To advertise, or to profit? This seems to be a difficult trade-off. Since 2017, Xiang Piao Piao has launched liquid milk tea and juice products to address seasonal risks. The introduction of new products has led to continuously high marketing expenses, which appears to put the company in a dilemma. Xiang Piao Piao's main product is solid cup milk tea. According to financial report data, the company's revenue exhibits seasonal fluctuations due to product singularity. To address this, Xiang Piao Piao began launching new products in 2017, incurring substantial marketing costs. Industry insiders say that in the future, Xiang Piao Piao may be in a passive position dominated by huge advertising expenses. Seasonal Risks According to public information, since its establishment in 2005, Xiang Piao Piao has focused on the solid cup milk tea segment. It currently operates three factories in Huzhou, Chengdu, and Tianjin, adopting a "production based on sales" and "purchasing based on sales" model, with the sales process being "factory-distributor-terminal-consumer." The company's main business is the R&D, production, and sales of milk tea products, with main products including "Xiang Piao Piao" brand solid cup milk tea, liquid milk tea, and liquid tea beverages. A reporter's visit to some supermarkets in Guangzhou found that on the solid cup milk tea shelves, only two brands were present: Xiang Piao Piao and Youlemei, with similar prices around 3.5 yuan. According to sales staff, Xiang Piao Piao's sales are slightly higher than Youlemei's. A consumer surnamed Zheng interviewed by the reporter said that compared with Youlemei, Xiang Piao Piao's milk tea tastes sweeter and smoother. However, Zheng said he is not yet clear about what new products Xiang Piao Piao has launched, but in his impression, "Xiang Piao Piao only makes milk tea." In response to an inquiry letter from the Shanghai Stock Exchange (SSE), Xiang Piao Piao disclosed that its main business revenue for the first quarter of 2018 was 646 million yuan, a year-on-year increase of 112.65%, with a production-sales ratio of 105.77%. For the second quarter, main business revenue was 213 million yuan, a year-on-year decrease of 13.87%, with a production-sales ratio of 98.14%, slightly higher than the same period last year. The company stated that due to seasonal characteristics and factors such as the Spring Festival, sales show a clear seasonal trend, with peak seasons concentrated in the first and fourth quarters. Using the operating revenue of the first and second quarters of 2017 and 2018 as indicators, compared with Chengde Lulu, Yangyuan Drinks, Weiwei Group, and Master Kong, Chengde Lulu, Yangyuan Drinks, and Xiang Piao Piao all exhibit significant seasonal characteristics due to product singularity, while Weiwei Group and Master Kong, with diversified product structures and more varieties, do not show significant seasonal fluctuations in quarterly revenue. The company's current main product is cup milk tea, which is instant and thus has hot drink attributes. Xiang Piao Piao stated that its newly launched liquid milk tea is still in the market investment phase, and the situation of product singularity will persist for a period. If the market environment for cup milk tea changes significantly, the company's operations will be greatly affected. In terms of channels, Xiang Piao Piao basically implements a "production based on sales" business model. The company states that the production-sales ratio in each period is basically above 95%, maintaining a normal range. Regarding e-commerce, the company says that sales through e-commerce channels still account for a relatively small proportion. Xiang Piao Piao's Tmall flagship store was launched in November 2013. A search of the flagship store revealed that as of December 13, the store had 988,000 followers, and the product with the highest monthly sales (monthly sales of 19,966, with 8,538 actual payers) was the "Xiang Piao Piao Delicious Series Solid Cup Milk Tea Gift Box (20 cups)." The New Product Predicament In April 2017, Xiang Piao Piao launched the liquid milk tea series "MECO" milk tea and "Lanfangyuan" stockings milk tea. In July 2018, the company launched a new juice tea ready-to-drink product series (with three flavors: "Kumquat Lemon," "Peach and Red Grapefruit," and "Thai Green Lime"), and built a new liquid milk tea production base in Huzhou, as well as ready-to-drink product production bases in Jiangmen, Guangdong, and Tianjin. Xiang Piao Piao told the reporter that this is to alleviate the seasonal risks and pressures in operations, achieving complementary peak and off-peak seasons through liquid and solid milk tea, and juice tea will further compensate and smooth out seasonal fluctuations in operations. A random visit by the reporter to some supermarkets and convenience stores in Guangzhou found that the distribution of milk tea and juice tea is relatively even. Among them, MECO milk tea (300ML) is priced at about twice that of similar milk tea beverages from other brands (400ML). The company responded that high-quality products (referring to milk tea) should enjoy a higher product premium. Furthermore, the company is satisfied with the current market share of its products, so there is no need for a price war. As for juice tea, some consumers said that 400ML of juice tea cannot be finished at once and is not convenient to carry, and that when buying packaged food, convenience of carrying is a primary consideration. According to the company's 2018 semi-annual report, Xiang Piao Piao's operating revenue for the first half of the year was 870 million yuan, a year-on-year increase of 55.38%, with a net loss of 54.586 million yuan, a year-on-year decrease of 78.92%. In the semi-annual report, Xiang Piao Piao stated that the reason for the increased loss is that the company continued to increase resource investment in brand advertising, channel promotion, and sales personnel costs for liquid milk tea during the off-season in the second quarter. In its response to the SSE inquiry, Xiang Piao Piao pointed out that in early 2017, the company launched a multi-month "Spring Sleepiness Battle" special marketing campaign around the positioning of "Little hunger, little sleepiness, drink some Xiang Piao Piao," launched the "National Milk Tea Festival" on March 25, and invited Wallace Chung as a celebrity spokesperson, leading to rapid revenue growth in the second quarter of 2017 compared with the same period last year. In the second quarter of 2018, the company did not carry out major promotional activities for solid milk tea, shifting its sales focus to liquid milk tea products, but the revenue share of liquid milk tea products was not high, decreasing by 33 million yuan compared with the same period last year. In the 2018 semi-annual report, the company disclosed that its operating costs for the first half of 2018 were approximately 601 million yuan, a year-on-year increase of 61.43%. Among them, sales expenses and administrative expenses were 317 million yuan and 49 million yuan, respectively, increasing by 54.68% and 18.58% year-on-year, mainly due to increases in advertising costs, market promotion fees, freight, and employee compensation. In 2017, Xiang Piao Piao's advertising expenses were approximately 230 million yuan, a year-on-year decrease of 35.9%, but still accounting for 8.72% of total revenue. Among these, industry insiders say that the consumption concept conveyed by Xiang Piao Piao's solid milk tea, "Little hunger, little sleepiness, drink Xiang Piao Piao," ignores the market's and consumers' inherent perception of milk tea, so even with huge marketing expenses, the results will only be half the effort with double the cost. Secondly, some relevant people believe that Xiang Piao Piao only entered the liquid milk tea industry in 2017 and launched juice business in 2018, missing the best period in the market. The company responded that its liquid milk tea is positioned as an "upgraded version" of current liquid milk tea in the market, and the marginal contribution rate has increased, but there is still room for improvement in market share. However, the sales performance of juice tea has exceeded the company's expectations. Facing consumers' increasing health awareness, the reporter asked Xiang Piao Piao whether this would affect sales of sugary products. The company responded that Xiang Piao Piao also hopes to innovate and develop more milk tea products with unique flavors, smooth taste, and green health, citing examples such as milk tea and "Lanfangyuan" stockings milk tea. However, some consumers said that milk tea is a bit "ahead of its time" for Xiang Piao Piao, and they personally hope that Xiang Piao Piao can maintain its original intention and patience, conduct deeper R&D and improvement on its flagship product (solid milk tea), and "weather through" to become a future hit. In recent years, tea beverage stores have remained popular, with internet-famous tea shops like Heytea and Yidiandian continuously expanding, and even Wang Laoji has opened its own stores. Xiang Piao Piao also told the reporter that if there is a suitable opportunity, it may consider entering the offline milk tea store field, but currently there are no specific arrangements or business plans. Industry insiders say that the huge advertising expenses for new products will greatly dilute the company's net profit, but once investment is reduced, it will affect brand popularity and market competitiveness, leading to a decline in sales. In the future, Xiang Piao Piao may be in a dilemma. Source: Investor Daily -END-