Original link: https://www.latepost.com/news/dj_detail?id=1324
China’s first new tea chain brand with a revenue of 10 billion is preparing to go public.
On the evening of September 22, Michelle Bingcheng Co., Ltd. pre-disclosed the prospectus and planned to land on the Shenzhen Main Board. Michelle Bingcheng will issue no more than 40.01 million new shares at an undetermined price.
The prospectus also disclosed that at the end of 2020, Michelle Bingcheng introduced Meituan Dragon Ball, Hillhouse Capital, and CPE Yuanfeng at a valuation of 23.3 billion yuan. The three institutional shareholders held a total of 10% of the shares. This is also the only external financing for Michelle in the 25 years since its establishment.
Michelle Ice City’s revenue in 2021 will be 10.35 billion yuan, with a growth rate of more than 100%. Previously, the only domestic catering company with a scale of over 10 billion listed on the Hong Kong stock market was Haidilao. Compared to Zhang Yong’s reputation, the two brothers, Zhang Hongchao and Zhang Hongfu, the founders of Michelle Bingcheng, were born from grass roots and have a low-key nature. In contrast, the Snow King logo has become the most successful brand image in China in the past 10 years, and almost no one knows it.
As early as three years before its listing, this “invisible” company established in 1997 has entered the field of view of all parties due to its entry into the first-tier market and the popularity of the Snow King image on the Internet. News exposure and traffic have soared.
Supporting its rapid expansion is the huge system behind Michelle Ice City. In this listing, 30% of the funds raised by Michelle Bingcheng will be used to supplement working capital, and 70% will be used to invest in processing plants, warehousing and logistics bases, enterprise digital projects and R&D centers.
Michelle Bingcheng has embarked on an unprecedented Chinese-style chain road of 10,000 stores.
Although the current catering business environment is bad, the expansion speed of Michelle Ice City is not slowing down. “LatePost” learned that the management of Michelle Ice City was busy building factories a few years ago, and the expansion of stores in the southern region slowed down and missed a lot of good shops. “This round of new tea drinks is coming, we need to open more stores and gain a firm foothold.”
It takes effort to open a store. To open ten stores requires knowledge of management. Opening a hundred stores, a thousand stores, or ten thousand stores is another matter. The huge system built by Michelle Bingcheng step by step was first exposed in the prospectus. This article will use 13 diagrams to explain how Michelle Bingcheng works as a company and how it got to where it is today.
25 years, an average of nearly 3 stores per day
An entrepreneur who was a dozen years younger than Zhang Hongfu once asked him how to open 1,000 stores. Zhang Hongfu said that Michelle only opened one store in the first ten years, and it took seventeen years for thousands of stores to open.
In 1997, Zhang Hongchao, the elder brother of Zhang Hongfu, a second-year junior high school student, started a shaved ice shop in Zhengzhou. He had three deaths and three lives. He once left Hefei to sell candied haws. Two years later, he returned to Zhengzhou and re-opened a 60-square-meter storefront to sell Chinese food and cold drinks.
Until 2006, Zhang Hongchao had only this store.
During this period, Zhang Hongfu was admitted to university, but dropped out after half a year of study, because he liked electronic products and became an audio sales agent. In 2007, Zhang Hongchao’s second store opened and business was booming. Zhang Hongfu resigned at the instigation of his wife and became his brother’s first-generation franchisee. Later, the two brothers ran Michelle Ice City together, the younger brother was in charge of the front-end stores, and the older brother was in charge of the back-end production and R&D.
The chain replication capability of the franchise model is quickly highlighted. From 1,000 stores to 5,000, it took Michelle Ice City five years; from 5,000 to 10,000, it took only two years; from 10,000 to 20,000, it took only one year. But if the 22,000 stores are spread evenly over 25 years, it is equivalent to opening 3 stores every day, not including the ones that are opened and closed in the middle.
The accessible store network helps Michelle Bingcheng to build a brand image, and the franchise contract is renewed and renewed every three years to ensure that the brand can maintain a unified storefront across the country as much as possible. For example, the image of the Snow King of Michelle Bingcheng first appeared in 2018, and by the end of 2020, all store recruits nationwide have been replaced.
In terms of the number of stores in Michelle Bingcheng today, it is the fifth largest restaurant brand in the world, ahead of brands such as Subway, McDonald’s, Starbucks, and KFC. Among the domestic catering chain brands, only Wallace, Zhengxin Chicken Chop, and Juewei Duck Neck have more than 10,000 stores.
Figure: Distribution map of Michelle Bingcheng stores nationwide, the light spots represent Michelle Bingcheng stores. The data picture comes from Jihai brand monitoring.
A high-profit business that earns 0.54 yuan for a cup of tea
Harry Sonneborn, the first president of McDonald’s, once said, “We’re not essentially a food business, we’re a real estate business. We sell hamburgers only because the tenant (franchisee) can sell it to pay the rent.” Similar Yes, Starbucks provides a “third space” outside the office and home, and consumers buy coffee in exchange for tickets to use the space.
Among the catering companies in the Wandian chain, few like Michelle Ice City mainly rely on selling ingredients to make money. According to the data in the prospectus, in 2021, Michelle Ice City will achieve an operating income of 10.35 billion yuan, of which the sales of ingredients and packaging materials will account for 87.08% of the total revenue of Michelle Ice City. Based on the detailed sales data, we can calculate that Michelle Ice City sold 3.5 billion cups of beverages last year, consuming 8,500 tons of tea and 51,000 tons of fruit.
Other income includes sales of equipment and facilities (6.72%), sales of operating materials and others (3.5%), franchisee management (1.89%), and product sales in directly-operated stores (0.56%). Michelle Ice City does not take a commission from the franchisee’s operating income. The drinks sell well, and the extra money goes to the franchisee.
After deducting the cost from the income, Michelle still has about 31.73% of the gross profit left. After deducting the marketing, administrative and other expenses and income tax, Michelle Ice City realized a net profit of 1.91 billion yuan attributable to the parent, and a net profit rate of about was 18.45%. On average, the net profit per cup of tea sold is 0.54 yuan. During the same period, Junting Hotel (11.23%) had the highest deducted non-net profit margin among A-share catering, wine and travel companies, while Hong Kong stocks were Wanda Hotel (11.14%) and Jiu Maojiu (8%).
Franchisees are the smallest unit of Michelle Ice City. From the perspective of the former, their one-year single-store cost model can be roughly disassembled into raw materials, store costs, equipment, decoration, franchise fees, management fees, and training fees. and margin:
The security deposit is a one-time fee, and Michelle Bingcheng will refund the full amount to the franchisee without breach of contract when the franchise contract expires. In addition, sometimes, in order to grab a store location with high traffic flow, the franchisee needs to pay the original store owner a transfer fee ranging from tens of thousands to hundreds of thousands. This one-time expense has nothing to do with Michelle Headquarters.
We do not sell concepts or provide differentiated services. We only sell products with low decision-making costs and common tastes, covering as many consumers as possible in different regions and with different consumption habits. A third-party source said that the single store of Michelle Bingcheng The model is “extremely extreme,” and the company’s revenue increases with the number of stores.
In addition, in 2014, when the store broke through a thousand hours, after the establishment of a logistics park in Jiaozuo, Michelle Bingcheng launched a nationwide free distribution to support franchisees to expand their stores in the province, laying the foundation for the expansion of stores in the next stage.
At present, joining Michelle Ice City requires 9 steps, including project consultation, application submission, interview, store opening license, store review, contract signing, decoration, training, and opening. After the opening, Michelle Bingcheng provides continuous operation guidance, food safety control, supply of ingredients and packaging materials, product updates and regular training to franchised stores.
Michelle Bingcheng still follows the basic logic of chain expansion today, focusing on supply chain revenue, supplemented by charging equipment decoration and fixed franchise fees, self-built supply chain and logistics support, while franchisees are highly dependent on brands, Sufficient number of stores fully unlock economies of scale. Although it has sunk to a price range that other brands can’t reach, by making the drudgery “difficult and extreme”, it has found a broader living space for franchisees and companies, and achieved a win-win situation for both.
Behind the extreme low price is the continuous investment of billions of yuan every year
The profitability of a single store is the foundation of the chain, and the ease of standardization and national accessibility determine the speed and height of expansion, respectively. China has a vast territory and it is difficult to communicate with others. The easiest chains are usually fast food, snacks, and casual beverage stores with low unit price. Among the restaurants with high price per customer, the scale of more than 1,000 brands is basically only Pizza Hut and Haidilao, which are the representatives of Western food and hot pot respectively.
Michelle Bingcheng attracts new customers with a relatively low unit price, and obtains repeat customers with stable meals and brand effects. Go deep into the upstream of the supply chain and build self-built warehousing to ensure that the products are low-priced and high-quality, while franchisees still have profits, and further strengthen their single-store reproducibility. According to its prospectus data, in 2021, Michelle Ice City will close 585 stores and open 7,643 stores, with a store closing rate of only 3%. This is the survival rate of the leading industry. The closing rates of Babi Foods and Ziyan Foods, which have been listed in recent years, are both around 10%.
The “2022 Catering Franchise Research Report” written by Sun Jinyun, an associate professor of management at Fudan University, mentioned that the average closing rate of domestic catering franchise brands reached 44%. Among them, franchise chain brands with 200 to 1,000 stores have the highest closing rate. These brands are often strong in attracting investment, but have not yet established a mature supply system, and franchisees have weak anti-risk capabilities.
The earliest self-produced products of Michelle Ice Cream are ice cream cones and ice cream powder. After the first Michelle Bingcheng ice cream shop was born in 2007, the founder Zhang Hongchao rented a house in a small village called “Gaocun” north of Wenhua Road in Zhengzhou City to process raw materials.
In 2012, Zhang Hongchao returned to his hometown, Kaifeng, to build an ice cream powder factory. The following year, he established Henan Dajia Food Co., Ltd., realizing the self-production of core raw materials. After 2017, the milk tea industry began to enter the era of fruit tea, and canned jam has been difficult to satisfy consumers. In order to ensure the competitiveness of store products, Michelle Bingcheng has to participate more deeply in the upstream supply chain.
“Joining is a quick way to join, and the investment promotion team is a little more powerful. It is not too difficult to have a thousand stores.” Li Peifen, an expert in the chain industry, said that due to the huge market in China, a thousand stores cannot be called “a thousand stores in her opinion.” scale”. “There is no myth in joining. If your franchisee can’t make money, you will definitely not make money.”
The gradual enrichment of the menu and the upgrading of products have pushed the company to produce more raw materials by itself, otherwise there would be no profit. The raw materials used in the new products are also from the original solid dry goods – ice cream powder, powdered sugar, slowly added to liquids, and fresh fruits that require cold chain transportation. On the scale of thousands of stores and 10,000 stores, each new raw material puts forward extremely high requirements on the supply chain.
At present, Michelle Bingcheng has reserved more than 200 store product application solutions, most of which are arranged and combined by its dozen of homemade raw materials. Each additional raw material is a huge investment for Michelle Bingcheng – this is also the ultimate goal of the public IPO fundraising of Michelle Bingcheng: to build more factories, process and produce self-picked fruits, and upgrade products .
The prospectus stated: “With the advancement of the company’s fundraising and investment projects, the company will build factories in Chongqing Tongnan, Guangxi Chongzuo, Hainan Ding’an and other raw material producing areas.” Tongnan, Chongzuo and Hainan are lemon and yellow peach, citrus and Origin of fruits such as lychees and coconuts.
We can open another 20,000 Mixue Ice City
In order to solve the market capacity problem caused by high reproducibility, Michelle Bingcheng chose to enter the township market. In June 2022, Michelle Ice City announced the opening of the township area to join, further market sinking. According to data from Zhaimen Dining Eyes, as of July 22, Michelle Ice City has opened more than 1,500 new township stores this year. Michelle Ice City does not have a strictly stipulated scope of franchise protection. As long as the passenger flow is sufficient, Michelle Ice City can be opened on both sides and ends of a street.
Compared with the doubling of the number of stores in previous years, the growth rate of Michelle Ice City has stabilized. On the one hand, potential food safety issues prompted Michelle Bingcheng to continue to tighten the audit of franchisees, and Michelle began to seek stability in its expansion; on the other hand, there are more and more milk tea brands that can be franchised, especially in the sinking market. Competition is fierce. “Little Brother Lu”, a milk tea chain born in Shuiye Town, Anyang, has opened nearly 100 stores in central towns and towns in the past three years; the milk tea brand Tian Lala, which has a similar price range to Michelle Bingcheng, has nearly 1,000 stores in townships and counties. .
According to “LatePost”, Michelle Ice City has invited experts to do research for it, and it will open at least 45,000 stores nationwide in the future. Its calculation logic is based on population: if a store is opened with 15,000 people, Wandian will cover a population of 150 million. Calculated based on the average inhabitants of one million residents in five-tier cities in China, a population of 150 million is equivalent to covering 150 cities. There are 687 cities in the country, which means that Michelle Ice City can open up to 45,000 stores.
Because the price is low enough, Michelle Bingcheng directly refers to the census population data when calculating the store capacity, and does not consider GDP.
Another reference is the linkage rate in different regions of the United States. The blue line in the figure below shows the chain rate of restaurants in cities of different sizes in the United States in 2020. The less populous American suburbs, small villages and towns, the more chain restaurant brands, and the more populous the big city, the catering with individual tastes occupies the mainstream. The situation in China is just the opposite. First-tier cities have the largest proportion of restaurant chains, and fifth-tier cities have the least.
The future opportunities for chain brands such as Michelle Bingcheng are still sinking into the market. The active consumption environment in China’s first- and second-tier cities provides good conditions for the establishment of many chain restaurant brands. However, if the scale of tens of thousands of stores is required, the answer is still to provide standardized and high-quality food and water in every small place.
Michelle Bingcheng is already doing something similar. The company, which sells water, grain and fruit, is looking for the next fuel that Chinese consumers are willing to re-consume. Lucky Coffee, the affordable coffee chain brand that Zhang Hongfu incubated internally, has broken through 1,000 franchise stores a few days ago. The average selling price of Lucky Coffee products is RMB 8.
China’s 10 trillion catering market is diverse and competitive. Enterprises go from 0 to 1, then to 100, 1000 or even 10000. Different stages have different requirements and tests for product positioning, operational efficiency and management radius.
History and overseas experience show that the urbanization rate is positively related to the chain rate of restaurants, and higher population density and resident income increase the possibility of store survival. For example, in the 1960s, when Wal-Mart was founded, it caught up with the rise of household consumption driven by the baby boom in the United States. McDonald’s caught up with the low land price. Today, more than half of its income comes from the rent it collects from franchisees.
Starbucks selects locations based on a set of geographic information system modeling. The higher the population density and the higher the spending power, the easier it is to see Starbucks. Catering brands such as Zhengxin, Wallace, and Dicos are also in the business of transportation hubs, or rely on the nationwide expansion of shopping malls, or start their businesses in urban street stores.
The chain brand research agency Jihai Brand Monitoring also told LatePost that the distribution of most of the chain brand stores they studied is more related to the population of the city – only Michelle Ice City is not. The distribution of stores in Michelle Bingcheng is more related to the census population of a region, and “high urbanization rate” is not the highest priority site selection indicator.
However, in a market with a relatively low degree of marketization and a fragmented industry, Michelle Bingcheng competes with local small stores and big-name stores with more accurate product positioning and supply chain management and control efficiency with high cost performance and high efficiency. A mature management system builds a moat.
Michelle Ice City has never encountered any huge turning point in the development process. However, this company has indeed seized the opportunity to upgrade the consumption of cold drinks in China’s vast region (not only in first-tier cities). Starting from a market that is considered by most practitioners to have no chain value or possibility, it has established its own moat and made hundreds of billion-dollar business.
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