CICC published a research report that is optimistic about the prospect of the current tea industry, which satisfies the pursuit of lifestyle of the new generation of consumers on the basis of Chinese traditional tea culture, and has a broad space. it is considered that the products and experiences that continue to reach or even exceed expectations build brand strength for current tea enterprises to win, and queuing is the embodiment of brand strength. The following are its main points:

The current tea industry has a broad space and is expected to give birth to big brands.

Tea has always been one of the most popular drinks in China. According to Zuoshi Consulting, in terms of retail consumption value, China's tea market is about 410.7 billion yuan in 2020, accounting for more than 35% of the non-alcoholic beverage market, far exceeding the size of China's coffee market of about 65.5 billion yuan. It expects the Chinese tea market to grow from 14.6% CAGR to about 810.2 billion yuan in 2025, surpassing the 10.4% growth rate of the non-alcoholic beverage industry.

For a long time, tea has been a traditional drink in Chinese culture, brewed with boiled water. In the 1980s, pearl milk tea appeared in Taiwan, and a new way of drinking tea was born and soon became popular all over Asia. According to the data of Zhenshi Consulting, China's current tea market is about 113.6 billion yuan in 2020, which is expected to grow from 24.5% CAGR to about 340 billion yuan in 2025, far exceeding the 14.6% growth rate of the tea market as a whole.

Under the general trend of consumption upgrading, new tea brands (such as Xi Tea, Nai Xue Tea, Le Le Tea) grasp this trend, pay attention to product quality and consumption scene jump, leading the current tea drink into the 3.0 era-the "new tea drink" era.

The current tea industry (especially high-end tea) has broad room for development and is expected to grow rapidly. The main driving factors are:

1) with the upgrading of consumption and the rise of quality consumption, the current tea drinks are also becoming more and more quality and healthy.

2) the new generation of consumers love and pursue the relaxed and enjoyable lifestyle represented by the current tea drink.

3) the development of online channels broadens the purchase channels, communication channels and marketing channels of existing tea drinks.

Horizontal Starbucks (there are more than 4700 stores in China at the end of 2020, covering more than 180 cities), the leading existing tea brands still have a lot of room for penetration.

In the competitive pattern, the high-end ready-made tea shop CR5 is more than 50%, and the leader is relatively concentrated. We believe that because the head brand has leading brand awareness, supply chain advantages, digital ability and financial strength, the strong is expected to be Hengqiang.

Nai Xue's tea: the mature store model is strong at the present stage, with both opportunities and risks.

Nai Xue's tea is a high-end ready-made tea chain brand in China, focusing on providing high-quality tea drinks made from high-quality ingredients.

Since the first tea shop in Shenzhen was opened in 2015, the number of tea shops in Nai Xue has increased from 44 by the end of 2017 to 422 at the end of 3Q20 (420 in Chinese mainland, 1 in Hong Kong, China and 1 in Japan), and further increased to 507 on February 5, 2021.

According to Burning knowledge Consulting, the company first uses fresh fruit to prepare ready-made tea in China and first innovates in China to put forward the concept of ready-made tea with baked products.

As of February 5, 2021, the core menu has more than 25 classic tea drinks and more than 25 classic baking products. Fresh fruit tea accords with the trend of people's pursuit of quality consumption and healthy consumption.

"Tea + baking" is a more matching scene. According to the 2020 New Tea White Paper, 53% of consumers said they prefer baking products when enjoying new tea. cross-selling also allows the company to get a higher customer unit price, with an average sales value of 43.30 yuan per unit of Nai Xue tea in the first three quarters of 2020 (the industry average is about 35 yuan).

In addition, the company continues to innovate around the core menu, launching an average of about 1 new tea a week and about 60 seasonal products since 2018.

At present, the mature store model is strong, but the cost of headquarters is on the high side.

A standard tea shop in Nai Xue has an area of about 180,350 square meters. We take 2019 as an example to calculate its single store model: for a mature store, we estimate that the average daily order volume is about 726 pieces, the annual income is about 11.42 million yuan, and the operating profit margin of the store is about 25.3%. The mature store single store model is strong. For the first year of operation of the new store, we estimate that the average daily order volume is about 655, the annual income is about 10.3 million yuan, the operating profit margin of the store is about 16.5%, the payback period of investment is about 10.6 months, and the break-even period is less than 3 months.

Naxue's tea lost money in 2018, 2019 and 1-3Q20, which we think is mainly due to high headquarters expenses (in 2019, advertising and promotion expenses, logistics and warehousing expenses, financing costs, and other expenses accounted for 11.3% of revenue, without taking into account headquarters staff costs), as well as the drag of new store opening costs (for example, there were only 155 stores at the end of 2018 and a net increase of 172 stores in 2019).

In addition, it is worth noting that there are only 44 mature tea stores (defined as those opened before 2018) in 2019, so the stability of the single-store model needs to be continuously observed and verified. with the increase in the number of stores, the single-store model may change significantly.

Compared with the restaurant industry, Nai Xue's tea has higher turf efficiency, lower staff expense rate and higher rent expense rate.

Based on our estimates for 2019:

The annual flat efficiency of a mature Nai Xue tea shop is about 43000 yuan, which is not as high as that of Haidilao International Holding and Taier, but also higher than that of most restaurant brands.

The staff expense rate is lower than that of most restaurant brands, and we think that the main reason is that the production of tea is generally simpler and the service is simpler than that of restaurant food, which leads to higher human efficiency.

The rental fee rate is higher than that of most restaurant brands, we believe that it is mainly because high-end ready-made tea shops generally rely more on good spots than restaurants, and Nai Xue's tea stores are similar to the "third space" and have higher requirements for store location and area.

Nai Xue's tea has opened rapidly in recent years, with only 44 stores at the end of 2017, 111 in 2018, 172 in 2019 and 95 in the first three quarters of 2020. The rapid expansion of stores led to a 130% increase in revenue in 2019, far higher than other restaurant brands.

However, the encryption diversion caused by the rapid expansion of stores has also led to a decline in single-store average daily sales and same-store sales, which fell 10% and 4% respectively in 2019, although same-store profit margins are still steadily rising.

In the first three quarters of 2020, affected by the COVID-19 epidemic, the average daily sales of single stores fell by 30 per cent, the same-store sales fell by 25 per cent, and the same-store profit margin also dropped from 21.8 per cent to 12.6 per cent. After the epidemic, the operation recovered steadily. For example, in the third quarter of 2020, the average daily sales per single store returned to 85 per cent, the same-store sales returned to 91 per cent, and the same-store profit margin also returned to 18.1 per cent.

Under the background of the great development of the industry, Nai Xue's tea is faced with the opportunity of rapidly expanding stores, improving profitability and extending value.

The company plans to open 300 and 350 tea shops in 2021 and 2022 respectively, of which about 70 per cent are planned to be PRO tea shops (launched in November 2020 and 14 as of February 5, 2021), in order to achieve wider customer coverage and improve business efficiency in different consumption scenarios, such as high-end office buildings and residential communities.

Improve profitability through digitization and other means:The investment of digital and intelligent equipment is expected to further optimize the staffing, cost and operating efficiency of the company's tea shop, and then improve the profitability. In addition, with the improvement of brand strength, the company is expected to get more favorable rental rates when infiltrating into subprime and sinking markets, and economies of scale are also expected to dilute expenses such as advertising and logistics warehousing.

Value extension:Centering on Naixue's tea brand name, the company is expected to continue to launch a new series of derivative products, such as lifestyle products and companion gifts, including packaged foods such as tea gift boxes, instant tea drinks, tea bags, prepackaged desserts and snacks. In addition, the company is expected to infiltrate new retail channels (such as various e-commerce, short video and real-time streaming platforms) to increase online and offline and supermarket chains.

At the same time, Nai Xue's tea may also face the risk of slower growth, as well as innovation, management, public relations crisis and food safety risks.