China Consumer

Right ingredients

IPOs signal investors favour tea chain suppliers


Its marketing gimmick went awry

Even though its share price had more than halved in the year since its initial public offering in Hong Kong, upmarket tea drink brand Nayuki still wanted to celebrate the anniversary of its market debut.

In late June it announced that it was launching a new rewards programme for its customers, granting a ‘Nayuki coin’ for every yuan spent on its drinks. These coins could then be redeemed for gifts, vouchers and even virtual shares in the company, it explained. To make things more exciting, coin holders could leverage up to 10 times in Nayuki’s virtual shares, which could also be redeemed back into coins to be spent at stores.

Consumers complained that the scheme was overly complicated and that the share trading component was bordering on gambling. “As a tea brand, Nayuki should do its job well and concentrate on developing products instead of focusing on these fancy marketing activities,” one chastised.

Nayuki dropped the virtual stock game after two weeks. It was another setback for tea drink firm, which is no closer to turning a consistent profit since its IPO. Its 2021 revenue was Rmb4.3 billion ($637 million), up over 40% from the year before. But it reported an adjusted net loss of Rmb145.3 million last year, following a minor profit of Rmb16.6 million in 2020.

Nayuki’s main rival Heytea is rumoured to be looking for an IPO as well, although it has also been struggling with slowing growth. Meanwhile, two of the suppliers to the two tea brands seem to have found a more profitable path, both announcing their own plans to list.

First up is Tianye Group. Founded in 2007, the Hubei-based firm wants to go public on the Beijing Stock Exchange. It processes tropical fruits and vegetables, with a focus on raw juices and concentrates, as well as frozen fruit and vegetable purees. Tianye counts all the major tea drink makers as clients, such as Nayuki, Cha Bai Dao, A Little Tea and Auntea Jenny. It also supplies juice concentrates to Master Kong, Nongfu Spring and Coca-Cola, although they make up a smaller share of its revenue.

As the popularity of tea drinks soared in China, so did Tianye’s sales, supporting another leap in revenues last year, which increased 72.5%. Although Nayuki is unprofitable, Tianye has been in the black since 2019. Last year, net profit reached just over Rmb65 million, up from Rmb21 million the year prior.

In a bid to have more of a presence upstream in the supply chain, both Nayuki and Auntea Jenny bought into Tianye’s pre-IPO round.

Another upstream supplier of the tea industry is eyeing an IPO too. Last week Hefei Hxin Technology filed for a listing on the Shenzhen Stock Exchange, hoping for a valuation of around Rmb3.3 billion. Hxin is a manufacturer of paper and plastic cups. Among its roster of clients are all the big tea drink makers like Nayuki and Heytea, as well as major coffee chains like Luckin Coffee, Starbucks and McDonald’s.

According to its prospectus, Hxin sold more than 2.1 billion paper and plastic cups to F&B outlets in 2021 (enough to serve a drink to a quarter of humankind), raking in Rmb700 million in revenue.

It also makes paper and plastic plates and other tableware, contributing to its net income of Rmb81.2 million last year.

Meanwhile, the media was reporting this week that the bourse in Shenzhen has accepted Delthin, another supplier to Luckin and Starbucks, as a listing candidate as well. Delthin, based in Zhejiang province, makes flavoured syrups like hazelnut and vanilla that can be incorporated into coffee drinks.

Industry insiders say that instead of putting money into consumer brands, many investors are looking to invest in upstream opportunities, where there isn’t the same investment required for marketing and retail space.

In a similar context, Bawei, a Guangdong manufacturer that supplies many of the domestic cosmetics brands, raised over Rmb100 million in a private equity financing round earlier this year, while Qingdao-based Moins Coffee, a manufacturer of white label coffees, completed a successful financing of its own in the first half of this year for an undisclosed amount. In June Heytea also bought a 12% stake in Minority Coffee, a coffee roaster.

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