Franchisee management, food safety and other issues still need to be paid attention to
"China Science and Technology Investment", Zhang Ting, Wu Haiyin
Sichuan Baicha Baidao Industrial Co., Ltd. (hereinafter referred to as "Chabaidao") was listed on the Hong Kong Stock Exchange on April 23, 2024. On the first day of listing, the stock price fell by more than 27%.
At present, the operation of Chabaidao stores mainly relies on franchisees, and the prospectus shows that since 2021-2023, the sales revenue obtained by Chabaidao from downstream franchisees accounts for as much as 95% of the total revenue. In the case of food safety issues, franchisee management has become a major challenge.
Dependence on franchisees
From April 15 to April 18, Chabaidao conducted a global offering of H shares in Hong Kong and was listed on the Hong Kong Stock Exchange on April 23. The company issued 148 million H shares, of which 10% was offered in Hong Kong and 90% in the international offering. The offer price was set at HK$17.5 (approximately RMB16.18) per share. The opening price on the first day of listing was HK$15.74 and closed at HK$12.8, with a market value of about 7 billion yuan.
According to the data of the Frost & Sullivan report, in 2023, the total retail sales of tea Baidao stores will reach about 16.9 billion yuan, ranking third in China's freshly made tea shop market, accounting for 6.8% of the market share. At the same time, Chabaidao's financial performance showed a strong growth momentum, with its revenue increasing by 16.1% from 3.644 billion yuan in 2021 to 4.232 billion yuan in 2022, and by 2023, it achieved an increase of 34.8% to 5.704 billion yuan. In the three years from 2021 to 2023, the compound annual growth rate of net profit of Chabaidao reached 21.6%.
In 2021, 2022 and 2023, there will be 5070, 6352 and 7795 franchisee stores respectively, while the number of directly operated stores is only 7, 9 and 6.
This year, Hubei Economic Television's "3.15 Special Report" exposed the situation that the clerk of the Wuhan store of Chabaidao violated the regulations and used expired ingredients during operation. In a conversation with an unannounced reporter, the clerk said: "Generally, there will be no inspection and supervision (to the store) after 7 o'clock in the evening." At the same time, there are also many complaints about foreign objects found in tea Baidao drinks on the black cat complaint platform, and the management measures of tea Baidao franchisees may be insufficient.
Tea Baidao has taken a series of measures in the management of franchisees. The company actively manages the key aspects of each store, and has established a store inspection system, through multiple inspection methods such as regional supervision and inspection, headquarters inspection and inspection, and third-party inspection to ensure the unity of store operation standards and product quality. Nonetheless, as franchisees are responsible for the day-to-day business operations of their stores, the ultimate success and quality of their stores is largely dependent on the franchisees themselves, and the Company cannot guarantee that all franchisees will always comply with internal regulations.
In addition, judging from the changes in the number of franchisees, in recent years, Chabaidao has achieved remarkable results in the expansion of franchisees, but the number of franchisees who terminated cooperation during the period is also increasing year by year. According to the prospectus, at the beginning of 2023, the number of franchisees was 5,396, and the number of new franchisees during the year was 805, however, the number of franchisees terminated during the period also increased significantly, reaching 663, the highest value in the past three years. Among them, there are many franchisees who have been terminated for their own reasons or failure to comply with the company's regulations, including 116 franchisees who have been terminated by Chabaidao. The reasons for the termination include that Chabaidao has strengthened its evaluation of franchisees in the process of renewing the franchise agreement, including the operating performance of the franchisees, the franchisees' compliance with operational and food safety requirements, and the inspection records of the relevant franchisees.
It is worth mentioning that franchisees rely on strict supply chain management to achieve the same standards of quality and taste, but these supplies may be exposed to supply shortages, poor quality and cost fluctuations. In terms of cost, from 2021 to 2023, the cost of tea Baidao goods (mainly including materials and ingredients for making tea drinks and packaging materials) was RMB2.032 billion, RMB2.604 billion and RMB3.527 billion respectively, accounting for about 55.8%, 61.5% and 61.8% of the total revenue in the same period, respectively. If Chabaidao is unable to obtain raw materials in the required quantity and quality, or at the price it requests, or if it loses any such suppliers or other business partners, its business may be materially adversely affected.
The market is highly competitive
At present, the competition in the new tea market is becoming increasingly fierce. According to the "2023 China New Tea Industry Competition Pattern and Market Share Analysis" published by the Prospective Industry Research Institute, according to the number of brand stores, order volume, consumer preference, and financing, new tea beverage brands can be mainly divided into three competitive echelons, the first echelon is Naixue's tea, Mixue Bingcheng, and Gu Ming, while Tea Baidao is in the second echelon.
According to the prospectus, from the perspective of average retail sales per order, the average amount of each purchase by customers will gradually decrease from 28.9 yuan in 2021 to 27.4 yuan in 2023. At the same time, the average daily retail sales of each store also showed a downward trend, from 7,414.1 yuan in 2021 to 6,887.2 yuan in 2023. In addition, the average annual retail sales of each store in 2021 was 2.7282 million yuan, which decreased to 2.3311 million yuan in 2022, and although it rebounded to 2.388 million yuan in 2023, it is still far below the high point in 2021, indicating that the overall sales revenue growth of stores is weak.
*Tea Baidao's business performance, screenshot from the prospectus
The new tea industry not only has a large number of competitors, but also has serious product homogenization. According to the prospectus, in 2023, the sales volume of tea Baidao poplar branch manna will be about 92.4 million cups, and the retail sales will be about 179.5 billion yuan, which is the highest selling variety in 2023. However, almost every tea brand has a must-have drink. In 2020 and 2021, "7 Minutes Sweet" and Nai Xue's tea will be launched. As for Jasmine Milk Green and Taro Ball Milk Tea, which ranked second and third in sales in the same year, (achieving retail sales of about 1.01 billion yuan and 1.345 billion yuan respectively), there are countless brands with these two drinks, such as CoCo Duke Milk Tea, which began to launch the taro round milk tea series when it responded to the ebb tide of bubble tea. In contrast, the soymilk jade unicorn, a specialty product of Chabaidao, will only sell a total of about 42.8 million cups in 2023, generating retail sales of about 685 million yuan.
In addition, on March 14 this year, the Ministry of Industry and Information Technology issued the "APP (SDK) Notice on Infringement of User Rights and Interests (2nd Batch, 37th Batch in 2024)" showing that Chabaidao was named and notified due to the mandatory, frequent, and excessive request for permissions of Alipay Mini Programs. The reporter learned that when customers pick up drinks in offline stores after placing orders online on the mini program, Chabaidao will collect their account names, mobile phone numbers and addresses. According to the prospectus, Chabaidao will continue to improve the level of intelligence in key businesses in the future, including online ordering. How to achieve differentiation while ensuring compliance with relevant regulations and optimizing the user experience, Chabaidao needs to further deepen its details.
*Tea Baidao was named and reported, and the screenshot was reported by the Ministry of Industry and Information Technology
In response to issues such as the management of tea Baidao franchisees and differentiated competition, the reporter sent a letter to Tea Baidao, but as of press time, no reply has been received.