Ruixing Coffee reopened to franchise, focusing on covering 41 cities in 9 provinces including Henan and Shanxi

Ruixing Coffee, which was forced to delist from Nasdaq due to financial fraud, finally came out of its darkest moment.

On November 22, Ruixing Coffee disclosed its financial report for the third quarter of 2022. Its total revenue was 3.895 billion yuan, an increase of 65.7% compared with the third quarter of 2021; -23.5 million yuan to achieve a turnaround; operating profit under US accounting standards was 585 million yuan, a year-on-year increase of 88.3%.

Specifically, there are two main sources of revenue for Ruixing Coffee, one is revenue from product sales; the other is revenue from joint stores, of which revenue from product sales is 2.996 billion yuan (including 2.666 billion yuan in revenue from ready-made drinks) , other product revenue of 198 million yuan and other revenue of 131 million yuan), a year-on-year increase of 54.88%; revenue from joint stores was 899 million yuan (including material fee revenue of 575 million yuan, profit sharing of 145 million yuan, equipment revenue 66 million yuan, distribution service revenue 106 million yuan, and other service revenue 06 million yuan), a year-on-year increase of 116.07%.

As of September 30, 2022, the cumulative number of trading users of Ruixing Coffee reached 123 million, and the average monthly trading users in the third quarter was 25.103 million, a year-on-year increase of 70.52%.

At the same time, the number of Luckin Coffee’s stores nationwide has reached 7,846, including 5,373 self-operated stores and 2,473 joint-operated stores, far exceeding the number of Starbucks stores.

It is not easy to achieve such results. In April 2020, Ruixing Coffee was confirmed to be financially fraudulent, involving 2.2 billion yuan in funds, and public opinion was in an uproar. Its stock price also plummeted by 80% in a short period of time, and its market value evaporated by more than 5 billion US dollars. Delisted and swept into the pink sheet market (an over-the-counter market that provides services for companies that do not meet the listing requirements).

At that time, there was almost a consensus view that the upstart coffee chain brand, which had set a record for the fastest listing in 18 months, would face brutal bankruptcy and liquidation, and would be annihilated in the long river of history.

However, two and a half years after the financial fraud incident was exposed, Ruixing Coffee not only did not disappear, but its total revenue continued to increase, and it successfully turned losses into profits, staged a drama that broke through against the trend.

However, although Ruixing Coffee’s performance is outstanding, investors do not seem to buy it. After the release of the third quarter financial report, Ruixing Coffee’s stock price fell by more than 5% in the US stock market. As of November 22, the pink list At market close, its share price eventually fell 4.21%.

Luckin Coffee on the right track?

From the high-profile dark coffee horse, to controversial losses, financial fraud, delisting, and now turning losses into profits and surpassing Starbucks in the number of stores, the development of Luckin Coffee in the past two years has been like a roller coaster.

Guo Jinyi, chairman and CEO of Ruixing Coffee, said in a conference call after the release of the financial report that Ruixing Coffee has completed historical cutting in the past two years and has strengthened internal control, adhered to quality, empowered technology, and optimized talent development. Strategies such as incentives and incentives have pushed Ruixing into a benign development track, and eventually “turned against the wind”. Although affected by constraints such as epidemic prevention and control in various places in the third quarter, Luckin’s performance growth is still very strong, which once again proves that Luckin Coffee’s solid and resilient business model, as well as the vast space of the Chinese coffee market. In the face of increasingly fierce market competition, Ruixing is very confident in achieving sustainable performance growth and continuing to expand its market share and leading edge.

However, has Ruixing Coffee really been on the right track?

On November 7th, Xuehu Capital, which had “short-shorted” Ruixing Coffee, suddenly changed its attitude and published an 81-page report. It claimed that it took half a year to survey more than 100,000 customers, and finally it was very optimistic about Ruixing Coffee. Developed and bought stocks to become a shareholder of Ruixing Coffee.

Ma Ziming, CEO of Snow Lake Capital, said in the report, “The rebirth of Ruixing Coffee is a miracle in the history of Chinese business.” At the same time, he also revealed that Xuehu Capital’s position in Ruixing Coffee has accounted for 15% of the company’s assets under management.

According to a survey by Snow Lake Capital, from 2019 to the first half of 2022, Ruixing Coffee’s single-store gross profit margin has increased from 37% to 67%; single-store profit has risen from a loss of 33,000 yuan to a profit of 28,500 yuan. Based on this calculation, Ruixing Coffee will maintain rapid growth in the next few years. In 2024, its total revenue will increase to 23.7 billion yuan, shareholder net profit will reach 2.828 billion yuan, and the number of stores will exceed 20,000. Calculated with a price-earnings ratio of 35 times, Ruixing’s total market value will reach 14.7 billion US dollars.

The change in Xuehu Capital’s attitude towards Ruixing Coffee largely means that the latter is on the right track, but judging from the third quarter financial report, Ruixing Coffee still faces some problems.

First, the growth rate of single-store operating profit margin has slowed down. In the second quarter of 2022, Ruixing Coffee’s single-store operating profit rate was 30%, and in the third quarter it dropped to 29.2%. Second, the growth rate of store sales has stagnated, from In the first quarter of 2021, 94.5% dropped to 19.4%. Luckin Coffee’s store sales growth rate has declined for seven consecutive quarters.

Ruixing Coffee CFO An Jing mentioned in the conference call that Ruixing Coffee’s same-store sales growth has stabilized, and admitted that this trend is expected to continue. At the same time, she revealed that Ruixing Coffee has a strategy to increase single-store sales, one of which is to continue to launch explosive products and continue to increase sales of existing best-selling products.

In addition, the financial report for the third quarter shows that Ruixing Coffee will temporarily close about 108 stores per day in July and August 2022; in September and October, it will temporarily close about 330 stores per day; The average number of closed stores per day is about 500. Ruixing Coffee mentioned in its financial report that it is expected that the number of temporarily closed stores may further increase in the next few months.

Overtake Starbucks

In terms of market share, Ruixing Coffee has quickly caught up with Starbucks. In 2018, the market shares of Starbucks and Ruixing Coffee were 45% and 2%, respectively. As of the first half of 2022, the market shares of the two have become 18% and 14%. Not only that, but in the third quarter, the number of stores of Luckin Coffee surpassed that of Starbucks.

Ruixing Coffee has made great strides, which has attracted the attention of Starbucks. On September 13, Starbucks stated at the global investor exchange meeting that it will try its best to hold on to the Chinese market. It plans to open 3,000 new stores in China by 2025, and the total number of stores will reach 9,000 by 2025, and achieve the goal of doubling revenue and quadrupling the current operating profit.

However, judging from Starbucks’ fourth-quarter financial report, its decline has become more and more obvious. Starbucks China’s total revenue was 775 million US dollars, surpassing Luckin’s 1.65 billion yuan, but it fell by 19.6% year-on-year. down 16%.

It is worth mentioning that in the 2022 fiscal year, Starbucks China’s performance has continued to decline. In the first fiscal quarter of 2022, Starbucks’ same-store sales in the Chinese market fell by 14% year-on-year, and the unit price of customers fell by 9%; The same-store transaction volume in the Chinese market fell by 20%, and the average customer price fell by 4%, resulting in a 23% drop in same-store sales; in the third fiscal quarter, Starbucks China’s same-store sales revenue fell by 44% year-on-year, of which the transaction volume fell by 43% year-on-year, and the customer unit price fell. 1%.

In fact, Starbucks China’s performance has been shrinking since 2017. In the second quarter of 2018, Starbucks’ performance in the Chinese market declined for the first time, breaking the myth of its nine consecutive years of positive performance growth.

However, it is undeniable that Starbucks’ leading position is still solid.

High-quality point resources are one of the keys to the competition of chain coffee brands, and Starbucks has a significant first-mover advantage in high-quality point resources. According to data from the catering data query platform Zhaimenyanyan, Starbucks has entered about 200 cities across the country, of which the number of stores in first- and second-tier cities accounts for 86%. In contrast, Ruixing Coffee accounts for about 81% of the number of stores in first- and second-tier cities, and it lags far behind Starbucks in the competition for high-quality point resources.

Supply chain capabilities are also a major advantage of Starbucks. In terms of raw materials, Starbucks purchases coffee beans accounted for 3% of the global production, and directly purchases from more than 400,000 coffee farmers in more than 30 countries. It has a certain bargaining power under large-scale purchases, and the purchase cost of coffee beans is far lower than the competition. opponent. In addition, Starbucks also has 6 baking factories around the world, leading the world in production capacity and baking technology.

Trillion coffee track ushered in a new outlet

According to data from iiMedia Consulting, the market size of China’s coffee industry will reach 381.7 billion yuan in 2021, and it is expected to reach 485.6 billion yuan in 2022. With the rise of more and more new brands, the coffee industry is expected to maintain a growth rate of 27.2%, and the market size will reach 1 trillion yuan in 2025.

The huge market size has attracted many competitors. According to the data of Tianyancha, from 2020 to 2022, the number of companies that have cross-border coffee track has increased significantly, from 2 in 2020 to more than 10 in 2022. Cross-border companies come from all walks of life. In addition to catering companies, they include large companies such as China Railway and China Post. Their participation has jointly boosted the popularity of the coffee track. As of mid-November, the number of coffee brand financing in 2022 has reached 13, accounting for nearly 80% of the total financing of the entire coffee track.

Specifically, in February, China Post officially announced on Weibo that the first “Post Office Coffee” opened in Xiamen; in July, Li Ning confirmed that it will start selling coffee, and said that it will provide coffee services in the store in the future to enhance customers’ shopping experience. In August, Neiliansheng opened a coffee shop on the second floor of the main store in Dashilan, Beijing; also in August, Cha Yan Yue Se’s newly launched coffee brand “Yuanyang Coffee” opened 5 stores store, officially entered the coffee market. In addition, Michelle Ice City, which is king in the sinking market with low prices, has opened 1,200 stores in its wholly-owned coffee brand “Lucky Coffee” in more than a year, and is now the fourth-ranked coffee brand in the number of stores.

A person in the coffee industry told DoNews (ID: ilovedonews) that in order to stand out from the coffee industry, the top priority is to establish brand barriers, gain wider user recognition and stickier loyal user groups. The road ahead of the coffee track is full of challenges and variables. Whether coffee brands can quickly adjust their development strategies and build a moat is still extremely difficult.