Fragrant Hills 36 billion in sales in a year, family business delegation of power

On April 17th, Xiang Piao Piao (603711.SH) released its annual report for 2023 and the first quarter report for 2024. In 2023, the company achieved an operating income of 3.625 billion yuan, a year-on-year increase of 15.90%; the net profit attributable to the shareholders of the listed company was 280 million yuan, a year-on-year increase of 31.04%.

This growth momentum continued in the first quarter, with Q1 revenue reaching 725 million yuan, a year-on-year increase of 6.76%; the net profit attributable to the shareholders of the listed company was 25.21 million yuan, a year-on-year increase of 331.26%.

In 2023, the company's brewing business, mainly based on the classic series of Xiang Piao Piao, "Fresh" oat milk tea, and "Fresh Coffeeism" oat latte, achieved revenue of 2.686 billion yuan, a year-on-year increase of 9.37%; the ready-to-drink business, including "Meco" cupped fruit juice tea, "Lanfangyuan" Hong Kong-style tea drinks, and "Xiang Piao Piao" ready-to-drink milk tea, achieved operating income of 901 million yuan, a year-on-year increase of 41.16%.

During the period from 2020 to 2022, Xiang Piao Piao recorded three consecutive years of declining revenue performance, prompting the "number one milk tea stock" to seek change, including the establishment of a ready-to-drink sales team and adjustments to the management team.

At the end of 2023, the company's chairman and general manager, Jiang Jianqi, applied to resign from the position of general manager, and appointed Yang Dongyun, who had worked in many fast-moving consumer goods companies such as Procter & Gamble and White Elephant, as the company's general manager. In March of this year, the founder's family member Jiang Jianbin also applied to resign from the positions of director and vice chairman of the company for personal reasons.

After this series of adjustments, there are new expectations for Xiang Piao Piao from the outside world.

1. Sales expenses are three times the net profit

As a major domestic brewing milk tea operating enterprise, Xiang Piao Piao has maintained the top market share in the cupped brewing milk tea market for 12 consecutive years. In 2023, it drove the increase in brewing business revenue by launching new products such as "Fresh" handcrafted oat milk tea, "Fresh Coffeeism" handcrafted oat latte, "CC Lemon Liquid," and "Red Sugar and Ginger Tea."

Although the customer base is large, the growth rate of the brewing series is much lower than that of the ready-to-drink series. Xiang Piao Piao also continued to increase its investment in ready-to-drink series in 2023.

On the one hand, it launched "gift box" Meco fruit juice tea, added new flavors, and enriched its product line; on the other hand, it promoted the distribution of Lanfangyuan frozen lemon tea. Since February 2023, the product has been officially launched and achieved pre-tax sales revenue of over 200 million yuan in its first year on the market.

To promote the rapid development of the ready-to-drink series, Xiang Piao Piao spared no effort in marketing and promotion. During the reporting period, Meco fruit juice tea became the chief partner of Hunan Satellite TV's program "Chinese Restaurant," and Lanfangyuan conducted in-depth cooperation with Hunan Satellite TV's "Unlimited Graduation Ceremony" and the third season of "The Big Brother Who Breaks Through All Obstacles."

In addition, Xiang Piao Piao also focused on promoting in several programs on Hunan Satellite TV, and accurately placed advertisements on new media platforms such as Douyin and Xiaohongshu through explosive articles and cooperation with Douyin influencers.

The effect of increased marketing is also reflected in sales volume. In 2023, the sales of ready-to-drink products in online channels almost equaled that of brewing products, with the former reaching 122 million yuan, a year-on-year increase of 50.22%, and the latter reaching 128 million yuan, a year-on-year decrease of 16.15%. Xiang Piao Piao stated that in 2024, it is expected that the focus of brewing business will still be on "recovery," and the expenditure on ready-to-drink business will be maintained at a certain level.

In addition to strengthening marketing efforts, Xiang Piao Piao also increased its investment in channels. In 2023, Xiang Piao Piao established a new team for the ready-to-drink business, and the team began to operate independently at the end of April 2023. By the end of 2023, the number of the company's distributors increased by 199 compared to the previous year, reaching 1,531, including 406 new distributors and 207 replaced distributors.

On March 4th of this year, when interviewed by an institution, Xiang Piao Piao stated that it is very concerned about the development of snack volume sales channels. Among its existing products, fruit juice tea and brewing products have entered the snack volume sales channels. Currently, the company is exploring and developing new cooperation models with its direct snack sales channels. The financial report shows that the sales revenue of Xiang Piao Piao's direct sales channels in 2023 was 63.2029 million yuan, compared to 28.8222 million yuan in the same period of the previous year. When asked about the company's development plan in the volume sales channels by Times Finance, Xiang Piao Piao had not yet received a response at the time of publication.

Due to increased advertising and marketing expenses, and the addition of personnel expenses for the establishment of the ready-to-drink sales team, Xiang Piao Piao's sales expenses in 2023 reached 860 million yuan, about three times the net profit, a year-on-year increase of 53.42%. High marketing investment has always been one of Xiang Piao Piao's issues. Relying on advertising to stand out, Xiang Piao Piao has formed a certain dependence on marketing. From 2019 to 2022, the company's cumulative sales expenses were nearly 3 billion yuan.

2. Family business delegation of authority

As a typical family business, after experiencing frequent team adjustments and three years of declining revenue and two years of declining profits, Xiang Piao Piao is trying to delegate authority.

In recent years, Xiang Piao Piao has experienced several personnel changes. In the second half of 2018, Lu Yifu, the general manager of Xiang Piao Piao's marketing center, left, and long-time employee Liu Daihua took over, but resigned by 2019.

From March to April 2020, Xiang Piao Piao successively received resignation reports from four senior executives: Cai Jianfeng, director and vice general manager; Feng Yongye, employee representative supervisor of the third supervisory board; Yu Qimi, shareholder representative supervisor of the third supervisory board; and Gou Zhenhai, director and secretary of the board of directors and vice general manager. At the beginning of 2023, Shang Gangming, the shareholder representative supervisor and chairman of the supervisory board, submitted his resignation for personal reasons.

Faced with declining performance, Xiang Piaopiao is attempting to revitalize the company by introducing fresh blood and adjusting the team structure. In 2023, Xiang Piaopiao established an independent sales team for its ready-to-drink business, recruiting over 600 beverage sales professionals and combining them with the original team to form a team of over a thousand people. On December 22 of the same year, the chairman and general manager of Xiang Piaopiao, Jiang Jianqi, announced his resignation as general manager and appointed Yang Dongyun as the new general manager of the company.

Yang Dongyun is a professional manager who has previously served as a project manager, regional manager, and category director at Procter & Gamble in Guangzhou. He has also worked for the German lingerie brand Triumph Group, the European stationery company Staedtler Group, Super 8 Hotels, and Baixiang Food, accumulating rich experience in the fast-moving consumer goods industry. According to media reports, during his tenure at Baixiang, Yang Dongyun led the research and development as well as the promotion of the popular product "Baixiang Stewed Big Bone Noodles".

After joining Xiang Piaopiao, Yang Dongyun also became deeply involved with the company. On December 29 of last year, Jiang Jianqi transferred 20,537,290 shares to Yang Dongyun at a price of 13.43 yuan per share. Following the transfer, Yang Dongyun's shareholding ratio increased to 5%, while Jiang Jianqi's shareholding ratio was 50.44%. According to the agreement, the transferee was to pay 25 million yuan for the share transfer within one month of signing the agreement, and the remaining transfer payment was to be made within three years of the agreement taking effect.

Subsequently, on March 30 of this year, Jiang Jianbin, a director and vice chairman of Xiang Piaopiao, submitted a resignation report. Jiang Jianbin is the brother of Xiang Piaopiao's founder, Jiang Jianqi.

Currently, Xiang Piaopiao is facing fierce competition. In addition to pressure from its peers, it is also facing market share squeeze from the existing bubble tea companies. According to the prospectus of HEYTEA, as of September 30 last year, its stores had exceeded 36,000.