From Southeast Asia to Japan and South Korea, Mixue Ice City's overseas expansion

Recently, many netizens posted photos of the grand opening of the first Mixue Ice City store in South Korea on the social platforms Xiaohongshu and Weibo.

Mixue Ice City opened its first Korean store on November 23, located near Chung-Ang University in Seoul, targeting students. In addition to Chinese students or tourists, many Korean customers also buy it because of its low prices.

The products of South Korea's Mixue Ice City are basically the same as the domestic menu. According to consumers who went to check in, its ice cream costs 1,000 won (about 5.4 yuan) and coffee costs 1,500 won (about 8 yuan).

At the same time, Mixue Ice City's Xiaohongshu account "MIXUE.Japan" released a "late night preview", indicating that this account is the only official account of Mixue Ice City in Japan. This means that after the layout in South Korea, Mixue Ice City will also be launched in Japan.

It is said that the location of Mixue Bingcheng's first store in Japan has been selected and will be located in the Omotesando area of ​​Tokyo.

Mixue Bingcheng currently has 22,276 stores around the world. Before expanding into Japan and South Korea, Mixue Bingcheng already had hundreds of stores in Southeast Asia.

The strategy of "surrounding the city from the countryside" is the reason for Mixue Ice City's success in China. After going overseas, can it continue the glory of the Snow King?

1. Surround the cities with the countryside and carve out a path

The biggest feature of Mixue Ice City, which started in Zhengzhou, Henan in 1997, is its high cost-performance ratio. Compared with the current 20-30 yuan per cup of milk tea, Mixue Ice City's price of less than 10 yuan is really "too good".

Compared with Heytea and Nayuki Tea, the menu of Mixue Bingcheng is not so fancy. Mixue Bingcheng can also provide consumers with well-known milk tea categories such as fruit tea and mango sago at a unit price of 10 yuan.

It may not be "high-end, fashionable, and classy", but it is undeniable that compared with Heytea, Nayuki's Tea, etc., Mixue Ice City has a higher gross profit margin and earns more. This makes Mixue Ice City, which is also a drink for enjoyment, stand out from the competition among Chinese tea drinks, impacting overseas markets and the secondary market.

Mixue Ice City has a place in the new tea beverage market, which is "invincible". One of the most important measures is that Mixue Ice City has adopted significant differentiation in its market strategy. First, it adopts a franchise system and charges a large amount of franchise fees through a franchise business model.

It is said that the franchise fee of Mixue Bingcheng ranges from 11,000 to 7,000 yuan, and is divided into three levels: provincial capital cities, prefecture-level cities and county-level cities.

In addition, franchisees also need to pay Mixue Ice City contract performance deposits, daily management, operational guidance, event support, production processes, operating methods and other expenses. The largest part of these is the equipment required to open a store (about 80,000 yuan) and raw materials (about 60,000 yuan), which almost accounts for half of the funds for opening a franchise store, and this part is firmly in the hands of Mixue Ice City head office.

By earning a lot of cash through franchise stores and laying out the upstream and downstream raw material markets and equipment supply, as long as Mixue Ice City is still expanding, it can be said that it is "making money while lying down." In 2019, Mixue Ice City's revenue from selling goods to franchisees reached 2.42 billion yuan. In 2020, this figure has reached 4.68 billion yuan. In 2021, Mixue Ice City's revenue from selling goods to franchisees alone has approached 10 billion yuan, reaching 9.85 billion yuan.

Over the past three years, this part of revenue accounted for 94.63%, 96.21% and 95.21% of Mixue Ice City's total operating income. The products sold by Mixue Ice City include necessary ingredients, Mixue Ice City's unique packaging, equipment and facilities, among which ingredients and packaging account for about 80% of the total revenue.

With the continuous marketing of the Snow King image, Mixue Ice City has also gained more attention in the market. Attention means sales and repurchase rate. It also increases the further expansion of Mixue Ice City stores. More and more investors are eager to join, forming a positive cycle.

During the three-year epidemic, many Chinese tea shops have been forced to face various crises, layoffs, and store closures, which have hit the new consumer market represented by milk tea. However, during these three years, Mixue Bingcheng has bucked the trend.

As of the end of the first quarter of 2022, the main brand of Mixue Ice City has more than 21,000 stores across the country. According to data from relevant market reports of iMedia Consulting cited in Mixue Ice City's prospectus, Mixue Ice City's market share in China's freshly brewed tea beverage industry has reached 7% in 2021.

The new consumption trend that began in 2016 finally came to a halt in 2022. Chinese tea drinks that rode on the spring breeze, such as Heytea and Nayuki’s Tea, are facing difficulties to varying degrees. Although Mixue Bingcheng has developed against the trend in recent years, it has also begun to look for a broader overseas market and expand its product line to face more severe tests and challenges with a more complete attitude.

2. Entering the Southeast and developing the coffee line

In 2019, Mixue Ice City's total revenue reached 2.566 billion yuan, 4.68 billion yuan and 10.35 billion yuan, of which net profits attributable to the parent company were 445 million yuan, 632 million yuan and 1.9 billion yuan respectively. In the first quarter of 2022, according to Mixue Ice City's prospectus, its revenue reached 2.434 billion yuan, and its net profit attributable to the parent company was 390 million yuan. Compared with Heytea and Nayuki's Tea, which are mid-to-high-end brands, Mixue Ice City's revenue situation is much better.

Unlike most consumer-type companies, Mixue Ice City did not shrink its stores during the three years of the epidemic. On the contrary, during the COVID-19 pandemic, Mixue Ice City opened tens of thousands of stores. In 2020, Mixue Ice City added a net of 5,700 stores. In 2021, this number reached 7,000. As of the end of the third quarter of 2022, Mixue Ice City's domestic stores have grown to 23,000.

The continuous increase in the number of stores has brought about a steady increase in the operating income of Mixue Ice City, and the net profit attributable to the parent company has also risen accordingly. However, Mixue Ice City is also facing new challenges: shrinking consumption and rising costs. As the overall economic environment is in a downward period, Chinese new tea drinks are experiencing a price reduction trend. Heytea has launched a franchise system, lowered the price of high-end drinks, seized the mid- and low-end market, and entered the third- and fourth-tier cities. This is undoubtedly a challenge to Mixue Ice City's status.

Mixue Ice City has been reducing prices this year. Although the reduction is not large, it is a relatively conscientious profit-making behavior considering its low pricing. While reducing prices, Mixue Ice City is also under pressure from rising costs.

From the perspective of raw materials, the logistics industry has been impacted by the repeated outbreaks of the epidemic this year. With the increase in extreme weather, many fruit-producing areas have suffered from drought and high temperatures, resulting in a serious reduction in fruit production, which has also caused the price of fruits to continue to rise. Mixue Ice City is under great pressure on the cost side.

Although there is no detailed disclosure in Mixue Bingcheng's prospectus, it can be seen from the annual report of Nayuki's Tea, a representative brand of new-style tea drinks that has been listed, that in 2021, Nayuki's Tea's raw material procurement cost was 1.4 billion yuan, a year-on-year increase of 20.8% from 2020, which is the second largest cost expenditure of the group. The raw materials purchased include tea, dairy products, fruits, juices, etc. Not only are the prices of raw materials rising, but the price of pulp used for packaging is also rising.

In 2022, the domestic pulp price in China has risen by 20% from 6,138.5 yuan/ton at the beginning of the year to more than 7,500 yuan/ton. As various difficulties intensified, Mixue Ice City prepared for a rainy day and began to expand its product line. Coffee is an important part of it. Using coffee concentrate to brew coffee-based beverages, expand the consumer base, and broaden the target customer types, Mixue Ice City is eager to obtain greater benefits at a lower cost.

In addition to expanding its product line, Mixue Ice City has also set its sights on overseas markets. Through trademark authorization and franchising, it has expanded its brand to Southeast Asian countries such as Laos, Singapore, Malaysia, and the Philippines. In 2018, Mixue Ice City opened its first store in Hanoi, Vietnam. As of March 2022, there are 249 Mixue Ice City stores in Vietnam, with a total revenue of 92.904 billion yuan and a net loss of 322,000 yuan.

In Indonesia, Mixue Ice City has 317 stores, with operating income of 25.4108 million yuan and net profit of 2.2355 million yuan. From these two countries, we can see that although there are many stores in Southeast Asian countries, the actual profit is small, and it is in the stage of not making money but gaining publicity.

According to the prospectus of Mixue Bingcheng, the group stated that there are many young people in Southeast Asia, and Mixue Bingcheng is cheap and has a brand effect. It believes that the Southeast Asian market has great future potential and is expected to become a new revenue growth point for China's freshly made new tea drinks in the future.

In addition, Michelle Ice City has also accelerated the layout of its upstream and downstream industries to reduce the impact of raw materials on costs. The franchise system can also help Michelle Ice City's development in this regard to a certain extent. Because it is a franchise system, Michelle Ice City does not need to rely too much on the revenue of each store, which also allows Michelle Ice City to better focus on the construction of the supply chain and the planning and operation of the brand.

3. The Snow King sets out to Japan and South Korea to take another victory?

Recently, the news that Mixue Ice City opened stores in Japan and South Korea has caused a sensation in the new consumer market. Many people believe that it is difficult for a restaurant like Mixue Ice City, which offers low prices and high cost performance, to survive in high-consumption markets like Japan and South Korea.

The store opened by Mixue Bingcheng in South Korea is located near Chung-Ang University. Its main consumer group is the same as that in China, which is also a young customer group, mainly college students. Even the price is only a few RMB higher than that in the domestic market.

Among them, the common hand-beaten lemon tea is priced at around 8 yuan, which is basically the same price as a bottle of mineral water in South Korea, and the most expensive cheese milk tea on the menu is priced at no more than 16 yuan. Compared with the Chinese milk tea brand "Gongcha" that has been exported for many years, the price of Mixue Ice City can be said to be very competitive.

Gongcha, the leading bubble tea brand in Korea, has opened more than 700 stores in Korea. Gongcha's products are priced between 23 yuan and 42 yuan, and are mid- to high-end bubble tea brands. In addition to Gongcha, there are also COCO, Tiger Sugar, Gu Ming, etc., which have opened stores in Korea, and their prices are much higher than those in domestic stores.

Theoretically, Mixue Ice City can grab a larger market share with its low price. However, Mixue Ice City's overseas expansion is not smooth sailing. First of all, there is a shortage of raw materials. Due to inconvenient logistics, the raw materials exported from China may not be fresh, delivered in time, or in short supply during transportation.

Furthermore, there are some problems in Mixue Bingcheng's operations in South Korea, such as insufficient localization, store packaging is still in Chinese, and there are some translation problems. These will cause Mixue Bingcheng to receive negative market reviews during its entry into Japan and South Korea.

According to the prospectus of Mixue Bingcheng, at the beginning of this year, Mixue Bingcheng had established four operating companies overseas, located in Hong Kong, Indonesia and Vietnam. They are mainly engaged in purchasing food, operating and setting up equipment, etc. It can be seen that Mixue Bingcheng has been investigating and considering its overseas business for a long time, hoping to find a second growth point in the overseas business segment to counter the shrinking domestic consumer market.

The biggest competitive point of Mixue Ice City is undoubtedly its price. As long as there is cost-effectiveness, low price and stable quality, there will always be people and investors who will pay for it. Similarly, when Mixue Ice City was preparing to go public, people could see that although it was inconspicuous, a spark could start a prairie fire. Before they knew it, Mixue Ice City had spread to every corner of the community, streets and business districts.

What is the future of new tea drinks? What will be the wave after the new consumerism wave? At a time when both consumption and investment are facing a cold winter, perhaps sticking to one’s original intention, reducing costs, and finding a new explosion point is the next stop for Chinese tea drinks.

Author: Bu Gu

Source: Public Account: Consumer World (ID: xiaofeijie316), new consumption, new opportunities.