The secret of user growth of "Nayuki's Tea"

Why did Nayuki go public? What is the dilemma facing brands? On June 30, Nayuki successfully went public in Hong Kong, standing out in the fiercely competitive new tea beverage market and becoming the "first stock in the new tea beverage market."

On the day of listing, many fans said, "It was me who listed Nayuki:

This company, which was established less than 6 years ago, has continuously refreshed people's perception of new tea drinks by creating "Internet celebrity tea drinks" and has achieved many outstanding results.

From the first store in Shenzhen to now, Nayuki has opened 584 directly-operated stores around the world, with more than 35 million members worldwide;

From the prospectus, we can see that the total revenue from 2018 to 2020 exceeded 6.6 billion;

According to data from CSI Consulting, in 2020, the average selling price of Nayuki's Tea reached 43.3 yuan per order, ranking first among China's high-end freshly brewed tea drink chains;

…

Despite good performance in the past, Naixue still suffered a setback on its first day of listing, with its stock price plummeting and public opinion being pessimistic.

Why was Naixue able to go public quickly in such a short period of time? What is its growth path?

Naixue is valued at tens of billions, with annual revenue exceeding 100 million, but it has not yet made a profit. What are the reasons behind this?

To answer these questions, we might as well quote a set of concepts - "kinetic brand" and "potential brand" - to explain the reasons behind them.

What are "kinetic brand" and "potential brand"?

This set of concepts was first proposed by @刀法研究院. Based on the different growth paths of brands, we can roughly divide brands into two types:

First, kinetic brand.

Kinetic brand: Increase scale by quickly capturing traffic at low prices, use scale to drive recognition, and achieve growth in brand awareness. At the same time, brand awareness will further bring long-term conversion rate growth, thereby reducing customer acquisition costs.

Simply put, it is to quickly occupy the market through "marketing + low-priced products", such as Perfect Diary, Huaxizi and other brands.

Second, potential brand.

Potential brands generally need to create a potential difference first, occupy the high ground of value, let users identify with your brand culture and values, and let the potential continue to bring scale. The average order value and profit margin of this type of brand are generally very high.

Potential brands generally create a relatively "high-end" setting for themselves, and their user stickiness is quite high. Nayuki’s Tea is a typical example of a “potential brand”.

Today, we will use the Nayuki Tea brand to help everyone understand the concept of "potential brand".

01. Late start and fast growth

How did Nayuki do it?

Compared to Heytea, which was founded in 2012, Nayuki's Tea was founded later, but it experienced explosive growth in less than 6 years and was listed.

Nayuki's success has broken the inherent impression that the milk tea industry is a "low- to medium-end industry" and has opened up a development path for high-end, freshly brewed tea drinks.

Naixue creates a "potential difference" between its brand and the minds of users, allowing users to identify with its brand concept and pay for its high product prices.

After further research, I found that Naixue is very good at creating "potential energy difference".

1) Products: high-end and differentiated

The first key step for Nayuki to build momentum is to achieve "product differentiation" to make its own milk tea stand out from other brands.

According to data from CBNData, 53% of users said that when drinking new-style tea drinks, they most want to pair them with baked products, followed by barbecue (36%) or hot pot (33%).

Therefore, Nayuki Tea chose the new model of "fresh fruit cheese tea + baking".

① Product differentiation

Looking at the well-known milk tea brands at the time, such as Yi Dian Dian, CoCo, Shanghai Auntie, Qifentian, etc., most of them only made "non-dairy creamer" milk tea, and other products were generally not sold in the store.

Therefore, Nayuki, whose signature product is "Fresh Fruit Cheese Tea" (whether it is original or not is still controversial), stands out from the competition with serious product homogeneity by relying on its different product settings.

Naixue, which looks more beautiful, healthier and more delicious, immediately attracted users' attention.

Nayuki's Tea and common non-dairy milk tea

In Nayuki's stores, you can not only buy milk tea, but also "freshly made" soft European bread (also the most popular bread nowadays). This unique combination is indeed unique among the freshly made milk tea in 2015.

I don’t know if Lelecha, which later came to the market, also borrowed from the model of Nayuki’s Tea and played with the model of combining tea drinks with baking. It became an Internet celebrity through the hit product “Zang Zang Bao”.

② High-end products

In addition to its unique product combinations, Nayuki's Tea also uses "product prices" to build momentum for itself and differentiate itself from the common affordable milk teas on the market.

Before 2015, the price of affordable pearl milk tea on the market, represented by Yi Dian Dian and Coco, was about 9 to 19 yuan; the price of sinking market brand products, represented by Mixue Bingcheng, was 6 to 12 yuan.

Representative mid-range brands of new-style tea drinks, such as Qifentian, Shanghai Auntie, and Lelecha, are priced no more than 30 yuan.

In comparison, Nayuki’s Tea sets its price range at 18 to 32 yuan, and its best-selling products are generally priced above 30 yuan. At that time, the only high-end tea drink on the market that could match Nayuki was Heytea.

2) Hot-selling product maker

Naixue’s second key move is to create a hit tea drink, which the industry calls a “hit-making machine”; this product strength has also become Naixue’s strongest “moat”.

By creating popular products, Naixue has cultivated a group of high-net-worth "loyal fans" who are not only highly sticky, but will also spontaneously promote the products online, leading to a "cyber pilgrimage" among many people.

Why does Nayuki’s Tea always produce hits? The reason is that many of its products are "industry firsts".

Maybe many milk tea enthusiasts have such doubts:

“What is the difference between Nayuki’s Tea and Heytea? I think their products are too similar! Which one is the original?”

After carefully checking a lot of information, I found that there is no accurate and authoritative judgment on which company is the original creator of the "Cheese Fresh Fruit Tea" series.

However, iResearch once compared the timeline of Nayuki's Tea and Heytea's hit products. You can see the timeline in this picture:

Source: iResearch

Since both companies like to use seasonal fruits to launch new products, their products are often similar; however, judging from this picture, Nayuki Tea always launches new products earlier than Heytea.

Other examples include Nayuki's Tea, which launched a new product called "Baqi Yuyougan" a few months ago. The "niche fruit + unique taste" makes this tea drink extremely effective.

One week after its launch, the sales volume of Baqi Yuyougan in Nayuki’s tea products exceeded 20%, surpassing Baqi Cheese Strawberry, which has dominated Nayuki’s sales list for many years.

This product also made the niche fruit, orange, a "hot-selling ingredient" for tea products. Other milk tea brands followed suit, sparking a "orange craze."

It is reported that this wave of "Oil orange fever" has caused the price of this niche fruit to soar from 8 yuan per catty to 40 yuan per catty.

It can be said that the reason why Nayuki is always popular and well-known in the market is closely related to the popular tea drinks it has created.

3) Cultural experience, building a brand moat

In order to make its brand more competitive and stand out in the hearts of users, Naixue's third step in "potential energy" is to create a cultural experience and build a moat for the brand.

The brand’s cultural construction is another moat for the brand and another possibility to distinguish it from differentiation.

After all, since the raw materials such as fruits and tea leaves for freshly brewed tea drinks are easy to obtain, the market's replication ability is very strong; even if an original hit is created, it can easily be copied.

Therefore, Naixue tried to make the brand look more "high-end" and maintain its "potential energy" by integrating art and cultural creativity into its brand culture.

① Product packaging: Create a "work of art"

In terms of packaging, Naixue tries to package its products into works of art, which not only brings a "beautiful experience" to users and enhances their brand favorability, but also allows users to "spontaneously promote" themselves.

Naixue's packaging bags will change with different original illustrations according to the season. There are not only seasonal styles such as spring, summer, autumn and winter, but also limited editions such as the Spring Festival and Valentine's Day.

On the day Naixue went public, it also launched a new square bag called "Today's Launch", on which the team's message to users was printed:

Image source: Xiaohongshu

Many users said that they were reluctant to throw away the bags after drinking milk tea; therefore, these bags are equivalent to a walking advertising space, helping to increase the brand's exposure.

② Advertising: “Big Brand”

When it comes to advertising, which is the easiest way to build momentum for a brand, Naixue has always taken the high-end route.

For example, when launching the new product "Baqi Red Pomegranate", we collaborated with the virtual blogger @Ling to launch a well-made concept short story "Ling Tea Research Society":

I have to say that Naixue's choice is very pleasing:

Combining the "national style" that has been very popular in recent years with the "virtual IP" that has just become popular, not only has it attracted a lot of attention, but the well-made images also make the brand look quite "powerful", and the "brand potential" has increased by +1.

Although it was an advertisement, many fans spread it spontaneously on Weibo that day:

③ Joint marketing

In order to ensure brand potential, Nayuki Tea has put a lot of effort into the brand and format of the joint venture.

In terms of brand selection, they basically only choose brands that are more popular among young white-collar workers, such as King of Glory, which has a very wide audience, and Atour, a business hotel that has emerged in recent years:

In terms of the form of joint ventures, Nayuki is even more "ingenious": it directly built the "CUP Art Museum" and collaborated with many artists to redesign the body of Nayuki's milk tea cup, which is very classy.

Nayuki and Japanese artist PePe Shimada collaborated on a cat cup

Whether through artistic packaging, ancient style short stories, or cross-border joint marketing, Naixue's ultimate goal is to give the brand higher cultural and artistic value and further expand the potential energy difference.

4) Benchmarking Starbucks and creating a “third space”

The fourth step for Naixue to create "potential difference" is to provide users with a new social space by creating a high-end tea drinking environment and space.

In this regard, Naixue’s concept of space creation is similar to Starbucks’ “third space”.

American sociologist Ray Oldenburg intuitively proposed the concept of the third space.

Compared with the first space (home) and the second space (workplace), the third space is a more relaxed and leisurely environment, a space where you can release yourself. For example, bars, coffee shops, museums, parks, etc. in the city.

In the 1990s, Starbucks was the first to introduce the concept of the "third space" into coffee shops, integrating cultural, spiritual and environmental experiences into Starbucks. This environment that is neither home nor office has become the best place for people to relax.

What Nayuki Tea wants to do is to become the “Starbucks of the tea world”. Founder Peng Xin has always wanted to create a scene suitable for women to chat and relax, so the Nayuki Tea store is decorated very "beautifully".

Maybe everyone takes Internet celebrity stores for granted now, but in 2015, when Internet celebrity stores were not yet rampant, Naixue’s unique store did attract many young people to check in (such as me in college).

In order to create such a spatial and scenario-based model, Nayuki's Tea has the largest store area among all milk tea shops, ranging from 200 to 400 square meters, providing users with social space. In comparison, Heytea’s standard store is much smaller at 100 square meters.

Through carefully crafted stores and social scenes, Nayuki has gradually become a high-end tea brand in the minds of users.

02. Nayuki’s Tea is valued at 10 billion, but why is it not making money?

Although Naixue worked very hard on momentum in the early stage and successfully embarked on the route of "high-end milk tea", and its average customer spending was also the highest in the industry (43 yuan); however, Naixue, which has been very successful in "creating momentum" so far, has not achieved high profitability as a "potential brand".

On the day of listing, Naixue's stock price plummeted by 15%. Judging from the published prospectus, Naixue is still in a loss-making state.

Why is Nayuki’s Tea, which is valued at tens of billions, still not making money?

1) To maintain potential energy, costs remain high

In order to create a high-end brand image and maintain user experience, Naixue needs to spend more on products.

Although the "tea + baking" model provides users with a novel experience, it also brings high costs and extremely low profit margins.

Judging from the price of raw materials, Naixue's cost is even higher than Starbucks' raw materials + delivery fees (31.5%), and is also relatively high compared with its peers.

The prospectus shows that the material costs from 2018 to 2020 were 384 million yuan, 916 million yuan, and 1.159 billion yuan, respectively, accounting for 35.3%, 36.6%, and 37.9% of the revenue.

The cost of raw materials has remained above 35% for three consecutive years, and has increased instead of decreased as the scale has expanded.

In terms of labor costs, Nayuki's Tea is on par with the "service master" Haidilao; but in fact, from the perspective of user perception, the public does not think that Nayuki's Tea can compare with Haidilao in terms of service.

Why does this happen?

Starbucks also has a "coffee + baking" combination, but because Nayuki's tea is baked on the spot, it needs to set up an independent bakery in the store and hire more pastry chefs. Therefore, a standard store can have 12-18 staff (traditional milk tea shops only need 2-3 people).

When there are many guests, the front desk staff are very busy, but the kitchen staff are very idle.

Unscientific personnel management has further increased costs. Like Haidilao, labor costs account for 30%.

Although Nayuki's Tea has been trying to build a "central kitchen" to solve the cost problem, it remains unknown whether this move will undermine the momentum created by "freshly made" in the early stages.

Central kitchen model: Eliminate the on-site bakery, and all European breads will be made in the central kitchen and transported to each store.

2) Potential Brands’ “Bottleneck”: Supply Exceeds Demand

Since there is no way to reduce costs, Naixue wants to use the method of "scale growth" to transfer the pressure brought by the cost side.

On the one hand, Naixue wants to increase revenue by expanding its stores and achieve results in scale.

However, the path of expanding through traffic and scale is the main strategy of kinetic brands. As a representative of potential brands, Nayuki jumps back and forth between the two strategies, which is not conducive to its growth.

Moreover, since Naixue has high requirements for store area, opening a new store is a considerable expense.

At the same time, due to the brand's "high-end" approach, its audience is limited, so Naixue cannot guarantee the customer flow of the new store.

It can be seen from the prospectus that Naixue has more and more stores in first- and second-tier cities, but the average daily sales and order amount of a single store are declining.

Source: Nayuki's Tea IPO prospectus

We boldly speculate that Naixue may be in a situation of "oversupply" now, so the expansion of stores has dispersed the original consumer groups.

3) Different user mindsets lead to poor results in the third space

Nayuki Tea has always wanted to create a third space similar to Starbucks, but users have different mindsets about "coffee" and "milk tea".

The scenes created by Starbucks are mainly for business, work, and study, and can be embedded on weekdays and weekends; the scenes created by Nayuki are more about afternoon tea and leisure and entertainment scenes among girlfriends.

Most users prefer to sit in the store and drink a cup of milk tea in their spare time; on weekdays, they basically buy and go, or "order online and pick up offline".

Therefore, it is difficult for Nayuki to create a "highly utilized third space" like Starbucks, and store space is often "wasted".

Nayuki actually realized this problem later on and wanted to create a new-style store called "Nayuki's Tea Pro" - only making tea drinks, not selling European bread, and reducing the store area.

But in this regard, Heytea has done better and made arrangements earlier, creating "affordable stores" such as Heytea Go, and has long launched the "Heytea Go" mini program, which is aimed at the model of online purchase, offline order pickup, and buy-and-go.

According to the experience of my friends, people now prefer to order on the Heytea mini program and then pick up the food at the store. If it is Nayuki’s Tea, they still prefer to experience it in the store.

Therefore, the difference in users' mindsets limits Nayuki's Tea's ability to create an atmosphere, and it is always difficult to break through the existing deadlock.

4) Competition in the tea beverage industry is fierce, but Nayuki “can’t stop”

You may ask, if “opening a store means losing money”, then why not stop expanding?

In today's red ocean new tea beverage track, Nayuki simply "can't stop" in order to maintain the confidence of the market and capital.

Although a hit product is good, it is difficult to produce hit products continuously; at the same time, even if a hit product is created, it can be easily copied.

We can compare Heytea, Nayuki's Tea, and Lelecha horizontally:

The three brands are not only very similar in terms of beverage types, but also in terms of prices; Heytea and Nayuki are more similar in their tea beverage products, while Lelecha and Nayuki are similar in the baked goods category.

Image source: iResearch

Although plagiarism continues in the industry, it is difficult to use unified standards to define who copied whom in the freshly brewed tea industry.

Although Nayuki's Tea is known as the "hit-making machine" in the industry, its products, such as the "domineering cheese fruit tea" series and the recently launched "Oil Orange Tea" series, became hits as soon as they were launched on the market.

But users’ sense of novelty comes and goes quickly. Once they find that other brands have also started to do the same thing and offer cheaper prices, non-loyal users are likely to leave.

03. Conclusion

It cannot be denied that Nayuki was able to go public in just over 5 years. It must have taken tremendous efforts behind the scenes. This is a good reference for many brands starting from scratch.

But at the same time, Naixue still has many problems to solve, such as the high cost of raw materials, profit contradictions through expansion transfer, inability to solve the user's mind, etc.

Although Nayuki's Tea has become the "No. 1 tea stock", Heytea also announced a few days ago that it had raised 60 billion yuan in a new round of financing; milk tea brands such as Mixue Bingcheng and Lelecha are also scrambling to seize market share.

There are many competitors in the new tea beverage market, and Nayuki may not have much time left to buffer its losses.

Author: Lighter

Source: Lighter