nai Xue's tea and tea Baidao have taken the lead in the capital market, it is still unknown whether they can firmly occupy the leading position in the industry. According to 2023 data, the top five brands in the new tea market together account for 40.2% of the market share, reflecting a trend that the market is gradually tilting towards the big brands.
As competitors such as Mixue Bingcheng, Gu Ming, Shanghai Auntie and Chayan Yuese have successively entered the capital market, the capital competition in the new tea beverage industry has become more and more intense. However, the performance of Nai Xue's tea and tea Baidao in the capital market has not met expectations, which not only reflects the market's cautious attitude towards their business models and growth potential, but also may cast a shadow on the capital prospects of the entire industry, thereby affecting the listing layout and market performance of other brands.
In this increasingly competitive market environment, new tea brands must not only innovate and optimize the customer experience, but also have significant competitiveness in supply chain management and cost control if they want to stand out from the crowd. These factors will ultimately determine whether they have a place in the capital markets.
*All images are from the Internet