Source: Brand Observation Report (ID: pinpaigcbao), Author: Wang Hui When it comes to Xiangpiaopiao, many post-80s and post-90s generations may feel both familiar and unfamiliar. Familiar because the slogan "Selling over 700 million cups a year, enough to circle the Earth twice" is deeply ingrained, and many have been its consumers; unfamiliar because many have stopped drinking Xiangpiaopiao. As "internet-famous tea" gradually wins hearts, Xiangpiaopiao has faded from the minds of younger consumers. According to Xiangpiaopiao's recent financial report, this claim is not unfounded. The Q1 2020 report shows that Xiangpiaopiao's revenue declined by 48.61% to 430 million yuan, with net profit attributable to shareholders at a loss of 85.5687 million yuan, and non-GAAP net profit at a loss of 88.9484 million yuan. Additionally, the company's cash flow situation is concerning, with net cash flow from operating activities at negative 478 million yuan for the quarter. This means Xiangpiaopiao has experienced its first loss since listing, and its cash flow is insufficient to sustain operations. Seeing such results is disheartening. The industry leader whose milk tea could circle the Earth N times has finally stumbled and fallen. -01- Single Product Structure Makes Glory Hard to Sustain When Xiangpiaopiao was launched in 2005, it swept the nation, fundamentally due to its product. Before 2005, milk tea shops were still in the powder era, using tea powder and creamer, which was cheap but unhealthy. At that time, Xiangpiaopiao's fixed cup milk tea, whether in taste or convenience, was hard for street-side powder-mixed milk tea shops to compete with! Thus, fixed cup milk tea shaped Xiangpiaopiao's brand and laid the foundation for its expansion in the milk tea market. However, as times change, for Xiangpiaopiao, it can be said: success due to fixed cup milk tea, failure also due to fixed cup milk tea. Xiangpiaopiao's product structure is single, with performance overly dependent on the production and sales of cup milk tea. Moreover, with the homogenization of the milk tea market and shifts in consumer preferences, cup milk tea has reached a bottleneck in both demand and industry. With a single product, even huge advertising investments did not bring significant revenue growth; instead, they continuously diluted the listed company's profits. Clearly, Xiangpiaopiao itself recognized this issue. Since 2017, Xiangpiaopiao has been trying to diversify its product line and enter the liquid milk tea industry. Even setting up a new Lanfangyuan business unit, focusing on core cities' main retail channels, to establish a high-end brand image and increase market sales opportunities. However, under the layout of competitors like Assam milk tea, Uni-President, and Master Kong, Xiangpiaopiao is clearly late. Now, Xiangpiaopiao's cup products are declining, and new products are still in early promotion stages. Time and market share are running out. How to escape this predicament is the primary challenge facing Xiangpiaopiao. From a market environment perspective, in the tea beverage brand space, often a single product becomes popular, but with more and more "internet-famous" products emerging, the life cycle of each big single product becomes very short. Xiangpiaopiao will also face impacts from new products in the future. If it cannot grow quickly and lacks other products to follow up, its performance may soon hit another bottleneck. Therefore, for Xiangpiaopiao, a "national milk tea" with 15 years of history and cups that could circle the Earth N times, but with a single product structure, solving product diversification is a fundamental issue for survival in the market. -02- "Old" Brand Incompatible with "New" Consumption In recent years, more and more brands are undergoing youth-oriented transformations, from the 600-year-old Forbidden City, to time-honored brand Pechoin, to childhood memory White Rabbit, brands are continuously making efforts in the youth market. As the new force in market consumption, younger consumers pay more attention to individuality and fashion expression. For them, Xiangpiaopiao's cup milk tea is like a middle-aged person carrying a thermos. Clearly, Xiangpiaopiao has also realized this issue. As early as last year, Xiangpiaopiao began its transformation, moving towards a younger and more fashionable path. From the product positioning of "When slightly hungry or tired, drink some Xiangpiaopiao" for hunger relief and fatigue recovery, to the daily enjoyment positioning of "Full of ingredients, more enjoyment." And announced the new popular idol Wang Junkai as brand spokesperson. Signing Wang Junkai is undoubtedly to leverage his commercial value and influence among young people. More importantly, Wang Junkai's fans are young people willing to pay for their idol. A young traffic spokesperson can undoubtedly reactivate its memory in the public's mind and even radiate a fresh trendiness. Thus, signing Wang Junkai seems like a good script. However, Xiangpiaopiao's understanding of "youthfulness" seems somewhat biased. Even with Wang Junkai's endorsement, Xiangpiaopiao still sells cup instant drinks, while today's youth prefer spending money at milk tea shops. The main consumers are post-80s and post-90s, who are the most likely to have a petty bourgeois sentiment. Enjoying life, occasional gatherings and trips, a cup of milk tea costing ten to twenty yuan has become a necessity. Various internet-famous milk teas are not only aesthetically pleasing with beautiful packaging. Holding a cup of milk tea while walking on the street has become a standard for young people. On the other hand, today's young people have their own judgment in brand selection and do not blindly follow trends. A key point is that not only young people, but the entire Chinese society is increasingly health-conscious. That is to say, despite Xiangpiaopiao's huge advertising investment, it still cannot prevent a significant decline in performance. The market has changed, and Xiangpiaopiao trying to follow the old path is no longer viable. Although exposure remains high, if the product is wrong, everything else is in vain. High advertising and marketing expenses have not brought satisfactory sales but have become a burden on the company. Yes, to cater to China's current consumption upgrade, on the surface, Xiangpiaopiao, with strategic guidance (i.e., youthfulness and high-end), seems to have tried everything to reverse the situation. It is said that if you cannot grasp the youth, you cannot grasp the market. Young people not only have the concept of chasing new things but also have health consumption awareness. Xiangpiaopiao's "instant milk tea," which is powder-based, contains additives, and the milk tea has no milk or tea at all. In this era increasingly pursuing health and refinement, it is not surprising that it loses. Facing more discerning consumers, for Xiangpiaopiao, not changing means extinction, and inadequate change also seems insufficient. -03- New Tea Drinks Become Consumer Favorites On one hand, Xiangpiaopiao has problems with its own product marketing; on the other hand, market competitors are successively launching products. Xiangpiaopiao faces the awkward situation of being attacked from both inside and outside. However, this fierce competitor quickly became a consumer favorite. If Xiangpiaopiao says it is not anxious, no one would believe it. According to iResearch data, in 2018, the number of freshly made beverage stores in China exceeded 450,000, and the new Chinese tea drink market size exceeded 90 billion yuan. In recent years, with the new milk tea models led by Heytea and Naixue Tea gradually fermenting in urban circles, a large amount of capital has flowed into the primary market. Naixue Tea, as Heytea's old rival, has carved out a niche in the fiercely competitive milk tea market through the model of milk tea + soft European bread. After several rounds of competition, Heytea and Naixue Tea quickly rose to become the true dual leaders of Chinese tea drinks. Worse still, from the product perspective, traditional cup instant milk teas like Xiangpiaopiao are also at risk of being eroded. Heytea has launched small glass bottle sealed handheld drinks to alleviate queuing and also enter the traditional channel beverage market. Although these bottled drinks are currently only available in-store, if costs and quality can be controlled in the future and sold through large-scale supermarket channels, Xiangpiaopiao's living space will be squeezed. Moreover, as consumer selection of milk tea shows consumption upgrade characteristics, under the trend of public health consciousness, milk tea preferences are shifting towards combinations of real tea + real milk. This is undoubtedly quite unfavorable for traditional instant milk teas. In addition, new-style milk teas leverage new media marketing, fundamentally reducing traditional marketing costs and catering to young people's social trends. In March 2018, a COCO milk tea went viral on Douyin, making COCO milk tea famous and attracting endless customer traffic. Nowadays, many consumer brands use new channels like Douyin for marketing, and changes in consumer groups and demands continuously force companies to innovate. After the rise of new-style tea drinks, the traditional milk tea market continues to be squeezed, reflecting that the traditional milk tea market is gradually losing favor. -04- Where Will Xiangpiaopiao Drift? With more and more tea drink companies and capital entering, competition in the new-style tea drink industry will become increasingly fierce. However, considering both industry and capital, the most important thing is whether brand barriers can be formed—the success of a brand ultimately depends on its quality. From 2005 to 2018, over 13 years, Xiangpiaopiao became famous across the country with cup milk tea, and it was also crowned as the pioneer of cup milk tea. A cup of milk tea made founder Jiang Jianqi earn a fortune and even ring the listing bell... However, time can change many people and things, enough to bring an industry from nothing to something, and enough to bring an industry from glory to decline. The living environment is changing, technology is upgrading, and corporate innovation must not only retain inherent attributes but also combine with new things for dynamic changes. There is a saying in the business world: "Do not use tactical diligence to cover up strategic laziness." Clearly, Xiangpiaopiao has not fully understood this. After all, any marketing ultimately must return to the product level! Listing is a starting point and also a challenge, "forcing" Xiangpiaopiao to step out of its comfort zone and continuously seek new performance support. Fruit tea may be the starting point of Xiangpiaopiao's diversification, but it is definitely not the end. The food industry is highly competitive. For Xiangpiaopiao milk tea to continue sitting firmly on the throne of "the first milk tea stock," it still needs to strengthen new product R&D investment and channel expansion to ensure its industry competitiveness. Rapid changes are nothing new to companies, and being ruthlessly abandoned by the times is common, but it is still regrettable. Back then, Xiangpiaopiao, which "sold over 300 million cups a year, enough to circle the Earth once," was talked about with relish by consumers. Now, facing pressures such as the pandemic's impact, market saturation, and consecutive executive departures, how far Xiangpiaopiao can go remains unknown. Tips will be paid 400-2000 yuan once adopted.