Key investment points
The epidemic situation is repeated, the supply of new consumption is cleared, and the demand is under pressure.
Supply side: the epidemic has entered the third year, and the industry has accelerated the reshuffle. By the end of 2020, there were more than 300000 tea drinking enterprises in China, of which more than 130000 were closed down, liquidated, revoked and cancelled, accounting for 43%. In 2020, the number of Chinese tavern stores / revenue shrank by 16.6% / 34.2% year-on-year. Due to the epidemic prevention and control, brand store closures occur frequently. In 2021, Lele tea successively withdrew from Chongqing and Xi’an markets, contracted its stores in Beijing, and officially withdrew from the South China market in February 2022. In November 2021, chayan Yuese announced the temporary closure of 70-80 stores in Changsha, which is the third centralized temporary closure in 2021.
Demand side: the epidemic has repeatedly disturbed the demand recovery, and the catering industry has been directly impacted. After the outbreak of the epidemic in early 2020, the total amount of social zero fell by 20.5% / 15.8% year-on-year in February / March, and returned to positive growth in August. In 2022, Omicron blossomed in many places. In March, the total social zero fell by 3.5% year-on-year. The recovery of consumption is still under pressure. In 2019, the dining out rate in China reached a peak of 40.8%; In 2020, the dining out rate fell to 35.1% due to the epidemic. In 2021, the social zero catering income was 4.69 trillion yuan (YoY + 18.6%), which recovered to 100.4% in the same period in 2019. In March 2022, catering was impacted again under the epidemic. The zero income of catering agencies decreased by 16.4% year-on-year, and the catering income of Enterprises above designated size decreased by 15.6% year-on-year. The epidemic situation remains the biggest uncertainty in the industry, and the demand will gradually pick up after continuous attention to the epidemic prevention effect.
The new consumer leaders took positive measures to deal with the epidemic.
Same store performance: hellens is relatively stable, and coffee and tea still need to recover. In January, February and March of 2022, the average daily sales of the same store recovered to 80% / 90% / 66% respectively year-on-year. In 2021q2, the same store sales of Starbucks China increased by 19% under the low base, mainly due to the contribution of sales volume. In 2021q3 / Q4, the same store sales fell by 7% / 14% year-on-year respectively, and the sales volume and customer unit price showed a downward trend. Since 2021h2, the same store data of Naixue has shown a recovery trend; The epidemic in early 2022 once again blocked offline passenger flow and takeout orders. In March 2022, Naixue’s same store recovered to 75% – 80% of the same period in 2021.
Stores: many leading stores opened against the trend to seize the high-quality points, and happy tea slowed down the pace of opening stores. By the end of 2020, there were 491 stores in Naixue; A net increase of 326 in 2021. The company believes that store encryption helps to cultivate consumer habits and brand awareness. It will continue to accelerate the opening of stores in 2022, with 350 new stores expected. Helen opened 452 new stores in 2021 (351 by the end of 2020), focusing on low-level cities with high cost performance. By the end of March 2022, the company had nearly 300 new stores and stores to be opened. In 2021, Starbucks added 694 stores in China (608 stores in 2019). In 2021, Xi tea chose to slow down the pace of opening stores, focus on expanding the coverage of stores, and open stores in 20 Shenzhen New Land Tool Planning &Architectural Design Co.Ltd(300778) cities.
Price: reduce prices to promote consumption, increase prices to ensure profits, and brands have their own choices. High end tea drinks broaden the price band through price reduction and reach more consumers. In February 2022, Xi tea announced that it would no longer launch products of 29 yuan or more during the year. In March, Naixue also announced a price reduction, and the “relaxed series” of 9-19 yuan will be renewed every month with the same quality. The price increase is mainly due to the consideration of rising costs. In February 2022, Starbucks raised the price of some drinks in Chinese stores by 1-2 yuan, and will continue to increase the price in the coming months. In October 2021, Helen raised the price of some products by 0.09-0.9 yuan.
Cost reduction and efficiency increase: take multiple measures to control costs and improve operation efficiency. Naixue’s tea improves human efficiency by optimizing shift scheduling / automatic tea making machine, which is expected to shorten the training time from 3 months to 1 month; Soften the rent with a deduction mode. At the end of 2021, Helen company took measures on personnel, rent, decoration and other measures to save costs. After optimizing the shift arrangement, the number of people in a single store was reduced from 13 to about 9. At the same time, the opening of stores is more rhythmic, which saves the cost of subsequent store maintenance and optimizes the arrangement of staff reserve.
The epidemic prevention and control has become stricter, new consumption has faced the impact, and the market has returned to the core factors of brand strength and product strength. The leader responded to the epidemic by expanding stores, raising prices, reducing costs and increasing efficiency, and demonstrated business resilience and anti risk ability. We expect that after the epidemic situation improves, the consumption potential of residents will be released, and the leading brands are expected to accelerate the recovery and benefit from the high-quality point layout during the epidemic period. Recommend Helen’s tea with stable performance and Naixue’s tea with cost optimization.
Risk tips: the risk of repeated epidemic, macroeconomic fluctuations and policy changes.
