Revenue, Liabilities and Stock Competition: Three Issues about Guming

Author｜Peng Yingyu

In the just-ended 2024, the new tea beverage market has witnessed frequent activities. Along with the listing of Chabaidao, the entire industry has entered another stage of development. Major brands are either seeking increments in overseas markets or the lower-tier markets, while simultaneously consolidating their profit-making capabilities and reserving energy. 

On January 9, the new tea beverage brand Guming passed the hearing of the Hong Kong Stock Exchange. And on December 15, its updated prospectus also disclosed key data.

The latest prospectus indicates that in the first three quarters of 2024, Guming's GMV (gross merchandise volume) was 16.6 billion yuan, an increase of 20.4% compared to the same period in 2023.

In addition, in terms of the single-store operating profit, which best reflects the profit-making ability, in 2023, Guming reached 376,000 yuan per store, and the single-store operating profit margin of franchisees was 20.2%. Meanwhile, the single-store operating profit margin of freshly made tea beverage brands is usually below 15% during the same period. Guming's profit level can be said to be industry-leading.

Calculated only by the number of stores, Guming is already one of the top five freshly made tea beverage brands in the world. As of September 30, 2024, the number of Guming stores has reached 9,778, second only to Mixue Bingcheng. Among them, 80% of Guming's stores are located in second-tier and lower-tier cities, and the proportion in rural areas is 40%.

However, there are still disputes about Guming in the market. For example, the "high debt ratio" problem that is often mentioned by the outside world.

It should be pointed out that the debt ratio problem of Guming is not a debt in the traditional sense. A large proportion of it is caused by the accounting measurement method, and it is not a reflection of the real operating conditions of the enterprise. Under the same caliber, the asset-liability ratio level of Guming is at a low level in the freshly made tea beverage industry, and it is still decreasing year after year.

It is certain that in the red ocean with intensified involution and full competition, if Guming can successfully go public, it may be able to change the pattern of the entire industry.

1. Positive Growth, High Density, and High-Quality Supply Chain

The story of Guming can be traced back to 14 years ago.

In 2010, Wang Yun'an graduated from university. In the same year, he opened the first "Guming" store in Daxi Town, Zhejiang Province, his hometown.

Wang Yun'an decided to make drinking tea a part of daily life completely. "As long as you want, you can pick up a cup of tea at any time." However, perhaps Wang Yun'an did not expect at that time that a small cup of tea beverage could become a big business with "an annual GMV of more than 19.2 billion yuan".

Guming's products mainly include three categories: fruit tea, milk tea, and coffee, with prices ranging from 10 to 18 yuan. The prospectus shows that in 2023, Guming's GMV reached 19.2 billion yuan, an increase of 37.2% compared to the previous year.

In terms of performance, Guming's income mainly comes from selling goods and equipment to franchisees and providing services. Along with the continuous expansion of the number of stores and the continuous enhancement of the store's profit-making ability, Guming's revenue has been increasing year by year.

From 2021 to 2023, Guming achieved revenues of 4.384 billion yuan, 5.559 billion yuan, and 7.676 billion yuan respectively. Among them, the year-on-year growth rates in 2022 and 2023 were 26.8% and 38.1% respectively. In the first three quarters of 2024, the realized income was 6.441 billion yuan, with a year-on-year growth of 15.6%. Among them, fruit tea beverages accounted for 41% of the total cups sold.

Image taken from Guming's prospectus

Judging from the currently announced revenue and net profit of freshly made tea beverages, Guming has maintained a stable growth in the highly competitive environment. 

In addition to the year-on-year improvement in performance, Guming's franchisees are also more profitable and more willing to open more stores.

As of September 30, 2024, among franchisees who have opened Guming stores for more than two years, each franchisee operates an average of 2.9 stores, and 71% of franchisees operate two or more franchise stores. And Guming's product capabilities and supply chain advantages also provide more complete services and guarantees for the performance of franchisee stores.

For franchisees, Guming has always followed the regional encryption strategy. The dense store network indeed improves the efficiency of Guming's warehousing and logistics. It can provide cold chain distribution services to more than 97% of stores once every two days, and it can also deliver fresh fruits and fresh milk with short shelf life to stores in lower-tier cities.

The prospectus shows that as of September 2024, Guming has 22 warehouses, and more than 76% of the stores are located within 150 kilometers of the warehouse. During the performance period, the average distribution cost from the warehouse to the store as a proportion of GMV is less than 1%, which is far lower than the industry average of 2%.

Even more rarely is that Guming has long extended its reach to the upstream raw material end. Public information shows that Guming's fresh fruits, tea leaves, and milk are directly sourced from the origin. Fresh fruits will be switched according to the production season and origin to ensure the best flavor. Taking perfume lemon as an example, in order to be able to use the freshest lemon that meets Guming's product standards, Guming planted the first lemon in Xishuangbanna, Yunnan in 2016, and continued to invest subsequently. Currently, the annual output is 8,000 tons.

2. How to Understand the "High Debt Ratio"?

The end of the tea beverage is the supply chain. For tea beverage brands, only by opening up a series of chains such as the upstream, transportation, warehousing, and distribution can a real "moat" be established.

Wang Yun'an has also said more than once, "Where the warehouse is built, Guming's stores will be opened to ensure that the management of raw materials is in place." In the prospectus, Guming also stated that the funds raised will be used to strengthen the supply chain capacity and upgrade.

However, there are still disputes about Guming in the market, and the most frequently mentioned one is still the high debt ratio problem.

The prospectus shows that from 2021 to the first three quarters of 2024, Guming's total liabilities were 3.249 billion yuan, 3.848 billion yuan, 4.537 billion yuan, and 4.623 billion yuan respectively, and the asset-liability ratios were 159.01%, 126.94%, 88.06%, and 72.8% respectively.

In fact, a considerable proportion of Guming's liabilities is caused by the accounting measurement method, and it is not a presentation of the real operating conditions and results of the enterprise. Guming's asset-liability ratio under the same caliber is lower among the leading tea beverage enterprises, and it is decreasing during the same period.

Image taken from Guming's prospectus

In the prospectus, Guming's balance sheet also clearly marks the item "Financial liabilities measured at fair value and with changes included in the current profit and loss". This liability is not a liability in the traditional sense, but an early investor of Guming. For example, equity investments from Meituan, Sequoia, and Coatue.

It is understood that because this type of equity investment often comes with priority rights, it is regarded as "preferred stock" and is included in the "Financial liabilities measured at fair value and with changes included in the current profit and loss" in accounting measurement.

And such "financial liabilities" are not unique to Guming. Many Hong Kong-listed companies, including Meituan and Horizon Robotics, also had high debt ratios due to financing before going public. When the enterprise successfully goes public, the financial liabilities generated by preferred stocks will also be zeroed.

Image taken from Meituan's prospectus

In other words, financial liabilities do not affect operations or cash flow. The high debt ratio before Guming's listing is only an appearance.

Guming's latest prospectus also shows that at the end of September 2024, its financial liability amount was 3.2 billion yuan. If this is excluded, Guming's asset-liability ratio is only 23%. It is worth mentioning that this figure was 28% in the same period in 2023. The continuously decreasing real debt ratio is also sufficient to prove Guming's continuously optimized financial and operating conditions.

In comparison, the asset-liability ratio of Mixue Bingcheng at the end of September 2024 under the same caliber is 24%, and those of Chabaidao, Nayuki, and Hushang Auntie at the end of June 2024 are 25%, 34%, and 38% respectively.

3. Focusing on the Lower-Tier Markets, Promising Future

In the past five years, China's freshly made beverage industry has experienced rapid growth.

According to the data from CIC Consulting, in terms of the GMV in 2023 and the expected GMV growth from 2023 to 2028, the market of mass freshly made tea beverage stores in China is the largest and fastest-growing, and the competition is also more intense. In 2023, the GMV of the freshly made tea beverage store market was 108.6 billion yuan, with a compound annual growth rate of 24.4%. The market growth rate in third-tier and lower-tier cities is expected to reach 31.4% in 2023, and the growth rate in the next two years will still remain above 20%.

This also means that the lower-tier markets are currently regarded by the industry as the markets with the most growth space.

In recent years, the competition for lower-tier cities in the new tea beverage industry has also intensified. Brands that started in first-tier cities, such as Heytea and Nayuki, have also opened franchises to expand to the lower-tier markets with their high brand potential.  This development trend is sufficient to verify the correctness of Guming's initial choice to penetrate the lower-tier and regional markets, and to use the franchise model for rapid expansion.

In the fierce market competition, Guming has also been continuously strengthening its product research and development capabilities and supply chain system in a steady and solid manner, and has always maintained a leading position in the lower-tier markets.

The prospectus shows that as of December 31, 2023, 38.3% of Guming's stores are located in towns and villages. As of September 30, 2024, the proportion of Guming's stores in towns and villages further increased to 40%. However, the proportion of stores located in towns and villages of the other top five mass freshly made tea beverage brands in China is generally lower than 25%.

The in-depth layout of Guming stores has also expanded the coverage of consumers.

As of December 31, 2023, and September 30, 2024, the number of registered members of Guming's mini-program has reached approximately 94 million and 135 million respectively. Among them, the number of active members is more than 36 million and more than 43 million respectively. In 2023, the average quarterly repurchase rate of Guming also reached 53%, far exceeding the average repurchase rate of less than 30% of mass freshly made tea beverage brands.

And currently, although Guming has established a layout in 17 provinces across the country and will continue to increase the density of the store network, there are still many provinces that have not been laid out, which also brings a broad growth space for Guming.

Along the way, Guming's deep cultivation of the lower-tier markets and its profound insights into consumers in the lower-tier markets have become a competitive barrier that is difficult to overcome in the short term.

In the opinion of industry insiders, the choice of tea beverage enterprises to go public is both a manifestation of expansion and a challenge. And currently, Guming has not yet entered the Beijing and Shanghai markets.  Previously, Wang Yun'an also said that he will not deliberately bypass first-tier cities.

It is believed that in the future, while continuously consolidating the supply chain, Guming can make new market breakthroughs and find the second growth curve. The entire new tea beverage industry will also usher in more opportunities under the new competitive background.