Auntie in Shanghai is using "Mister Price" to impact the sinking market | Insights from JIANZHI Research

The competition in the sinking market for new tea drinks is becoming more intense.

With Mxixue Bingcheng launching the coffee sub-brand Lucky Coffee, and Tea Bai Dao introducing "Coffee Ash" and Shanghai Auntie offering "Shanghai Coffee," the tea drink market is becoming increasingly saturated. Brands are no longer limited to a single field but are expanding their audience and seeking new growth points by launching differentiated sub-brands.

Shanghai Auntie, which has already submitted an IPO prospectus to the Hong Kong Stock Exchange, has also joined this differentiated battle.

On March 6th, Shanghai Auntie launched a new tea drink brand called "Tea Waterfall." Although it belongs to the tea drink sector like its main brand, "Tea Waterfall" targets students and Generation Z with a price range of 2-12 yuan per customer.

Obviously, Tea Waterfall's mission is to seize the sinking market.

In fact, Shanghai Auntie already has a certain advantage in the sinking market. According to the previous prospectus disclosure, as of September 30, 2023, Shanghai Auntie has a total of 7,297 stores, with 49% of them located in third-tier cities and below, second only to the "sinking king" Mxixue Bingcheng.

Shanghai Auntie also emphasized the importance of the sinking market at the press conference, stating, "Due to the slowdown in economic growth, consumption is becoming hierarchical, and there is a significant increase in demand from consumers for high-quality and affordable products, leading to a blue ocean trend in the milk tea market below 10 yuan."

Compared to most milk tea brands concentrated in the 10-20 yuan price range, which dominate the tea drink market and face fierce competition, there are fewer participants in the price range below 10 yuan. Among the 5,000-store-scale milk tea brands, only 3 are present, with the market mainly dominated by Mxixue Bingcheng, which is also the biggest competitor of Tea Waterfall.

According to Guolian Securities, Mxixue Bingcheng, with its scale effect of 30,000 stores and years of accumulated supply chain and cost reduction through its own factories, has already captured 32.7% of the sinking market share.

While Shanghai Auntie lags behind in terms of scale, it also has a relatively high store closure rate. During the reporting period, Shanghai Auntie closed 210, 393, and 298 franchise stores, with closure rates of 5.66%, 7.49%, and 4.11%, respectively, while Mxixue Bingcheng maintained a closure rate of below 3% during the same period.

In terms of revenue scale, Shanghai Auntie still does not have an advantage. According to the prospectus disclosures of various companies, Mxixue Bingcheng, Guming, and Tea Bai Dao achieved revenues of 13.576 billion, 5.559 billion, and 4.232 billion in 2022, respectively. Guming's revenue scale is about twice that of Shanghai Auntie, with a net profit of more than three times that of Shanghai Auntie.

So, what does Shanghai Auntie rely on to attract franchisees?

Lower costs, more subsidies

This year, the competition in the lower-tier market has become extremely fierce. Not only are second and third-tier brands seizing positions by establishing sub-brands, but even high-end brands like Naixue and Xicha have recently been lowering the threshold for franchisees to grab market share in lower-tier cities.

At the same time, as various companies are approaching IPOs, they need to show the capital market more "growth potential."

Tea Waterfall, which does not have the advantage of scale, can only attract franchisees to open stores quickly through lower costs and more subsidies. Although the limited number of stores in the early stage cannot leverage economies of scale, considering its shared supply chain system with Shanghai Auntie, the cost pressure is not particularly high.

In terms of franchise fees, Shanghai Auntie's standard franchise fee is around 200,000 yuan, while Migu Ice City is around 210,000 yuan, and Tea Waterfall is 120,000 yuan. Even if Migu Ice City deducts around 60,000 yuan for decoration costs, it is still about 30,000 yuan higher than Tea Waterfall.

According to franchisees, Tea Waterfall also provides subsidies to franchisees, including a "designated subsidy" for locations within 100 meters of Migu Ice City or Tianlala; franchisees who generate over 100,000 yuan in revenue in any month within the first 3 months of operation can also receive a 20,000 yuan subsidy. Clearly, Tea Waterfall urgently needs to "win over" franchisees through these rapid subsidies to narrow the gap in store numbers with top brands.

Product selection differentiates from Migu Ice City, focusing on affordable fresh milk tea

Furthermore, according to the Tea Waterfall store menu, the average customer spending at Tea Waterfall ranges from 2 to 12 yuan, including products with high overlap with Migu Ice City such as 2 yuan ice cream and 4 yuan lemon water.

However, Shanghai Auntie's differentiated product selection strategy is evident. Shanghai Auntie emphasized affordable light milk tea products at the press conference, which not only differentiate from Migu Ice City's fruit tea in the same price range but also differ from the 15-20 yuan premium milk tea like the King Tea Princess.

Several bloggers on Xiaohongshu have mentioned that Tea Waterfall's light milk tea tastes similar to the King Tea Princess but is only half the price. Tea Waterfall is expected to attract its own customer base with its differentiated product selection.

With Shanghai Auntie's entry, the price range below 10 yuan will face even fiercer competition.

As Migu Ice City, Chabaida, Guming, and Shanghai Auntie have successively submitted IPO prospectuses to the Hong Kong Stock Exchange, the capital market is eager to hear growth stories. This also means that new tea beverage brands must quickly compete for market share in lower-tier markets. There may be brand consolidation through mergers and acquisitions to enhance competitiveness, while smaller brands without financial strength will face a wave of clearance.

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