By Hu Erhuo He rose from humble beginnings, from selling popsicles to selling milk tea, he created a brand new category, "selling 1.2 billion cups a year, circling the earth 4 times," and eventually became the industry leader. He created a sales myth in the FMCG industry, growing sales from zero to 480 million yuan in just two years. The company had no bank loans, relying entirely on its own funds. He is Jiang Jianqi, and his company is more famous than him, called Xiangpiaopiao. When founding Xiangpiaopiao milk tea, he said: "Wherever there is a long queue, there must be an imbalance between supply and demand, and there must be possibilities for innovation and business opportunities." When Xiangpiaopiao was advancing rapidly and making its mark in the market, he said: "To start a trend, you must concentrate resources on the tipping point, and the logical starting point of every trend wave originates from a specific group—students." When wrestling with Youlemei and others, he said: "Pain can be long-term or short-term, big or small. Reform requires daring to cut off one's own flesh." In the process of becoming the "first milk tea stock," after two IPO suspensions and still being blocked at the door, he said that the company would not consider excessive diversification in the next five years, and Xiangpiaopiao would enter the liquid milk tea market in the future. As the industry developed, Xiangpiaopiao's sales began to decline. Some say it is the inevitable decline of the cup milk tea industry, some say Xiangpiaopiao's marketing is too extensive, and others say Jiang Jianqi's way of thinking is too traditional. What exactly is Xiangpiaopiao's problem? ● ● ● Advertising Spending Exceeds Net Profit Xiangpiaopiao's development cannot be separated from the "bombardment" effect of advertising. For example, when Xiangpiaopiao was just starting out and funds were not yet abundant, Jiang Jianqi legendarily invested 30 million yuan to run a 15-second advertisement on Hunan Satellite TV, becoming the first in the milk tea industry to advertise. At that time, Xiangpiaopiao's background was: the national market had not yet been fully covered, and it wasn't even in supermarkets. The ground forces were accelerating, while the air advertising bombardment continued to focus. The effect was that sales jumped from tens of millions in 2005 to 480 million yuan in 2006. Having tasted success, Xiangpiaopiao intensified its advertising campaigns, from "Xiangpiaopiao milk tea, selling over 300 million cups a year, cups connected can circle the earth once" in 2008, to later "can circle the earth twice" and "can circle the earth three times," constantly emphasizing its top position in cup milk tea. From Hunan Satellite TV's "Happy Camp" and "Day Day Up," to Zhejiang Satellite TV's "China Dream Show" and "The Voice of China," and Jiangsu Satellite TV's "If You Are the One," Xiangpiaopiao used these popular entertainment programs to bring massive attention and brand effects. But circling the earth too many times made Xiangpiaopiao's marketing overly dependent on advertising, trapped in advertising and unable to extricate itself, like riding a tiger. According to data from Xiangpiaopiao's prospectus, since 2012, Xiangpiaopiao's advertising expenses have remained around 300 million yuan, while net profit during the same period averaged less than 200 million yuan per year. The high advertising costs have far exceeded net profit, and its profit model may be unsustainable. This forms a vicious cycle to some extent. Once Xiangpiaopiao cuts advertising expenses, it will cause a decline in brand influence. But if it maintains the status quo, high marketing costs will further drag down its already unsatisfactory profits. Xiangpiaopiao has to painfully dance with shackles. Although willing to "burn money" on advertising, Xiangpiaopiao appears very "stingy" in research and development investment. From 2012 to 2014, Xiangpiaopiao's R&D expenditures were 1.6417 million yuan, 3.8842 million yuan, and 14.7714 million yuan respectively, accounting for only 0.09%, 0.18%, and 0.71% of the company's operating revenue. Although there was some growth, it remained at a low level. Even worse, Xiangpiaopiao's R&D investment was even less than the company's sales travel expenses. ● ● ● Is Selling Only Milk Tea Wrong? High dependence on cup milk tea is actually a rational and helpless move for Xiangpiaopiao. Unlike most FMCG companies, Xiangpiaopiao has always followed a specialized path, with milk tea revenue accounting for 98% of total company revenue. The advantage is that it allows the company to concentrate and maximize the value of a single product. But a single product structure can easily put the company in a passive position. If the cup milk tea market environment undergoes major changes, Xiangpiaopiao's operations will be significantly affected. Clearly, balancing risks is more of a consideration for companies. For example, JDB has not only herbal tea but also Kunlun Mountain; Nongfu Spring has not only drinking water but also developed functional drinks and fruit juices. In fact, Xiangpiaopiao has considered diversification. In 2007, it introduced a grand development plan: a convenience rice cake project with an investment of over 30 million yuan; entering the catering industry by opening milk tea chain stores; and entering the real estate market. Xiangpiaopiao even sold peanuts, with sales reaching over 30 million yuan. However, under the relentless pursuit of Youlemei and others, Xiangpiaopiao faced market pressure from numerous competitors, making it difficult to attend to diversification projects. It had to return to its main business and stop there. ● ● ● Channel Attrition in the Stock War The single product line also leads to the gradual loss of channel resources. Jiang Jianqi started with popsicle food, believed in extensive traditional distribution channels, and adopted a market strategy of advancing from second- and third-tier cities to first-tier cities. Competitors like Youlemei, however, were more thorough in modern retail channels such as KA. Xiangpiaopiao's sales mentality is slightly conservative and lacks long-term planning. The entire company revolves around simple processes like attracting investment, payment, shipping, and distribution, with regional expansion lacking strategy and channel development being somewhat blind. Many of Xiangpiaopiao's distributor networks have begun to complain. "We have to pay first before getting goods, then distribute. The manufacturer provides very few promotional activities. Sometimes cross-regional selling occurs." In addition, milk tea consumption has strong seasonality, and distributors face significant performance pressure during the off-season, making Xiangpiaopiao's distributors even more resentful. Xiangpiaopiao has been conducting the "Summer Full Movement" internally because fewer people drink cup milk tea in summer than in winter, making it the off-season. The "Summer Full Movement" requires distributors to also distribute goods in summer to ensure product sales. With the threat of "copycat" products, Xiangpiaopiao's growth has been suppressed, and it is rumored that some distributors have lost hundreds of thousands. After the single-category market becomes relatively saturated, it inevitably enters a period of stock competition. The industry ceiling has been reached, and Xiangpiaopiao's successful experience is gradually becoming ineffective. ● ● ● Giants Surrounding for a Cup of Milk Tea The FMCG world has never lacked predators. Unlike a few years ago when it was far ahead, Xiangpiaopiao now faces wolves from all directions. Starting in the second half of 2006, Youlemei, Lipton milk tea, Xiangyue milk tea, and others rushed into the cup milk tea market, and dozens of milk tea brands suddenly appeared nationwide. Among them, the most competitive is Youlemei under Strong Group. Strong Group started with jelly and has been immersed in the food industry for many years. Whether in terms of financial strength, distributor network, or sales team size, it is clearly much stronger than Xiangpiaopiao. In 2008, Xiangpiaopiao's sales revenue approached 1 billion yuan, while Youlemei's sales also continued to rise, and by the first half of 2009, it was very close to Xiangpiaopiao. While domestic cup milk tea brands continued to emerge, foreign brands also began to enter the domestic market. As the world's largest tea beverage brand, Lipton, on the one hand, launched cup milk tea to compete with domestic brands like Xiangpiaopiao and Youlemei; on the other hand, it launched bagged milk tea, which no brand had yet entered, targeting white-collar office and business market segments. In marketing, Lipton still follows the traditional Unilever model: rich product lines + unique advertising creativity + intensive advertising placement + a nationwide marketing network + excellent marketing human resources. Compared to Xiangpiaopiao's extensive marketing structure, it appears extremely strong. Xiangpiaopiao's pursuit of listing is directly aimed at laying out liquid milk tea and online channels, and indirectly at seeking a stable fulcrum for the brand in the highly competitive milk tea market. Whether it can convince the capital market and achieve listing is a great challenge for Xiangpiaopiao's future sustained profitability and space. Jiang Jianqi once said, "If you want to question the future and question tomorrow, then think about Xiangpiaopiao many years ago, and yourself many years ago. Fortune or misfortune, perhaps there is no answer." Source: Kuaidao Sanxia (ID: iyqkpd)