Some franchisees lost more than 700,000 yuan. Why did Xi Tea suddenly brake suddenly?

 author|leopard change Gao Yuzhe 

When the new tea drink was trapped in a collective rush, Xicha reversed direction and announced that it would stop expanding.

On February 10, Xicha sent an internal email with a firm attitude. The original text pointed out the current situation of the industry with meaningless price scale, homogenization competition, digital games and other keywords. Faced with this situation, Xicha said that it will not make low-cost internals in 2025 and will temporarily stop joining and return to users and brands.

Since 2012, Xicha has been founded for more than ten years, but it has been less than three years since it has been open to join. Compared with those pursuing 10,000 stores, Xi Tea has a total of more than 4000 stores and has not yet entered the first echelon of the scale competition.

At a time when colleagues are madly involved, this decision to Xi Tea has the support of some franchisees. A partner who joined Xicha early and now has more than 10 stores told Leopard Transformation that stopping joining is a good thing and can protect existing franchisees. zwj;

Throughout the tea industry, after two years of price wars and shopping, the dilemma caused by crazy internalization is emerging: in addition to leading brands such as Mixue Ice City and Bawang Tea Ji, the profits of many tea companies such as Naixue Tea fell in 2024. Affected by low-cost promotions and blind store expansion, many brands are facing shrinkage. The store closure rates of Guming, Shanghai Aunt, and Chabaidao are all higher than the previous year.

In the competition in the Red Sea, is Xi Tea’s sudden braking a helpless move or a strategic change? Behind the anti-corruption of tea, what industry difficulties are reflected?

Starting from 200,000 yuan to 60 billion yuan valuation

When it comes to representatives of new tea drinks, Xi tea is an unavoidable one.

In 2017, Xicha, which had been established for five years, entered the Beijing market for the first time, and opened two stores in the Industrial Sports and Chaoyang Joy City business district. On the opening day, there was a long line at the entrance of the store. Many people came to check in for the first cup of wedding tea. Topics such as purchasing new wedding tea by scalpers attracted much attention.

Looking back on the development history of Xi Tea, it was born in 2012, when the new tea beverage industry had not yet formed a scale. At that time, the 21-year-old founder Nie Yunchen opened a shop called Huangcha in Jiangmen, Guangdong, with the 200,000 yuan he earned from opening a mobile phone shop, which is the predecessor of Xicha.

At first, this tea shop did not attract much attention. As time went by, Nie Yunchen realized that product innovation was a breakthrough. After continuous product research and development, a cheese milk lid that was different from the current milk tea made at that time was born. This new product opened the door for Xi tea.

In 2016, Nie Yunchen renamed Huangcha to Xi Tea and received Series A financing of up to 100 million yuan. Before 2015, the new tea and beverage industry had very little financing, and the amount exceeded 100 million yuan was unimaginable. Since then, Xi Tea has started a wild run, with a valuation of 60 billion yuan in 2021. Bawang Tea Ji, who was only established four years ago at that time, had just completed more than 300 million yuan in Series A and Series B financing.

At its peak, Xi Tea became a high-end representative in the industry with its advantages such as product innovation, taste and taste. The price of its products was generally more than 28 yuan. A report released by Xi Tea and Sullivan in 2020 shows that the average customer unit price of new tea brands is more than 35 yuan, and the highest price of Xi tea can even reach 52 to 56 yuan.

Although the recognition of young people affects the capital market, Xicha is not eager to expand, but is wary of expanding its scale. In 2019, Nie Yunchen said in an interview with Interface News: Don’t get me wrong, we will definitely not join now, but I have never felt that branding and joining are contradictory. Many people now use it as a dogma, which is terrible.& rdquo;

In 2019, the tea beverage market is still in a development period of wanton growth. Mixue Ice City, which has taken the sinking route, has expanded to nearly 10,000 stores. There are less than 100 main stores of Bawang Tea Ji that have been established for three years. Naixue’s tea stores have just exceeded 300. With less than 400 stores, Xicha’s revenue in 2019 was nearly 3.5 billion yuan.

Looking back, at that time, except for Mixue Ice City, most tea brands had not yet started expansion models. But in fact, 2019 has already ushered in an explosion period in the tea beverage market, with a total scale of 97.8 billion yuan, an increase of more than 40% over the previous year.

By 2022, Mixue Ice City stores will exceed 20,000; Naixue’s tea will be successfully launched, becoming the first stock of tea drinks; later, Bawang Tea Ji, has more than 1000 stores, becoming the dark horse in the tea beverage industry; 10 years after its establishment, Xi Tea has a total of only 900 stores.

Rapid expansion puts partners in a dilemma‍‍‍‍

After opening up to join, Xicha did usher in a rapid expansion of store size in the short term.

According to the Beijing News, Xicha received more than 10,000 applications within 24 hours of opening the application entrance; in 2023, Xicha opened more than 2300 new stores, and the number of stores exceeded 3200 at the end of the year. The store size increased by 280%.

A Xicha partner told “Leopard Transformation” that Xicha’s assessment of partners mainly depends on three points: first, brand cultural recognition, that is, high cooperation with the requirements of Xicha’s main store; second, sufficient funds, and Xicha focuses on developing a large store model of more than 50 square meters. In the model, the partner’s financial ability is the key to the assessment; third, the partner is required to be the store manager in person and have a fixed amount of time in the store every day, which needs to be done personally. At the same time, partners need to go through a preliminary review, three rounds of video interviews and offline interviews at the headquarters. The partner pointed out that the third requirement can screen out many people.

Despite the strict review standards, given the appeal of the Xicha brand, these conditions have not stopped many people eager to join. A partner in Shenzhen told “Leopard Transformation” that the earliest batch of partners who entered before 2023 can indeed make money. It is only a matter of time before they recover their capital. Some even recover their costs within half a year. Most of the failure cases are related to improper site selection. However, subsequent partners face the dilemma of market saturation and low cost performance of their products, making it difficult to make profits.

A Xicha partner from Hefei County, Anhui Province told “Leopard Transformation” that his store will open in June 2023. Because it is the first store in the county, the headquarters recommends a large store model with a store area of 80 square meters. This Xi Tea store, which is opened on the first floor of the county shopping mall, is close to brands such as Mixue Ice City, Aunt Shanghai, and Ruixing Coffee.

In the first few months of opening, the highest monthly turnover reached 270,000 yuan, but then the performance began to decline. It is currently stable at around 130,000 to 140,000 yuan per month. The daily turnover on weekdays is about 3000 to 4000 yuan, and on weekends it can reach about 6000 yuan. After deducting labor costs of more than 20,000 yuan and rent of 15,000 yuan per month, the net profit is about 10,000 – 20,000 yuan, and the net interest rate is 12%-15%.

Among the total costs of the franchise store in this county, the cost of raw materials purchased from the headquarters accounts for the highest proportion, reaching more than 50%. The above-mentioned partner mentioned that what needs to be purchased include fruits, fresh milk, tea soup, small ingredients, packaging, etc. Since Xi tea is mainly fruit tea, the consumption is large, it is usually served on three days a week, and the goods are ordered on average every two days during the peak summer season.

After one and a half years of operation, due to poor business and too long a return cycle, this store is now applying for transfer at a price of 200,000 yuan. He mentioned that the total investment at the beginning exceeded 1.2 million yuan, and the current net profit has accumulated to 300,000 yuan. Assuming the transfer is carried out at 200,000 yuan, the loss will reach 700,000 yuan.

This situation is not an exception. Another partner in Wuhu, Anhui Province invested more than one million yuan to join Xicha in 2023. Now, due to his inability to afford the store rent of 30,000 yuan per month, the store closed in November last year. Now the store is in urgent need of transfer, and the transfer price has not yet been determined. In a franchise store in Xi’an, due to the high cost of raw materials and the lack of cash flow, the store has closed the store and left the store. It is also in arrears with the wages of five employees. A clerk told “Leopard Transformation” that it has long been beyond its means.

Since opening up to join, Xicha has expanded its stores to more than 4400 in less than three years, covering domestic and foreign markets, and accelerating its layout and sinking into the market. Rapid expansion has also brought tremendous pressure on management. In actual operations, franchisees are subject to cost pressures such as rent and raw material loss, and profit margins are compressed, exposing the contradiction between brands and franchisees.

Stop joining and save yourself by anti-corruption

Looking back, there was a long warning that Xi Tea would stop joining. In September 2024, Xicha issued an internal letter stating that it would not pursue short-term store opening speed and number, and would strictly control store franchises next. Compared with the more than 2000 stores opened in 2023, the expansion of Xi Tea will slow down significantly in 2024, slowing down to about 1100 stores.

Since 2020, the price war for new tea drinks has intensified. In the same year, in order to adapt to the low-cost market demand, Xicha launched Xixiaocha with a unit price ranging from 6 to 15 yuan. Three years later, due to the extreme entanglement of the industry, scale competition and price war became the consensus in the tea industry. Many brands rushed to it, and the low price of 9.9 was transmitted from the coffee track to the tea brand. Xicha had to follow suit and launched 9.9 group purchase coupons on Douyin and other platforms.

In fact, Xicha had already announced a price cut before it was released to join. From nearly 30 yuan per cup before 2022 to the range of 15-20 yuan. A Xi Tea partner told “Leopard Change” that starting from 2022, the average price of Xi Tea will be about 17 yuan.

After being forced to participate in scale competitions and low-price competition, Xi Tea seems to no longer be a maverick Internet celebrity brand, but has become a rushing member of the mainstream rules. After nearly two years of fierce competition, the mainland tea beverage market has become saturated, and some tea beverage brands have begun to seek overseas growth. The consequences of the domestic price war have emerged. In the first half of 2024, Naixue’s net tea loss was nearly 500 million yuan; the net profit of Chabaodao plummeted by nearly 60%. Even Lucky, which insisted on following up, could not support it, slowing down its expansion and shrinking its subsidies., once tried to withdraw from the price war.

Xi tea’s performance in the fierce market competition is not outstanding. In terms of price, like brands such as Guming, Chabaidao, and Shanghang Aunt, it is positioned in the range of around 15 yuan and is not the most cost-effective choice; in terms of scale, the total number of Xicha stores with less than 5000 is far behind. Behind Mixue Ice City and Bawang Tea Ji, it can only barely enter the top ten among tea brands.

Faced with various drawbacks caused by the price war, the suspension of Xicha’s joining can be regarded as a self-rescue measure to fight corruption, and it is also a transformation strategy for the brand to focus on quality and brand. Obviously, as the tea industry moves from a stage of rapid expansion to a new stage of refined operations, scale does not equal competitiveness. A partner told “Leopard Change” that in the future, Xi Tea may close a small store of about 30 square meters, promote 50 square meters and 80 square meters of stores, and strengthen brand marketing.

There may be helplessness behind Xicha’s stop joining, but the first shot against corruption has been fired in the industry, which also means that the tea industry is gradually returning to rationality and attaching importance to the essence of the brand. The next stage of development of the tea beverage industry has just begun.& nbsp;