Net profit of 2.5 billion a year
Bawang Tea Ji is one of the companies with the fastest development momentum in the tea beverage industry in recent years.
In December 2022, the total number of Bawang Chaji stores just exceeded 1,000. By the end of 2024, the number of stores worldwide has exceeded 6,000, and it took only two years to complete the expansion of 5,000 stores.
Zhang Junjie, founder of Bawang Tea Ji, made a high-profile speech to Starbucks China last year and set a GMV (gross merchandise transaction) target of 20 billion yuan.
Judging from the data disclosed in the prospectus, Zhang Junjie achieved this "small goal". The company's actual GMV last year reached 29.5 billion yuan, a year-on-year increase of 173%; operating income was 12.405 billion yuan, and net profit was 2.515 billion yuan, which means the average monthly net profit exceeds 200 million yuan.
Bawang Tea Ji’s net profit margin last year was 20.3%, which may be the highest level in the new tea industry. Public information shows that Naixue’s tea is still struggling at the profit and loss line; Mixue Bingcheng and Gu Ming, which lead the industry in supply chain management and cost control capabilities, have net profit margins of 18.7% and 17.4% respectively in the first three quarters of 2024, and their full-year results will be disclosed this week.
The high profit margin is partly related to Bawang Chaji's product strategy, which focuses on the "original leaf fresh milk tea" category and adopts a large single product strategy.
The prospectus shows that 91% of Bawang Chaji's GMV in the Chinese market last year came from "original leaf fresh milk tea" products, which is more focused than before. The proportions in 2022 and 2023 will be 79% and 87% respectively.
A Bawang Chaji franchisee revealed to a reporter from the International Finance News in early 2024 that about 60% of the daily turnover comes from a large single product called "Bo Ya Juexian". According to previous statistics, "Bo Ya Juexian" has sold more than 600 million cups as of August 2024.
Photo by Shui Furong
Industry insiders believe that the "super single product + core menu" model can help penetrate consumers' minds and build barriers to identity of "category = brand", such as "coffee = Starbucks".
From the perspective of operation and management, this model helps Bawang Chaji to speed up meal delivery time, control costs and improve supply chain efficiency. The prospectus shows that its inventory turnover days are approximately 5.3 days, significantly better than its peers, and its logistics costs will account for less than one percentage point of total global GMV in 2024. Its application of automated tea-making equipment and standardized processes also makes it easier to ensure the consistency of product quality and taste after franchise expansion.
The process of internationalization is accelerated
Bawang Tea Ji is currently the fifth largest brand in China's new tea beverage industry. As of the end of 2024, it has opened a total of 6,440 stores, including 6,271 franchise stores, accounting for 97%.
Currently, there are four listed companies in the new tea beverage industry: Nayuki's Tea, Cha Momochi, Gu Ming, and Mixue Bingcheng, all of which are listed on the Hong Kong Stock Exchange. Bawang Cha Ji chose the US stock market. Shen Meng, director of Chanson Capital, once pointed out that compared with Hong Kong stocks, the threshold for U.S. stock IPOs is lower and depends more on the company's attractiveness to investors.
If successfully listed, Bawang Tea Ji will become the “first new tea drink stock in the U.S.”, which will help build global popularity and attract international capital.
It is worth mentioning that Bawang Chaji currently has overseas stores in Malaysia, Singapore, and Thailand, and has gained high brand recognition in Southeast Asia. Its first store in the United States and Indonesia will also open in the near future.
In August 2019, Bawang Tea Ji opened its first overseas store in Malaysia and began its internationalization process; it entered Singapore in August 2024. At that time, the news of the opening of the new store once became a hot topic on local social media. Against the background of intensified competition in the domestic market, it has become the consensus of China's new tea brands to actively go overseas.
Bawang Tea Ji stated in its prospectus that the funds raised will be mainly used to expand the scale of stores in China and overseas, develop and innovate products, build overseas supply chain networks, and strengthen technology investment to support business development and operations. According to the plan, it will open 1,000 to 1,500 new stores in China and around the world this year. The pace has slowed down from the expansion of 5,000 stores in the previous two years.
Photo by Shui Furong
This year, the new tea beverage industry is ushering in a capital boom.
Gu Ming and Mixue Bingcheng have completed their listings, Bawang Tea Ji will be listed on the US stock market, Shanghai Auntie is queuing up to be listed on the Hong Kong stock market, and leading tea beverage brands are taking the capital road, which means that competition on the tea beverage track will be more intense in the future.
For Overlord Cha Ji, the challenge has begun.
After seeing the market potential of the original leaf fresh milk tea category, many brands such as Luckin, Gu Ming, Cha Baidao, Mixue Bingcheng and other brands began to launch new products last year and entered the "dominated area" of Bawang Chaji with a low-price strategy.
According to the reporter’s observation, Bawang Tea Ji did not make clear concessions on price, but focused on seeking growth in the tea field. Recently, its sub-brand "Second Cup of Tea" pilot store was officially opened in Wujiaochang, Shanghai. It focuses on freshly extracted tea and provides tea Chinese style, tea latte and other products. The company's selection of CHA (tea) as its stock code may also mean that Bawang Chaji is gradually clarifying new business goals.