Catering industry in-depth research report: the new tea drinks is what kind of business?

The three soft drinks are all caffeine drinks, cola consumption form is relatively single, store beverages, tea and coffee as a substitute for each other, the core of the competition between the two is still the product power, the future evolution of the mainland region's ready-to-drink drinks will depend on the coffee, tea, the two different categories of product power level.

Tea and coffee can satisfy people's physiological needs for caffeine intake and certain social space needs, the difference between the business model and marketing approach is not enough to become a barrier to competition between the two, and mutual imitation, drawing on the situation occurs from time to time. For consumers in the mainland market, the habit of drinking tea is more y rooted, the population is wider, the native market is bigger, and the degree of product innovation is higher. Taste, speed of innovation, and even the accompanying social attributes are the core factors that determine the demand for these two optional consumer goods categories, and milk tea and coffee beverage stores are also penetrating each other in the category.

As we have always emphasized, freshly made drinks is a low-threshold, highly iterative industry, and the core of the competition will ultimately be in the product and brand power constructed from the product. Innovation in business models and changes in marketing can quickly generate new brands in the short term, but in the long term, what consumers are looking for is good products.

We reviewed the evolution of the coffee industry and concluded that the main factors driving the industry's leap forward are product power, innovation on the supply side, and meeting the differentiated consumer goals on the demand side layer by layer.

Through the coffee consumption in the proportion of disposable income per capita, specific consumer willingness to discount the number of cups of consumption, based on the total caffeine consumption of the invariable establishment of the replacement rate of coffee and tea multi-dimensional measurement of the scale of China's freshly brewed coffee industry, freshly brewed coffee is expected to be up to 150-500 billion yuan, and with the rapid expansion of the number of coffee stores, the change in consumption habits will be accelerated.

We measured the market size of the industry assuming that the per capita spending on coffee in mainland China reaches that of Hong Kong, Taiwan, the US and Japan.

The logic of the calculation is:

1, through the number of per capita consumption in various places and the average price of a single cup to calculate the amount of per capita consumption;

2, the proportion of expenditure = per capita consumption / per capita disposable income;

3, assuming that the mainland region in the future will also reach the proportion of the expenditure of the various places, and for the coefficient for the various lines of cities discounted:

4, through the per capita disposable income and expenditure share of each line of cities, calculated per capita consumption amount;

5, through the assumption that the price of a single cup of drinks in each line of cities, calculate the number of cups consumed per capita;

6, based on the number of people in each line of cities as well as the per capita consumption amount to calculate the size of the industry in each line of cities Hong Kong region, Taiwan, the U.S. and Japan's coffee expenditures in the ratio of disposable income Hong Kong, Taiwan, the United States and Japan are 1.1%, 0.6%, 1.9% and 1.9% respectively. We believe that the development of these four markets is a good illustration of the different stages that the mainland market may go through in the future.

In terms of habits and cultural traditions, Hong Kong, Taiwan, and Japan are all similar to the mainland, with tea as the main beverage.

But in the last 20 years, the habits of consumers in the three markets have evolved in different directions. In Taiwan, the emergence of Taiwanese milk tea, represented by pearl milk tea, has revitalized the tea beverage, and therefore the development of coffee drinking habits among consumers in Taiwan is lagging behind.

In Hong Kong, although Hong Kong-style milk tea has been around for a long time, as globalization has increased and the original Hong Kong-style milk tea category has gradually aged, the coffee drinking habit has gradually developed. Japan, as the most westernized country in Asia, has not seen any new product forms to give new energy to the tea market, so coffee consumption habits are close to those of the United States and other markets where coffee is the mainstay.

Starbucks lattes were selected as the mainstream product in the freshly ground coffee consumption market, and based on the difference between Starbucks' pricing level and consumers' psychological expectation of pricing, a conversion factor of 0.5 was set up (i.e., half of Starbucks' pricing was taken as the average price of freshly ground coffee in the region) to convert the market price of a single cup of coffee in the benchmarking region to a reasonable value.

Higher levels of disposable income in Tier 1 and Tier 2 cities.

We measured the per capita disposable income of each tier city (including all urban and rural residents) according to Wind's criteria for each tier city.

According to the calculation, the per capita disposable income of the first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen) and the second-tier cities reached RMB 60,640/year and RMB 37,663/year, which is much higher than the national average of RMB 28,228/year.

The first and second tier cities are suitable for the development of ready-to-drink, and have a demonstration effect, so most ready-to-drink brands

Start from the first and second tier cities. Ready-to-drink brands, such as Starbucks, Ruixing, Lianjia, Xicha, Nexue's Tea, Lele Tea, etc., are all starting from the first and second tier cities.

On the one hand, it is because consumers have enough purchasing power and a fast pace of life, which makes the demand for freshly made tea stronger,

and on the other hand, it is also because entertainment and optional consumer goods have a migration curve from the high tier cities to the low tier cities, i.e., Masayoshi Son's theory of the time machine, whereby the fashions and habits in the big cities will be gradually transmitted to the low tier cities as the income level of the low tier cities rises. The time machine theory is that fashions and habits in big cities will gradually spread to lower tier cities as their income level rises.

Reviewing the history of the development of Hei Tea, in 2017, by Hei Tea HEYTEA derived from HEYTEA MIX (Hei Tea Hot MIX), HEYTEA BLACK (Hei Tea Black Gold), HEYTEA PINK (Hei Tea Pink), HEYTEA DAY DREAMER PROJECT (Hei Tea DP store) and other store formats, basically provincial capitals City as the flagship store to establish the brand image, in June 2018 on-line smaller area, more flexible and higher degree of digitalization GO model stores for encryption.

Starbucks in the United States in the early 90's the development path of urban expansion, but also from San Diego, Boston, New York, Houston and other large cities to small cities gradually expand, rather than take the stationed in a new area and then gradually fill and then explore the new area of the way.

The core of this development model for ready-to-drink is that ready-to-drink has a higher demand for building brand influence, rather than digging deeper into supply chain efficiency and labor synergies to improve operational efficiency.

Given the time machine effect and the slightly different pace of life in each tier city, we have adopted different assumptions for the conversion factors for each tier city.

Taking Hong Kong's per capita expenditure ratio as a reference benchmark, we assume that the per capita coffee expenditure ratio of residents in Tier 1, Tier 2, Tier 3, Tier 4 and the following cities can reach 80%, 70%, 60%, and 50% of the Hong Kong region's coffee expenditure ratio, and the average annual coffee expenditure in each tier of the city will be $522, $283.5, $199, and $82.

The average annual coffee expenditure in each tier of the city is $522, $283.5, $199, and $82, respectively.

According to the population size and per capita consumption amount of each line of cities, we measured the potential market size of the coffee industry in each line of cities, first-tier, second-tier, third-tier, fourth-tier and the following cities per capita coffee expenditure accounted for the proportion of disposable income to reach the benchmark region of 80%, 70%, 60%, 50% level.

In terms of the closest tea-drinking habits in Taiwan, we believe that the market size of the coffee industry in the mainland region can be conservatively estimated to reach about 140 billion, there is still 1-2 times the space.

The non-alcoholic beverage market in China can be categorized into tea, coffee and other beverages.

China's non-alcoholic beverages market increased from 900.7 billion yuan in 2015 to 1,201.6 billion yuan in 2019 in terms of retail consumption value.

China's non-alcoholic beverages market is expected to grow from RMB 1,134.0 billion in 2020 to RMB 1,856.7 billion in 2025, at a CAGR of 10.4%, driven by increasing disposable income and continued product innovation

While there is a wide space for coffee in stores with a large leading player (Starbucks), there is a much stronger habit of tea drinking in China, with the tea market being much larger than that of coffee, and in the The gap is widening against the backdrop of the rise of new Chinese tea brands.

Tea includes ready-to-drink tea and other tea products such as tea leaves, tea bags, tea powder and ready-to-drink tea.

According to Nexue's tea prospectus, by the value of retail consumption as of 2020, tea accounts for more than 35% of China's non-alcoholic beverages market, the total size of China's tea market from 256.9 billion yuan in 2015 to 410.7 billion yuan in 2020, with a CAGR of 9.8%; of which 113.6 billion in stores ready-to-drink tea drinks, the compound growth rate of the next five years more to reach 24.5%.

And by retail consumption value, China's coffee market reached 65.5 billion yuan in 2020, accounting for about 5.8% of China's total non-alcoholic beverages market in the same period, is expected to grow to 144.7 billion yuan in 2025, most of which will be contributed by the freshly brewed coffee. fY2022, Starbucks is expected to reach 5,000 stores in China.

Tea is a traditional drink in Chinese culture, and in the 1980s Pearl Milk Tea was born in Taiwan, where black tea is mixed with creamer to make milk tea and added to Taiwan's famous snack, powdered dumplings.

Around 2015, new-style tea drinks were born, with the diversification of flavors and the introduction of more ingredients, the overall quality of milk tea has been improved, new-style tea drinks refers to the use of high-quality tea, fresh milk, fresh fruits and other natural, high-quality ingredients, through a more diversified combination of the tea base and ingredients into the Chinese drinks, new-style tea drinks to stimulate the rapid growth of China's tea drinks market.

By 2020, about 60% of the total consumption of China's ready-to-drink tea market will come from ready-to-drink tea stores, which can be categorized into three types according to the average selling price of tea:

(i) High-end ready-to-drink tea stores (with an ASP of no less than $20, such as Xicha, Nexue, Leloucha)

(ii) Mid-range ready-to-drink tea stores (with an ASP of $10-20, such as Cha Yan Yue Sai, Coca-Cola, etc.). (e.g. Tea Face, coco, a little bit, Gu Ming, Happy Lemon)

(iii) Low-end freshly made tea stores (ASP below RMB 10, e.g. Honey Snow Ice City). The total consumption value of freshly made tea products generated by high-end freshly made tea beverage stores in China increased from 0.8 billion yuan in 2015 to 12.9 billion yuan in 2020, representing a CAGR of 75.8%.

It is expected to further expand at a CAGR of 32.2% to RMB52.2 billion in 2025.

From 2020 to 2025, the growth rate of high-end ready-made tea beverage stores, in terms of the consumption value of ready-made tea beverages, is expected to continue to outpace the average growth rate of other ready-made tea beverage stores, and will account for approximately 24.8% of the total consumption value of ready-made tea beverages in ready-made tea beverage stores in 2025.

As of September 30, 2020, there were approximately 340,000 ready-made tea beverage stores in the PRC, with an average selling price of RMB13 for ready-made tea beverages, of which there were approximately 3.2,000 high-end ready-made tea beverage stores (accounting for 9.4% of the total number of shops) with an average selling price of not less than RMB20 for ready-made tea beverages, of which 2.4,000 tea beverage stores were chained brands (defined as a brand with more than 1 store in the country), with high-end tea beverage shops being relatively less expensive. The ready-made tea beverage store industry is relatively concentrated, and as of September 30, 2020, the five largest market players*** accounted for more than 50% of the market share in terms of retail consumption value, with Xi Cha accounting for approximately 25.5% and Nai Xue accounting for approximately 17.7%.

According to Naixue's prospectus, as of September 30, 2020, Naixue had the widest coverage and highest ASP among premium ready-made tea drinks in China, reaching $43.3 per order, compared to the industry average ticket price of $35 per order.

Among the ready-made tea drinks, the high-end is represented by Xi-Tea and Nai Xue in the form of base tea + fresh fruit, freshly brewed, fresh milk, freshly made cheese, fresh fruit, and priced at $20 or more.

Xi-tea, Naixue due to the high cost of raw materials, so the pricing is high, pay the price of "reducing gross margins, increase management difficulties", the product is relatively high barriers.

Mid-range is a relatively high degree of standardization of desktop milk tea, COCO, a little bit of the main, more tea bags, milk powder, less fresh fruit, priced at 8-15 yuan, has entered the stage of expansion of the franchise is aimed at a large base group of options.

Low-end is mainly distributed in the sinking market of powder brewed milk tea, mainly honey snow ice city, franchise expansion, open a large store, there are tens of thousands in the sinking market.

But just because of the business of the sinking market, the market requires low pricing, so the franchise form of decentralized production.

The target consumers decided to Honey Snow Ice City such a weak tea drink brand stickiness, is that the demand for the convenience of drinking, the product is difficult to differentiate, the scale is large but can not enhance consumer brand awareness.

In other words, Honey Snow Ice City is a franchise form of price competition with other low-end brands.

According to the "2020 New Tea Drinks Research Report" jointly released by the China Chain Store Management Association and the Ali New Service Research Center, ready-made tea drinks can be divided into three stages from the perspective of product development.

Chained Tea Drinks Period (before 2015): the rapid development of ready-made tea drinks, the birth of a number of national chain brands, including Happy Lemon, COCO, a little bit and so on;

Chained tea drink consumption upgrade 1.0 period (2015 2019): typical features in the drinks to add fresh fruit, dairy products, roasted fairy grass and other ingredients, pay attention to the value of the drinks, good looking and good to drink, the birth of a new concept of tea drinks, including the Xicha, Nexue tea and other brands; at the same time, more diversified consumption scenes appear (Nexue Wine House, Nexue Dream Factory, Xicha LAB store, Xicha Hot Wheat, Lelouch Tea Tea Factory), Lelouch Tea Tea Factory, Xicha Hot Wheat. LELO tea tea factory), extending the length of consumption.

Chain tea drink consumption upgrading 2.0 period (2020 onwards): further scale development of tea drink market segments, the head of the tea drink brand layout of the second and third-tier cities; from product innovation to product diversification (beverages, bakery products, retail products), channel digitization (small program order is more convenient, online retail platforms), in addition to the head of the high-end tea drink brand Hi-Tea, Nai Xue to further expand the scale, but also 7 minutes sweet, tea, tea and tea, tea and tea, tea and tea, tea and tea. In addition to the further expansion of the high-end tea drink brands Xicha and Naixue, brands such as 7 points of sweetness, tea, SEVENBUS and other brands are gradually standardized and replicated in different places.

According to the "2020 New Style Tea Drinks White Paper" released by Nachel's Tea and CBNData, the scale of new style tea drink consumers officially exceeded 300 million people in 2020, and more than 80% of the new style tea drink consumers buy at least once a week, and 80% of the consumers have a high degree of brand loyalty. From the perspective of consumer groups, post-90s and post-00s occupy nearly 70% of the market, and the proportion of male consumers has increased. In 2020, more than 40% of new tea drink consumers are male.

Takeaway has expanded the service scope of stores to areas within 2-5 kilometers, and the retail consumption value of freshly-made tea beverage products sold through takeaway on all terminals (i.e., third-party platforms, WeChat and Alipay apps, and self-owned apps) has increased from 0.7 billion yuan in 2015 to 28.4 billion yuan in 2020, with a compound annual growth rate (CAGR) of 107.6%, accounting for approximately 1.4 billion yuan of total retail consumption of freshly-made tea beverage products in 2020, and accounting for approximately 2% of total retail consumption of ready-to-drink tea products in 2020. 25.0% of the total retail consumption value of ready-to-serve tea beverage products; it is expected to further expand at a CAGR of 31.8% to RMB112.9 billion in 2025.

The tea beverage industry has low barriers to entry and fierce competition, and under the impact of the 2020 epidemic, the head brand has accelerated the opening of stores, and market concentration has further increased. 2020 to the last practicable date of the prospectus, Nexue opened 189 new stores.

According to the company's public data, as of December 2020, the number of new stores opened by Naixue increased by 20% over the same period last year, and the number of new stores opened by Xicha increased by 31% over the same period last year.

The leading brands are optimizing their services and products, and are focusing on digitalization and new retailing. The degree of online digitalization has increased since 2020, and digitalization is reflected in the formation of digital teams, the optimization of digital information-driven product innovations, and the enhancement of efficiency by relying on big data to select sites.

The new tea drink will use digital tools to get customer feedback in a short period of time, and optimize and adjust the product, or launch new products in the season.

Membership refinement operation can improve user stickiness and repurchase rate, tea drink enterprises through pre-order, points for gifts, exclusive evaluation channels to converge user data and opinions, optimize the user experience. At the same time, through their own small program or APP to set up customized flavors, refinement and precipitation of user data.

Naishue's Tea launched its membership system in September 2019, with 29.2 million registered members as of the last feasible date. As of September 30, 2020, approximately 49.4% of Naixue's orders came from members, the total number of active members increased from 2.0 million in Q4 2019 to 5.8 million in Q4 2020, and 29.8% of the active users by Q4 2020 were repeat members (25.6% in the same period in 2019).

Brand power is reflected in retail products, peripheral products, Naixue's Tea Tmall flagship store was launched in February 2020. hi tea Tmall flagship store was launched in March 2020, and hi tea Jingdong self-owned flagship store was launched in July 2020.

The new tea beverage brand shelves retail products, snacks, sparkling water and tea retail gift boxes, etc., to broaden the consumption scene.

Coffee consumption scene biased weekdays, the new tea drink itself biased social and leisure (more open in shopping malls, weekend and holiday traffic is better, while Starbucks in China is mainly CBD area, weekdays are better), for example, hi tea all day consumption peak time is 2:00 p.m. to 4:00 p.m., a week of the peak time of the order is the weekend/Thursday/Friday, with the Nexus pro store, hi tea With the penetration of Nespresso Pro stores and Hi-Tea to go stores into the CBD area, and the expansion of sales to bakery, coffee (Hi-Tea offers Americanos and lattes), packaged water and snacks, and even wine, the expansion of consumption hours and scenarios has increased the number of work scenarios, from afternoon tea to breakfast, and overtime snacks.

The value of retail consumption of cross-sold goods at high-end ready-to-serve tea beverage outlets in China is expected to grow from approximately RMB2.2 billion in 2020 to RMB10.1 billion in 2025, at a CAGR of 35.4%.

7 of Nesco's new stores will be Pro stores, removing ready-to-bake and replacing it with centralized distribution of baked goods by centralized chefs/suppliers, making smaller stores, focusing on tea drinks, positioning themselves in high-traffic areas such as upscale shopping malls, offices, and core locations in the center of residential districts, integrating coffee/roasting/tea drinks/retail, and enhancing operational efficiency with intelligent equipment layouts;

From the viewpoint of unit price, Nesco has a strong presence in second-tier and lower-tier stores, and has a strong presence in second-tier and lower-tier stores, with a strong presence in third-tier stores. Nesco is significantly higher than the first tier in the second tier and the following cities (48 yuan vs. 43 yuan), according to 73% of the revenue for tea drinks, 27 yuan a cup of calculation, the second tier and the following cities have 1.7-1.8 cups of tea per order, significantly higher than the first tier cities, coupled with the light luxury tone, petit bourgeois decorations, wider stores, mild and bright light, Nesco in the first tier/new first tier encryption of the type of stores may be differentiated from the second tier and below. The store types in Tier 1/new Tier 1 cities are likely to be differentiated from those in Tier 2 and below, with different store types offering quick and easy access to tea and drinks for the busy working population, and a "third space" for socializing in areas where leisure time is longer and rents are lower.

The effect of star products is obvious, and as of September 30, 2020, the top three best-selling tea beverages are Cheese Strawberry, Cheese Orange, and Cheese Grape.

Together, they contributed 25.3% of ready-made tea drink sales. Xi Cha's multi-year annual sales champion is Succulent Grape, and Xi Xiaobian continues Xi Cha's brand momentum with bottled sugar-free sparkling water, with the most popular flavor being Grape.

The leading ready-made tea beverage brands through cultural output to strengthen the emotional link with consumers, to pass the brand culture, Nexus through the CUP Art Museum, invited different artists to present works of art in the tea cups, to pass the "full of life art Nexus" concept, and in 2020, through public welfare activities, co-branding to pass the concept of "beauty has its own power". In 2020, we will convey the idea of the power of beauty through public welfare activities and co-branding.

The leading brands attach importance to brand maintenance, Hei Tea was originally called Royal Tea, because of the increasing number of imitation stores, the founder of the 2016 Royaltea Royal Tea officially renamed "HEYTEA Hei Tea, personally wrote a letter to consumers to explain the brand story, and continued to fight against counterfeiting and rights. The company's business is also a major player in the marketplace.

The head brand for the industry output standard, before 2019, the tea drink industry does not have a unified industry standard, 2020, November 19, China Chain Store Management Association together with Nai Xue, Hei Tea and other new tea drink head brand formally set up the CCFA new tea drink committee, *** with the establishment of new tea drink industry standard.

Prepared drinks need a good product + good model.

Good products - stable taste + high frequency of new, stable taste need to standardize the production process and staff training, McDonald's each Mcafe responsible for staff to focus on learning assessment; new frequency, the need for R & D investment, Starbucks new frequency of 1.5 weeks, Nexus weekly on the new, hi tea average 1.2 weeks on the new.

Good model - brand power can bargain rent, low dependence on manpower, raw materials, financial resources to build bakery, or scale to stabilize the upstream ordering.

The leading brands use their own scale advantages to promote the supply chain to standardization and scale development, while deep cultivation and control of the supply chain upstream to ensure the supply of high-quality raw materials to ensure the stability of the product taste and unity.

In order to ensure the taste of the drink, Xi-cha 2020 began to research and develop their own strawberry varieties, on the one hand, cultivate and develop new strawberry varieties, on the other hand, choose the most suitable area, build their own strawberry base.

At the same time, Xi Cha selects high-quality tea from Guizhou, Yunnan, Guangxi, Taiwan and other places, and ultimately produces classic teas such as LvYan, JinFeng, Four Seasons Spring, etc. And builds its own organic tea plantation in Guizhou. It also builds its own organic tea garden in Guizhou to produce organic tea.

Nexus from the beginning to intervene in the supply chain, self-built tea gardens, orchards, gardens and central factories, raw material assets, their own research and development of the supply chain system, the realization of the supplier to the production of the whole process of digitization, automatically matching the best materials for the stores, to achieve the integration of stores, warehouse inventory management.

(a) Model: Comparison of single-store model of catering and single-store model of tea drink

Tea drink business is good where:

1. Small stores + fast turnover, low trial and error costs, high ping efficiency (order digitization manpower is even more economical).

2. Gross profit is not lower than catering, the supply chain is simpler (especially the scale makes more suppliers), the most difficult is the fruit, the rest are bulk trade goods, fruit supply is also being optimized;

3. Weak cooks, faster after systematic training, better standardization in the store, Xi-Tea has a customized cheese machine and a tea-making machine; the current tea making, sugar pulling, cheese playing, fruit cutting links The current tea making, sugar pulling, cheese beating and fruit cutting processes are gradually being replaced by machines/suppliers.

4. Consumption scenarios are more diversified, a major pain point of restaurant enterprises and consumption is mainly concentrated in the lunch market and evening market, but the tea drinks can extend the consumption scenarios to breakfast, afternoon tea, and even late-night snacks, to further improve ping efficiency.

5. fashionable foreign style petty tone, strong attraction to young people, to recruit better employees, to attract a younger clientele;

6. strong compatibility (+ baking, + retail, are good business)

(b) the embodiment of the brand's pull, the sinking of the space

According to the Nexus Prospectus. 18-20 years without the impact of the epidemic, the second-tier cities daily sales exceeded the first-tier and new first-tier cities, indicating that the second-tier cities for petty fashionable attributes of the optional consumer spending power is not inferior to the first-tier cities, 2020 under the impact of the epidemic, the first-tier cities have shown greater resilience.

As of Q3 2020, average daily sales in first-tier cities/new first-tier cities/second-tier cities/other cities declined by 0.63 million/0.92 million/2.02 million/1.94 million compared to the same period last year.

The growth rate of new-style tea drink stores in Tier 1 and Tier 2 cities slowed down, showing a trend of sinking to Tier 3 and Tier 4 cities.

According to the "2020 New Style Tea Drink White Paper", new style tea drink brands accounted for 25% of the 50,000 square meters of casual dining in shopping centers in first and second tier cities across the country, and 31% of the number of stores opened, and with the rise in the penetration rate of the new tea drink in shopping centers, brands are beginning to try to open stores in the CBD or community.

As the growth rate of new tea drink stores in first-tier and second-tier cities slows down, the proportion declines significantly, showing a trend of sinking to third- and fourth-tier cities; consumers in first- and second-tier cities are the main force of consumption of online new retail products, with consumers accounting for more than 60%.

Food safety risks, the recurrence of epidemics brought about by the reduction of dining out, brand aging, new stores sinking less than expected.

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The content of the report belongs to the original author and is for learning purposes only!

By Wang Weina, Huachuang Securities

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