Is Xiangpiaopiao Making a Comeback?

Click to read the original article for details. "Those who previously talked us down were all wrong." In March, Jiang Jianqi, the helmsman of Xiangpiaopiao (603711.SH), said this at the Lujiazui Positioning Forum. Since October last year, Xiangpiaopiao's stock price has risen by up to 161%. Watching the soaring stock price, Jiang Jianqi's tone has clearly regained confidence. Half a year ago, the situation was quite different. In August 2018, Xiangpiaopiao released its first semi-annual report after listing, with revenue of 870 million yuan, a year-on-year increase of 55%, and a loss of 54.59 million yuan. After the semi-annual report, a limit-down followed by a wave of declines, the stock price directly broke its issue price, and in October 2018 it hit a low of 12.61 yuan per share, with a market value of only 5 billion yuan. In a media interview, Jiang Jianqi said, "I feel wronged. Why does everyone only see the net profit loss but not mention the revenue increase?" Xiangpiaopiao urgently needed a new big single product to prove itself. At present, the MECO Migu juice tea launched in July 2018 seems to have taken on this important task. In the past year, juice tea sales were around 800 million yuan, and in the first half of this year, sales reached 587 million yuan. Simply calculated, annual sales will exceed 1 billion yuan. In just a year and a half, it is about to become a 1 billion-yuan-level big single product. This means it has survived in the fiercely competitive tea beverage market. Internally, the company also hopes that the sub-brand Meco can become a symbol that surpasses "Xiangpiaopiao". They plan to grow Xiangpiaopiao to a scale of 10 billion yuan in about 5 years. But before achieving the 10 billion scale, it needs to face this reality— With the acceleration of information dissemination, it is difficult to use a fixed concept to impress the majority. The answer to questions like "what kind of beverage is healthier and tastes better" is constantly changing. The changes of the times bring about the acceleration of consumers' preference for the new over the old, and the life cycle of big single products has shortened. Unlike iced black tea, which has a life cycle of more than ten years, it may only be popular for 5 years now, and products will rise and die quickly. On the road to the 10 billion scale, Xiangpiaopiao needs more juice tea to support growth. The good thing is that through the big sales of juice tea, it has shown the market that it has the ability to create single products. A 1 billion-yuan-level big single product How to create a big single product that leads the industry? This is almost the dream of all FMCG companies. Xiangpiaopiao, which has been questioned by the market as "after circling the earth N times, it can't turn anymore", is even more eager to find the next big single product to prove itself. In July 2018, Xiangpiaopiao launched the MECO Migu juice tea, which seems to have taken on this important task. In the first half of this year, juice tea sales reached 587 million yuan. Simply extrapolating, it is not a problem for annual sales to exceed 1 billion yuan. In just a year and a half, this juice tea is about to become a 1 billion-yuan-level big single product, which means it has survived in the fiercely competitive tea beverage market. Nielsen once tracked 15,000 new FMCG products, and by the second year, only 50 were found on the market. So, 1 billion is not only a specific number but also a magnitude, meaning that Migu juice tea will avoid the fate of being a flash in the pan. Xiangpiaopiao will also find a new performance growth point, and the market has begun to re-focus on this leader of cup milk tea, and the stock price has also come out of the trough. The food and beverage industry has always valued big single products, but in the past, it talked about 10 billion-yuan-level big single products, especially beverages, which "produce" 10 billion-yuan big single products, such as Nutrition Express, JDB, Want Want milk, Red Bull, and Six Walnuts. Now the scale of big single products has shrunk. People have not given up chasing the next 10 billion-yuan big single product. Before juice tea, Xiangpiaopiao had placed its hopes on liquid milk tea, and even shouted the slogan "10 billion single product" last year. But due to factors such as channels and high unit prices, liquid milk tea could not be promoted widely. In 2018, it generated less than 200 million yuan in revenue, a year-on-year decrease of 10.97%, and in the first quarter of 2019, it decreased by 44.08% year-on-year. It is not only difficult for Xiangpiaopiao; the entire food and beverage industry has rarely seen 10 billion-yuan big single products emerge in the past two years. The market gradually agrees with this view: In the future, there may be super big single products at the tens of billions level, but 1 billion-yuan-level is the normalized big single product. Behind this is the trend of shrinking scale of big single products. This is because the original big single products were classified by category, but now they are further subdivided on the basis of the original categories. The former is category innovation, which cuts a relatively large amount of sales. For example, beverages have many categories, such as walnut milk and herbal tea. The scale of segment leaders is generally 6 billion to 20 billion yuan, and industry pioneers often use big single products to form category monopolies. The latter is product innovation, cutting out new products from existing categories. Since consumers have more choices and brands have more options, the sales volume spread to each new single product will not be as large as before. You can understand it this way: Originally, you were swimming in a big pond; now you are competing in a small pond. The big single products we talk about now, because they need to be big fish in a small pond, are difficult to be very large in scale. Before Xiangpiaopiao's juice tea, the 1 billion-yuan-level big single products in tea beverages were Xiaoming Classmate from Uni-President in 2015 and Tea π from Nongfu Spring in 2016. Both of them completed volume expansion in a short time. Xiaoming Classmate achieved 500 million yuan in revenue in half a year, and Tea π was even more ferocious, achieving 1 billion yuan in revenue in half a year. Now they are both 2 billion-yuan-level big single products. Exceeding 1 billion in sales also means that the product has temporarily passed the safety line and will not be a flash in the pan. How did Migu juice tea stand out? The current ready-to-drink tea market pattern is a typical small pond competition. The entire tea beverage market scale exceeds 100 billion yuan, but since 2014, the retail volume of ready-to-drink tea in China has declined, and consumer preferences have shifted from flavored tea to healthy tea. Against this background, the hot sales of Xiaoming Classmate and Tea π activated the entire track. The market gradually differentiated, product innovation accelerated, and ready-to-drink tea became a highly active category in the past two years. Nielsen data shows that in 2018, the sales of ready-to-drink tea exceeded 31 billion yuan. Master Kong Holdings (HK:00322) and Uni-President China (HK:00220) are still the "big and small kings", accounting for 27% and 15% of the share respectively. But in 2018 alone, no fewer than dozens of new ready-to-drink tea products appeared on the market. Coca-Cola's Chunchashe series, Danone's Tianfang Yetan, Jinmailang's Chake, and Dongpeng Beverage's oil citrus lemon tea... With fierce competition, how did Xiangpiaopiao's juice tea become a big single product? Let's first look at how Xiaoming Classmate and Tea π did it. The success of both is inseparable from innovation. Although they cannot be counted as category innovation, compared with traditional ready-to-drink tea, their characteristics are very prominent: emphasis on quality and health, diversified tastes, attention to appearance, and mixing with other categories such as fruit juice. In 2015, Uni-President launched Xiaoming Classmate, attracting student groups through cold brewing technology and Q-version image, and its popularity continued until 2016. After Xiaoming Classmate heated up the market for a year, the market's view of tea beverages had changed, and consumers accepted the 5 yuan price point for tea beverages, and product heat continued to rise. At this time, Tea π entered the market. In 2016, Nongfu Spring launched Tea π, attracting consumers through tea leaves, fruit juice flavors, and illustration styles, plus endorsements from BIGBANG and Kris Wu, making it the big hit of the year. Tea π's price was similar to Xiaoming Classmate, targeting the same group, and the channels were similar, mainly concentrated on campuses. Similar positioning and channels saved Tea π a lot of early cognitive popularization and consumer education, allowing it to quickly enter the market explosion period. In summary, the explosion of a ready-to-drink tea first requires product innovation, clear target audience at the beginning of product launch, and if channels and marketing are combined with product positioning, it will get twice the result with half the effort. On the other hand, the target group of new tea drinks is mostly young people, so product design should also be more innovative and surprising to attract young consumers. Back to Xiangpiaopiao's Migu juice tea. Migu juice tea also initially targeted young consumers. It innovated in taste, made with pure fruit juice + freshly brewed tea base, low-calorie design, using UHT aseptic filling technology, and can be stored at room temperature for 12 months without preservatives. It meets consumers' needs for both taste and health. In addition, it continues to use cup packaging, with a slender and long cup design and bright colors, differentiating it from other tea beverage packaging. Compared with Uni-President's cup tea beverages Guozhongzou and Cha·Shunxian (retail price 9-10 yuan/bottle), Xiangpiaopiao's juice tea is more affordable (retail price 5-6 yuan/bottle). As for marketing, Xiangpiaopiao has actually proven its marketing ability and is willing to spend money. In the past few years, it has basically spent 200-400 million yuan on advertising. In terms of online promotion, not only did spokesperson William Chan疯狂安利 (strongly recommend), but also on Christmas and Valentine's Day, it launched topic marketing such as "dare to show love, bravely confess". Xiangpiaopiao also actively uses channels such as Douyin and Xiaohongshu to strengthen interaction. Its official Douyin account for Migu juice tea has 151,000 fans; In terms of offline promotion, it was officially launched in July 2018, and in September and October, it made breakthroughs at universities, first attacking the core target group of students. In October, it entered KA channels to expand channels. In March this year, it also launched the "water head battle" to seize freezers in preparation for the peak sales season. "Water head" comes from the beverage industry in Taiwan, meaning to tie up stakes, with the purpose of grabbing funds and inventory space of various channels before the peak season. According to research by Southwest Securities, Xiangpiaopiao raised the price of juice tea in early May, increasing the ex-factory price from 47 yuan/box to 49 yuan/box, and the extra 2 yuan is returned to channels in the form of rebates. At the same time, it put forward higher requirements for dealers' terminal development and display, which has an incentive effect. This is a very practical issue. Xiangpiaopiao's juice tea has a much higher channel profit margin than general beverage products, with an average gross margin of about 22%, while Nongfu Spring's average gross margin is 13%-15%, so channel enthusiasm will be higher. This is also directly reflected in the sales of juice tea. In the first quarter, sales were 170 million yuan, and in the second quarter, sales were 420 million yuan, a year-on-year increase of 147%. Image source: Xiangpiaopiao announcement Is Xiangpiaopiao making a comeback? In the capacity design of Xiangpiaopiao's juice tea, it supports new revenue of over 2.8 billion yuan, equivalent to creating another "Xiangpiaopiao". Obviously, it is betting on this "explosive" single product, hoping to make it a "explosive" product at the 2 billion-yuan level or above. Since the juice tea appeared in the third quarter report last year, Xiangpiaopiao's stock price has risen by more than 120%, and its market value has increased by more than 8 billion yuan. The rapid volume expansion of juice tea has also made the market see hope for Xiangpiaopiao to break through the bottleneck. Otherwise, like Chengde Lulu (000848.SZ), even if it caught up with the A-share consumer stock feast, the stock price would still be sluggish. Looking at the big single product beverage companies in A-shares, you will find that companies that rely too much on big single products, after rapid development, will more or less encounter such a bottleneck: after reaching the ceiling, performance growth slows down, or even becomes negative, such as Yangyuan Drinks (603156.SH) and Chengde Lulu. This also derives a basic logic in the FMCG field of beverages and food—relying solely on a single product is not enough. To achieve stable performance in the long term, it is necessary to develop new categories through R&D or mergers and acquisitions, and share channels among multiple products to achieve economies of scale and performance growth. Cup milk tea is not selling well, and Xiangpiaopiao found juice tea to prove itself, just as Jiang Jianqi said, "Those who previously talked us down were all wrong." In 2018, Xiangpiaopiao achieved revenue of 3.25 billion yuan, a year-on-year increase of 23%; net profit of 315 million yuan, a year-on-year increase of 17.5%, of which juice tea contributed 6.2% of revenue and 3.6% of net profit, a very small proportion. In the first quarter of this year, revenue was 840 million yuan, a year-on-year increase of 28.3%; net profit was 52 million yuan, a year-on-year increase of 83.6%. Among them, juice tea's 170 million yuan revenue accounted for 20%. Internally, the company hopes that the sub-brand Meco can become a symbol that surpasses "Xiangpiaopiao". They plan to grow Xiangpiaopiao to a scale of 10 billion yuan in about 5 years. But before achieving the 10 billion scale, it needs to face this reality— With the acceleration of information dissemination, it is difficult to use a fixed concept to impress the majority. The answer to questions like "what kind of beverage is healthier and tastes better" is constantly changing. Consumers' preference for the new over the old has accelerated, and the life cycle of big single products has shortened. Unlike iced black tea, which has a life cycle of more than ten years, it may only be popular for 5 years now, and products will rise and die quickly. If we follow Uni-President's statement, the popularity cycle of big single products is only 1.5-2 years, more like fashion products. In 2014, Uni-President launched Hai Zhi Yan, and in 2015, sales reached 1.7 billion yuan, driving the company's juice revenue to increase by 8.6% year-on-year, outperforming the entire juice market, and once greatly affecting other beverages, especially Mizone, which was in the same 4 yuan price range and had a lighter taste. But after Xiaoming Classmate was launched, Hai Zhi Yan became awkward. In 2016, Uni-President's beverage revenue fell by 13%, mainly due to Hai Zhi Yan dragging it down, and juice revenue fell by 41.5% year-on-year. This is a problem within Uni-President, but it is also a microcosm of the entire tea beverage industry. The emergence of Tea π cut off the growth momentum of Xiaoming Classmate. In 2015, Uni-President's tea beverage revenue increased by 5.4% year-on-year, in 2016 it was 1.5%, and in 2017 it was only 0.8%. With the nationwide promotion of Migu juice tea, it is expected that there will also be considerable pressure on Tea π. In the short term, what can be seen is that juice tea, as a big single product, will drive Xiangpiaopiao's performance and stock price. But after the popularity cycle? The 10 billion-yuan-level ready-to-drink tea market is conducive to nurturing big single products, and this track has never lacked "explosive products". The development history of representative 1 billion-yuan-level beverages in the Chinese market Since 2008, Uni-President has developed more than 1,000 products, with more than 600 products launched for trial sales, an average of 60 per year. Now, only about 7-8 new products have succeeded, including Assam, Hai Zhi Yan, Xiaoming Classmate, Fresh Orange, Laotan Sauerkraut Noodles, Iced Black Tea, Green Tea, and Tang Daren, which have become 1 billion-yuan-level big single products, supporting more than 70% of the group's profits and 50% of revenue. Without such a combination of big single products, it is difficult to support the growth of a 10 billion-yuan-level enterprise. The market has begun to recognize Uni-President's "1 billion product matrix" view. By-Health (300146.SZ) experienced high growth for 5 consecutive years after listing, and entered a state of growth stagnation in 2016. In 2017, the company "launched the big single product strategy", that is, every two to three years in the future, it will launch a single product with sales revenue reaching 1 billion yuan, to start a new round of growth cycle. The effect depends on each company's operations, but the underlying logic is common. On the road to the 10 billion scale, Xiangpiaopiao still needs more juice tea to support growth. Source: Understanding Finance (ID: dudongcj)