“Snow King” is listed to solve the mystery of new tea drinks

author| Bailu of Jingzhe Institute 

On February 21, Mixue Ice City officially launched its IPO. As of February 23, Mixue Group’s margin subscription amount has exceeded HK$640 billion, and the margin subscription multiple has exceeded 1800 times. The Snow King’s accession to the throne is widely expected.

As a popular new tea and beverage company in the capital market, Mixue Ice City has also hit IPOs several times since 2021. Now that the Snow King has realized his dream, the new tea and beverage industry has also changed its face. As a result, with the implementation of the first batch of new tea drinks at the beginning of the new year, questions about the new tea drinks industry have also arisen.

Can the Snow King subvert the breaking spell? How much imagination does the new tea drink have? These questions may all be answered after the Snow King ascended the throne.

The Snow King ascended the throne, and he’s going to catch the evening fair

In September 2021, three months after Naixue won the first achievement of new tea drinks, Mixue Ice City completed its guidance filing with the Henan Securities Regulatory Bureau. It plans to land on the main board of the Shenzhen Stock Exchange and officially submit an A-share IPO application in September 2022. However, affected by industry policy adjustments, Mixue Ice City’s initial listing plan will be terminated in February 2023.

In January last year, Mixue Ice City submitted its prospectus to the Hong Kong Stock Exchange for the first time, but it did not enter the hearing after waiting for six months. When the application materials expired, the listing plan was shelved. Looking back at Snow King’s two consecutive IPOs failed, largely due to the impact of the industry environment.

Before Mixue Ice City submitted its IPO application for the first time, although Naixue successfully impacted the capital market on behalf of the new tea and beverage industry, Naixue had not yet achieved profit at that time, and the market’s doubts about the new tea and beverage business model had not been dispelled. The actual performance of the sale at the beginning of the market also truly reflects the market’s concerns about its operating capabilities.

* Photo source: Naixue’s Tea Official Weibo

In addition, Naixue’s continued loss of money after its listing has also greatly reduced investors ‘confidence to a certain extent. Public data shows that as of June 30, 2024, Naixue’s total operating income for the first half of the year was 2.544 billion yuan, a year-on-year decrease of 1.91%; its net profit attributable to the parent was-435 million yuan, a year-on-year decrease of 758.42%(the net profit attributable to the parent in the first half of 2023 was 66.098 million yuan). In the past four and a half years, Naixue’s cumulative losses have reached 5.6 billion yuan, with only a slight profit of 13 million yuan in 2023.

“Even if the operating conditions of the industry’s No. 1 stock are still the same, the investment market cannot help but tighten its pockets on the new tea drinking track. Therefore, it will not be until the consumer market picks up in 2024 that the new tea drinking track will usher in the second listed company Tea Baidao.

However, Chabaidao failed to break Naixue’s break spell. On the first day of listing, Chabaidao suffered a break, with the biggest intraday decline reaching 38.29%. As of May 7, 2024, the cumulative decline in the share price within two weeks of listing reached 34.82%, and the total market value evaporated by approximately HK$8.51 billion.

The reason why new tea and beverage companies face the curse of breaking up is essentially that the capital market has doubts about the valuation logic of the new tea and beverage track.

* Photo source: Chabaidao official Weibo

First of all, the new tea beverage brand represented by Naixue has emerged in the front-line market. Under the boom of new consumer investment, it has quickly established brand reputation through the direct sales model and established a firm foothold. However, with the dilemma of offline consumption caused by the epidemic and the ebbing of investment craze, the business model of focusing on direct sales and focusing on brand operations has made the crux of high cost investment and low profit margins more obvious.

Secondly, as the overall consumer market enters a cold winter, the internal competition of the new tea drinking track is gradually becoming more intense. The contraction in consumption in the head market has led to brand premiums bowing to consumers ‘limited budgets. Star companies such as Naixue and Xicha, which are in first-tier cities, are then sinking into the market, relying on Chabaidao, Ancient Ming, and Tea Yanyue. Brands in local markets form direct competition.

From the perspective of investors, the external market situation faced by the new tea drinking track is increasingly severe, while internally, due to the low industry threshold, brand homogenization is serious. At the same time, the funds obtained by new tea companies seeking to go public will still be invested in the vicious competition of scaling up stores and competing for market share. Naturally, no investors are willing to serve as cannon fodder for brands that are not yet profitable.

Therefore, even Mixue Ice City, which achieved the scale of 10,000 stores earlier than the new tea star brands, is difficult to impress the capital market.

Answer questions for new tea drinks

At present, Mixue Ice City has made its third IPO. On the one hand, it is due to the capital pressure brought by market competition. On the other hand, in the process of continuous accumulation, the industry and Mixue Ice City itself have also undergone some obvious changes, thus giving Snow King a little more confidence.

According to public data, as of the end of 2024, Mixue Ice City has more than 46,000 stores around the world, including more than 4800 overseas stores, covering China and 11 Southeast Asian countries. Putting aside the eye-catching figure of 9 billion drinks sold a year, Mixue Ice City’s confidence in its launch this time comes from its performance.

* Photo source: Mixue Ice City official Weibo

In 2022, 2023 and the first nine months of 2024, the total revenue of Mixue Ice City reached 13.6 billion yuan, 20.3 billion yuan and 18.7 billion yuan respectively, a year-on-year increase of 31.2%, 49.6%, and 21.2%; The net profit for the same period was 2 billion yuan, 3.2 billion yuan, and 3.5 billion yuan respectively, a year-on-year increase of 5.3%, 58.3%, and 42.3%.

In addition, in the first three quarters of 2024, Mixue Ice City’s net interest rate also increased to 18.7%, and terminal retail sales increased from 30.7 billion yuan in 2022 to 58.3 billion yuan in 2024. While his friends were still adjusting prices and scales, Snow King not only achieved growth but also made more money. Who could bear this?

Of course, in the eyes of some professionals, there are certain operating skills in using financial report data to prove their ability to make money. However, compared with other brands that intend to solve the competitive difficulties of the industry through listing and financing, Mixue Ice City’s desire for money may not be so strong.

The prospectus shows that from 2021 to the first nine months of 2024, the net inflow of cash flow from operating activities of Mixue Ice City was 1.7 billion yuan, 2.4 billion yuan, 3.8 billion yuan and 5.1 billion yuan respectively. As of September 30, 2024, Mixue Ice City’s cash and cash equivalents increased from 3.76 billion yuan in 2023 to 5.98 billion yuan. More popularly speaking, as of September 30 last year, Mixue Ice City still had nearly 6 billion yuan on its accounts.

For investors, sufficient cash flow and objective profitability on paper also mean that Snow King, who is not short of money, is unlikely to make investors in the secondary market become cannon fodder for industry insiders. This is also the fundamental reason why Mixue Ice City was able to obtain excessive fundraising.

* Photo source: Mixue Ice City official Weibo

More investor confidence also comes from Mixue Ice City’s unprecedentedly strong cornerstone investor lineup. A total of five cornerstone investors, Hillhouse, Sequoia China, Boyu Capital, M G, and Meituan Dragon Ball, subscribed for a total of approximately HK$1.558 billion. Among them, Hillhouse and Sequoia both invested in Mixue Ice City in December 2020. If Mixue Ice City, one of the new tea brands, was only a strategic layout at that time, then participating in the cornerstone subscription now can more reflect the institution’s recognition of Mixue Ice City.

In fact, institutions are optimistic about Mixue Ice City not entirely because of performance data.

In the past two years, the focus of competition for the new tea drinking track has apparently been to continue to fight price wars, while at the same time attracting young consumers and seizing market share through high-frequency operation activities such as IP co-branding. However, the competitive logic at the bottom is to reverse expand the upstream supply chain capabilities by sinking the market and expanding stores, and use the advantages of the back-end supply chain to solve the superficial homogeneous competition dilemma. The advantage of Mixue Ice City is precisely the supply chain that has been operating for many years. Map.

Coincidentally caused by changes in the market, the Snow King successfully ascended the throne not only because he regained control of the direction of the market, but also provided a reference for other brands on the same route.

“Consumption vitality in low prices

On the new tea drinking track, Mixue Ice City is a typical exception.

Other star brands are mainly direct sales and brand-first, but Mixue Ice City relies on 99% of franchise stores to develop its low franchise fee + high supply chain development model. When Xicha and Naixue seized the market in Beijing, Guangzhou and Shenzhen and accelerated their staking, Snow King took the lead in achieving the goal of 10,000 stores and formed a scale effect. The conflict between its unique development model and its industry status has also caused Mixue Ice City to face doubts about its brand value.

If we go back to 2015, when the concept of new tea drinks began to be gradually recognized by the public, Mixue Ice City, which specializes in 2 yuan ice cream, 4 yuan lemonade and 6 yuan milk tea, will probably be placed at the bottom of the chain of contempt among some consumers who queue up to buy freshly made fruit tea.

* Photo source: Mixue Ice City official Weibo

But today, it is synonymous with cheap and big bowls. This diametrically opposed change in attitude does not come from changes in the brand itself, but because consumers ‘needs and moods have changed.

Looking back at the origin of the new tea drinking track, the early development paths of star brands are almost the same: moving their stores to shopping malls, competing with Starbucks, which is popular among white-collar workers and middle-class workers. The long queues of people also have to turn a corner in the atrium of the shopping mall. The explosion of people under the line brings a steady stream of traffic to online topics.

As a result, under the new consumption boom, one after another, popular new tea brands were born that interpret the economy of beauty and consumption upgrades. Young white-collar workers working in the CBD would rather sacrifice their precious lunch break time to go downstairs for a drink; young people shopping on weekends must also have a cup of hot products to use in their circles of friends; the first cup of milk tea in autumn, like the roses on Tanabata and Valentine’s Day, has become a well-known ritual. Fewer and fewer people will take the initiative to question: freshly made tea for twenty to thirty yuan a cup may be the money for one meal.

However, as people experience consumption degradation, more and more people are beginning to actively or passively accept a rational consumption lifestyle. Looking back at the development of the new tea drinking track at this time, we will find that from creating popular products and setting off low-cost in-house registrations, to competing for IP co-branding and trying to diversify operations, the new tea drinking business ultimately competes with user base, user stickiness and cost control capabilities.

Therefore, it can be seen that in order to snatch users, star brands have also had to join the price war and jump out of the comfort zone of the first-line market. Many new tea brands adopt the development strategy of surrounding cities from rural areas and expand their upstream supply chain capabilities by sinking into the market and expanding stores., from questioning the Snow King to becoming the Snow King. This fact also shows that it is never the brand that determines the direction of the industry, but the real needs of the market.

According to Zhuoshi Consulting data, in terms of terminal retail sales, the size of China’s existing beverage market is expected to increase from 517.5 billion yuan to 1.1634 billion yuan from 2023 to 2028, with a compound annual growth rate of 17.6%. Among them, the affordable ready-made drinks represented by Mixue Ice City (unit price no higher than RMB 10) not only meet the general trend of consumers ‘increasing pursuit of cost performance. In the eyes of some young consumers, Mixue Ice City is in line with other affordable beverage products. It provides fresher products and a more interactive consumer experience at a similar price band.

Therefore, affordable ready-made drinks have the highest growth rate among the ready-made beverage market segments in different price bands, and the compound annual growth rate from 2023 to 2028 is expected to reach 22.2%. As a result, affordable ready-made drinks have become the key for new tea drinks brands to penetrate into the market and win competition in the industry.

In the current market environment, new tea drinks are also being redefined: it is no longer an over-packaged consumption method that highlights the superiority of minorities; low prices are not low-end, but the essence of daily life.

Especially from the cloud of consumption upgrades to the reality of rational consumption, while consumers actively embrace cost-effectiveness, low prices can better demonstrate the vitality of the consumer market and are also the confidence that the consumer market will remain active. Therefore, it is not so much that the listing of Mixue Ice City is solving the mystery of new tea drinks, but rather that the market that returns to rationality and the essence of life has given new tea drinks the opportunity to start again.