"Nayuki's Tea" store operation and management notes!

On June 30, Nayuki’s Tea (02150.HK) was officially listed on the Hong Kong stock market. It took only half a year for Nayuki Tea to go from submitting its prospectus to successfully listing on the Hong Kong stock market.

As expected, the hot subscription for its shares did not continue after its listing. Ju is not optimistic about the chain tea beverage track, especially after its listing, as it has taken into account that its shareholders and investors will sell off their shares. As expected, once its shares were sold, they soon fell below the issue price of HK$19.8 per share. As of July 2, its shares had fallen to HK$15.82 per share, a drop of more than 20%.

However, putting aside the feedback from the capital market, Nayuki’s Tea’s ability to go public through its [tea + soft European bread] product strategy is extremely valuable for analysis. Hidden behind this is the result jointly created and catalyzed by factors such as organizational culture, brand positioning, personnel structure, product development, supply chain channels and market operations.

So, what is the unique feature of "Nayuki's Tea", which has been promoted to capital, in the operation of chain stores?

I have been operating offline chain stores recently, so I have studied the IPO prospectus of Nayuki's Tea and would like to share it with you.

In this article, [Nayuki's Tea] is referred to as [Nayuki] for the convenience of reading.

Overview

With the development of new tea drinking experiences, China's tea drinking market has achieved rapid growth, the track has become hot, and many brands have sprung up like mushrooms after a rain.

The following research data shows the growth of the Chinese tea market in terms of retail consumption value between 2015 and 2025.

In recent years, as the demand for new tea drinking experiences continues to grow, customers are more willing to pay more to improve the overall experience, so high-end freshly brewed tea shops have emerged. Freshly brewed tea shops can be divided into three categories based on the average selling price of tea drinks: (1) high-end freshly brewed tea shops; (2) mid-range tea shops; and (3) low-end tea shops.

(1) High-end freshly brewed tea shops: defined as freshly brewed tea shops where the average selling price of freshly brewed tea is not less than RMB 20;

(2) Mid-range tea shops: defined as shops where the average selling price of freshly brewed tea is less than RMB 20 but more than RMB 10;

(3) Low-end tea shops: defined as shops where the average selling price of freshly brewed tea drinks is no more than RMB 10;

Nayuki is a young brand founded in 2015. Since its inception, Nayuki has insisted on building a high-end tea beverage consumer brand. In November 2015, the first Nayuki Tea store opened in Shenzhen. It is located in the core area of ​​a high-end commercial center. It has a spacious and design-oriented space, and uses high-quality ingredients to provide products to customers, attracting young, business and family consumers. In just 5 or 6 years, Nayuki's Tea has been operating nearly 500 Nayuki tea shops in China, competing in the high-end freshly brewed tea industry and currently ranks second in the high-end tea market.

How to open and operate a Nayuki Tea?

(1) Nayuki’s location selection

Naixue's stores have always chosen to be opened in areas with high customer traffic, such as core locations in shopping malls, office buildings and residential areas. Because its stores integrate leisure, baking and tea sales, it is obvious that Naixue's store rents are not cheap.

When determining the location, Naixue will look for places where communities gather. This type of location usually has characteristics such as large pedestrian flow, high commercial density, well-known cooperative tenants (i.e. next to Internet celebrity stores), and other factors such as proximity to office buildings, schools and tourist attractions.

In different commercial areas of the city, the purchasing power of target customers varies. Despite the high customer flow, if the purchasing power of the target customers is in a lower range, Naixue, with an actual average customer spending of more than 47 yuan, may still not be able to achieve the expected operating profit. Therefore, Naixue evaluates the purchasing power of target customers through market research and analysis to determine whether a specific business area has a customer group with strong purchasing power. Let's take a look at the process of Naixue's store site selection and location determination:

1) Based on the above conditions, potential locations are identified; the development department prepares a project plan, and the regional manager reviews the project plan based on local experience and expertise;

2) The reviewed proposal will be submitted to the managers of the tea shop development department and marketing department of Naixue’s headquarters for preliminary screening and preliminary review;

3) After the preliminary review, Naixue’s construction department will work with the development department to conduct an on-site inspection of the target location and conduct a comprehensive investigation and analysis, including customer flow, surrounding environment, exposure, expected lease term, expected income and profit level, and construction conditions. Complete a written report of the overall investigation and analysis and submit it to headquarters for final approval;

4) Ultimately, the development and construction departments will negotiate lease terms with the business for specific stores under the supervision of the headquarters.

(2) Nayuki’s store design

Naixue's product pricing is mainly aimed at the middle and high-end consumer groups. In addition to being sensitive to the quality of the product itself, this type of consumer also has relatively stringent requirements on comprehensive factors such as service and environment. Therefore, Naixue maintained the same visual style in its store design.

To borrow Nayuki’s brand slogan on its official website: They hope that customers who come to Nayuki’s Tea will feel at home, comfortable and relaxed.

Therefore, they carefully designed the Nayuki tea shop that combines modern leisure and social concepts.

(Pictured is Nayuki's Tea Qingdao CapitaLand Store, source: Nayuki's Tea official website)

It's indeed a bit difficult to pronounce, but it summarizes the information of more than 400 stores. The size of Naixue’s early tea shops ranged from 180 to 350 square meters, and a single store could accommodate 50 to 120 customers at the same time, providing them with a space for socializing and leisure.

Naixue’s store atmosphere and design have clear standards in terms of space, furniture, decoration, lighting and background music. Each store creates a comfortable and leisure atmosphere with its meticulous design, reflecting Nayuki’s core brand concept.

(Pictured is Nayuki's Tea Beijing Huamao store, source: Nayuki's Tea official website)

Naixue focuses on user experience, strengthens users' impression of the brand through excellent store design, and increases the time users spend in Naixue by providing a comfortable environment. This concept is actually exactly the same as Starbucks.

By creating high-quality store design and in-store atmosphere, Starbucks has become a gathering place for white-collar workers who go in and out of high-end office buildings. "We hope to bring Starbucks' coffee heritage and unique coffee experience to our customers through every cup of coffee." As a mid-to-high-end chain beverage store, Starbucks has become an evangelist, providing a replicable business template for subsequent high-end chain beverage stores.

Of course, this template is not cheap at all, let’s move on to the next step.

(3) Store costs

According to official data reports, the average initial investment cost per store for Naixue's standard stores is about 1.8 million, and the average initial investment cost per store for the new Naixue PRO tea shop is about 1 million.

Considering that each of Nayuki’s stores is equipped with 2-3 baking ovens, and each store is equipped with tea makers, steam machines, tea extraction machines, milk cap machines, ice makers, freezers and other equipment. It can be seen that it is difficult for Naixue to reduce hardware cost expenditure, so the existing Naixue PRO tea shops have simplified some store layouts and modularized the operating procedures. Since March 2021, the average number of employees in Naixue PRO stores has been about 13, which is lower than the average number of 21 employees in Naixue's standard stores during the same period.

(4) Store management evaluation system

A complete business system requires perfect management methods, especially store management. When it comes to unified management of stores in scattered areas, the quality of organizational management efficiency will be immediately apparent. Nayuki has a total of 491 stores worldwide. The difficulty of management is self-evident. However, Nayuki has established a system and incentive mechanism that can comprehensively evaluate store performance.

This evaluation system is used to evaluate and improve the overall performance of Naixue stores, taking into account multiple performance indicators such as customer satisfaction, sales target achievement, store clerk management rating, cost control and management rating.

Each store is evaluated once a month. Based on overall performance, Naixue's stores are divided into three levels, with the highest level being the top 30% of stores, followed by stores ranking in the 30% to 80% segment, and the lowest level being the bottom 20%. The bonuses available to store clerks at all levels are distributed according to their levels. By competing in store performance, the competitive awareness of each store is enhanced, while the headquarters' control over the stores is strengthened.

For example, for stores with low customer satisfaction scores, Naixue will require store managers to stay outside business hours to receive and take care of customers to ensure that customers receive good service; or increase training and operational training to make store employees familiar with the food production process, so as to shorten order preparation time and improve customer satisfaction. Furthermore, if a store is rated as the lowest level for three consecutive months, the store manager of this store will be replaced by an external employee or the manager of a top store. Furthermore, successor store managers will be offered more attractive incentives to motivate them to contribute to the improvement of underperforming stores in the future.

(5) Key products

Ju is not the kind of person who likes to buy a drink and sit in a tea shop for most of the day. The reason why he is familiar with Nayuki's Tea is not because of the drinks he buys, but because their soft European bread tastes good. For offline stores, flagship products are the top priority. Nayuki adopted the product strategy of [tea drinks + soft European bread] and achieved quite good results.

However, because most products (including baked products) are made on-site in the store (this is different from Luckin Coffee). In addition to the increased difficulty in management, the need for a fully standardized video production process to ensure food safety and the efficiency of the production and serving procedures also increases the number of bakers and equipment configuration, which incurs additional costs. Of course, this is a later story and I won’t elaborate on it.

Nayuki's products are generally divided into four categories: freshly brewed tea drinks; seasonal tea drinks; baked products; souvenirs and retail products;

Freshly brewed tea

This is the classic tea drink. Since its establishment, Nayuki has developed a series of classic and popular tea drinks, such as fruit tea, fresh milk tea and pure tea. Based on the number of customer orders in 2020, the three best-selling classic teas are Domineering Cheese Strawberry, Domineering Orange and Domineering Cheese Grape. The Baqi Cheese Strawberry and Baqi Orange teas are made with aromatic Jasmine Maojian tea, while the Baqi Cheese Grape tea is made with fragrant Oolong tea.

(According to statistics, more than 21.8 million cups of these three tea drinks were sold in 2020, contributing 27.6% of the total sales of freshly brewed tea drinks in the same period)

Seasonal tea

Naixue launches new seasonal products every month to iterate and update the beverage menu. For example, when imported Chilean cherries are on the market in winter and spring, cheese cherry tea is launched, while tropical fresh fruit tea is provided in summer. Hot drinks are also promoted during the fall and winter seasons.

(According to statistics, the three best-selling seasonal teas in 2020 are Domineering Cheese Peach, Domineering Bayberry and Domineering Cheese Emerald Melon. During the same period, the three best-selling seasonal teas sold a total of 5.7 million cups.)

Bakery Products

Nayuki’s baked products use dairy products (imported light cream, etc.) and fresh fruits, with a core menu consisting of more than 25 classic baked products. It is worth mentioning that the store provides bread cutting service, that is, cutting the bread into bite-sized pieces for easy consumption or take-away.

Souvenirs are retail products

To meet the diverse needs of customers, Nayuki has launched a variety of souvenirs and retail products, including tea gift boxes, snacks, and limited holiday gift boxes, which are sold in Nayuki's tea shops and online channels.

Usually, Naixue outsources such souvenirs and holiday limited gift boxes to third-party manufacturers and does not process and produce them by itself, which greatly reduces costs and controls the budget.

Summarize

The expansion path of chain tea shops is actually a path of standardization. There are currently several leading players in the high-end tea shop chain market, and among them, Naixue, which recently went public through a high-profile backdoor listing, has verified the feasibility of its business model and capital path.

The development of high-end new tea beverage chain brands is actually a product of the times and environment. From the perspective of Maslow's hierarchy of needs, with the abundance of material goods in modern society, it is inevitable that society will move towards a comprehensive experience of services, environment and products. Nayuki is not the only one to have a taste of the new trend. Many internet-famous tea brands such as Heytea and Luckin Coffee have emerged.

With the right time, right location and right people, Nayuki's Tea's path to capitalization is already ahead of its competitors, so this issue will be narrated with Nayuki's Tea as the theme. Capital never sleeps, but for ordinary people, the logic behind it is still a bit far away. Behind the huge business system, what is more valuable to us is its standardized management system and channel entities.

Most of Nayuki’s Tea’s products do not have independent intellectual property rights, which means they are not original and most of them are probably selected from suppliers’ recommendation lists. So, if you ask me, can it be copied?

Answer: Yes!

But as a prerequisite, please first understand the purpose and logic of network expansion management.

Careful site selection, comprehensive evaluation criteria from competitor distance, customer flow, and owner-side information;

Market research and planning based on customer traffic, customer purchasing power and diversified consumption scenarios;

Procurement of raw materials, establishment of supplier system, and completion of product quality control;

Logistics infrastructure and warehousing, supply chain and logistics network construction;

Employee management: Specific indicators related to recruitment, training, evaluation and promotion. How to make employees identify with the company's values ​​and the quality of products and services and provide long-term service is also a manifestation of brand strength;

The above are just a few simple words using Nayuki’s Tea as an example to describe the key modules of store operation and management. Of course, there are still many details that need to be controlled in the actual operating environment.