Good News on Listing | Frost & Sullivan Assists Sichuan Baicha Baidao Industrial Co., Ltd. to Successfully Go Public in Hong Kong (2555.HK)

Sichuan Baicha Baidao Industrial Co., Ltd. (hereinafter referred to as 'Tea Baidao') successfully went public on April 23, 2024. The company plans to issue 148 million shares, including 14.7764 million shares in Hong Kong and approximately 133 million shares internationally, with an additional 15% over-allotment rights. The issue price is HK$17.50 per share, raising a total amount of HK$2.586 billion.

During the process of listing on the Hong Kong Stock Exchange, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing the relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), helping the issuer communicate with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and providing feedback on various industry-related issues to the Hong Kong Stock Exchange.

The company is a leading and rapidly growing ready-to-drink tea enterprise in China;

The company's leading product research and development bring about a stable quality with differentiated consumer experiences;

The company is a brand deeply loved by young people;

The company has an industry-leading franchise system and stable franchise partners;

The company possesses industry-leading national supply chain capabilities and a strict quality management system;

The company's corporate culture, centered around the spirit of 'Three Hearts', boasts a proactive management team.

According to the Frost & Sullivan report, calculated based on the retail sales of ready-to-drink tea in 2023:

Based on retail sales in 2023, the combined market share of the top five participants was about 40.2%. In 2023, the company was the third-largest ready-to-drink tea company in China, with retail sales of RMB 169 billion, accounting for about 6.8% of the market share;

The retail sales of ready-made tea shops in China are expected to increase from 247.3 billion yuan in 2023 to 538.5 billion yuan in 2028, with a compound annual growth rate of 15.4%. In addition, it is estimated that the total scale of beverage shops in China will increase from 383.9 billion yuan in 2023 to 849.5 billion yuan in 2028, with a compound annual growth rate of 15.9%.

In 2023, the company covered 344 cities, with 10.6% of its stores located in first-tier cities, 26.9% in new first-tier cities, 20.9% in second-tier cities, 19.4% in third-tier cities, and 22.2% in fourth-tier and lower-tier cities. Compared to other leading players in the Chinese ready-to-drink tea market, the group has a more evenly distributed and diversified number of stores across various city tiers.

The ever-changing consumer demand has provided numerous development opportunities for the beverage store industry. The overall market scale of China's beverage store industry shows an upward trend, increasing from RMB 136 billion in 2018 to RMB 383 billion in 2023, with an annual compound growth rate of 23.1%.

Currently, the two most common types of beverage shops in China are (i) freshly brewed tea shops and (ii) freshly brewed coffee shops. Since tea is a traditional Chinese beverage, the freshly brewed tea shop industry has developed rapidly and expanded. The market size of the freshly brewed tea shop industry increased from RMB 805 billion in 2018 to RMB 2473 billion in 2023, with an annual compound growth rate of 25.2%. The market share of the freshly brewed tea shop industry increased from 59.2% in 2018 to 64.4% in 2023. In the foreseeable future, with consumption upgrading and rising demand for high-quality tea beverages, it is expected that by 2028, the market size of the freshly brewed tea shop industry will increase to RMB 5385 billion, accounting for 63.4% of the market share of China's beverage shop industry in 2028.

• Durable income and urbanization rate continue to rise, along with consumption upgrading

In the past few years, as urban residents have focused on improving their living standards, dining out has increased in frequency, leading to a strong growth in food expenditure. This trend is attributed to increased disposable income and rising urbanization rates. In particular, the continuous expansion of the middle class with stronger purchasing power and the growing preference for dining out are expected to drive the development of China's food store industry. Consumption upgrading has led to diverse demands for food services, including high-quality and healthy food, dining environments, service quality, and other social and restorative needs. It is worth noting that in recent years, market demand in China's food store industry has also changed, with more freshly brewed tea shops gradually emerging and competing for the market.

• The popularity of takeaways

With the popularization of mobile devices and the acceleration of the pace of life for Chinese consumers, the demand for takeout is expected to continue growing, especially in China's food store industry. In particular, food stores that offer both dine-in and takeout services are expected to benefit from the aforementioned trends.

• Innovation and diversification of cuisine and food

Chinese food stores offer a variety of foods, such as freshly made coffee, tea drinks, and juices. In recent years, Chinese food stores have become more diverse in their ingredient choices and cooking methods, especially as Chinese consumers are increasingly willing to accept new cooking concepts and produce food under these new ideas. For example, Chinese food stores have created many new ingredient combinations, pairing them with coffee, milk tea, fresh fruits, and even alcohol. This creative trend provides Chinese consumers with more diverse options and encourages them to dine more frequently at food stores.

The upstream of the ready-made tea drink industry includes various raw material suppliers, mainly providing different types of raw materials such as tea leaves, fruits, dairy products, and packaging materials necessary for producing ready-made tea drinks. The midstream participants in the ready-made tea drink industry are ready-made tea drink companies, responsible for the design, production, and packaging of these drinks. These teas are made on-site at tea shops using ingredients such as tea leaves, fruits, and milk, supplemented with various toppings like pearls and jelly, and are brewed according to the customer's preferences. The main business models of ready-made tea drink shops include direct operation and franchise models. The downstream participants in the ready-made tea drink industry are various sales channels, including offline stores, self-delivery platforms, and food delivery platforms. Consumers can place online orders for their tea drinks and choose to pick up at the store or have it delivered by food delivery.

The market for ready-made tea shops in China can be divided according to different urban levels. From 2018 to 2023, the market for ready-made tea shops in new first-tier cities, third-tier cities, fourth-tier cities and below experienced rapid growth. The market scale increased from RMB 16.4 billion, RMB 16.3 billion, and RMB 21.4 billion in 2018 to RMB 39.7 billion, RMB 71.6 billion, and RMB 73.5 billion in 2023, with annual compound growth rates of 19.3%, 34.4%, and 28.0%, respectively.

In the future, with the rapid development of the entire market, it is expected that the market for ready-to-drink tea shops in second-tier, third-tier, fourth-tier cities, and below will continue to grow at compound annual rates of 15.0%, 18.0%, and 15.0%, respectively, from 2024 to 2028.

In 2023, the market share of ready-to-drink tea chain brands in China's ready-to-drink tea store market was 64.7%. It is estimated that by 2028, the penetration rate of ready-to-drink tea store chain brands will increase to 73.5%.

In the past few years, with the popularization of food delivery platforms and applications, especially due to changes in young people's lifestyles and dining preferences, China's food delivery market has grown rapidly. With the increasing penetration rate of mobile devices and the accelerating pace of life for the Chinese people, it is expected that food delivery demand will continue to grow.

The retail sales of China's ready-made tea shops through takeout have increased from RMB 297 billion in 2018 to RMB 1391 billion in 2023, with an annual compound growth rate of 36.2%, accounting for 56.3% of the total retail sales of China's ready-made tea shops market. It is estimated that the retail sales of China's ready-made tea shops through takeout will reach RMB 4051 billion by 2028, with an annual compound growth rate of 21.8%, between 2024 and 2028.

The market for Chinese ready-to-drink tea shops is relatively fragmented. There are about 3,000 ready-to-drink tea shop brands in the market. In terms of retail sales in 2023, the combined market share of the top five participants was about 40.2%. In 2023, our group was the third largest ready-to-drink tea company in China, with retail sales amounting to RMB169 billion, accounting for about 6.8% of the market share.

• Product development capabilities and marketing initiatives strengthened

To meet the ever-changing market demands, ready-to-drink tea brands are intensifying product development and marketing efforts. Specifically, these brands have launched a wide variety of products to satisfy consumers' pursuit of new formulas and unique experiences, such as pairing tea leaves with different fruits. To cater to diverse tastes, leading ready-to-drink tea brands are constantly experimenting with new flavors and ingredients, while integrating local ingredients from different regions into product development. In terms of marketing strategies, many ready-to-drink tea brands are combining their brands with popular TV dramas, anime, or cartoons to enhance consumer attraction. These factors together have driven the development of the ready-to-drink tea shop market in China.

• Disposable income and urbanization rate increase

China's annual per capita disposable income increased from RMB 28,200 in 2018 to RMB 39,200 in 2023, with an annual compound growth rate of 6.8%. In addition, the annual per capita disposable income of new first-tier and second-tier cities in China increased from RMB 40,600 and RMB 34,900 in 2018 to RMB 55,000 and RMB 49,800 in 2023, with annual compound growth rates of 6.3% and 7.4%, respectively. Moreover, China's urbanization rate rose from 59.6% in 2018 to 66.2% in 2023. With the continuous improvement of residents' disposable income and urbanization rate, consumers now have higher demands for the taste and quality of food and tea drinks. Consumers prefer tea made from high-quality tea leaves rather than milk tea powder or tea residue. To meet consumers' higher demands for products and changing needs, freshly brewed tea shops need to offer new flavors of products to attract consumers. With the continuous innovation of freshly brewed tea shops, the market for freshly brewed tea shops in China is booming.

• The development of distribution services and online ordering

The penetration rate of mobile internet users in China increased from 58.5% in 2018 to 80.2% in 2023. An increasing number of consumers prefer to order food and beverages using mobile phones. China's fast-paced lifestyle has also promoted the development of delivery services, leading to the emergence of various product sales channels for Chinese takeaway tea shops. The development of delivery services and online ordering systems has increased the sales of Chinese takeaway tea shops, thereby driving the market for takeaway tea shops to maintain growth in the coming years.

Frost & Sullivan has extensive research experience in the catering and food industries, assisting well-known enterprises in successfully listing on capital markets. Recent successful listings include: Lancang Ancient Tea (6911.HK), Dekang Agriculture and Animal Husbandry (2419.HK), Gouquan (2517.HK), Davis Commodities (NASDAQ: DTCK), Zhenjiu Lidu (6979.HK), Dashi Co., Ltd. (1405.HK), Baiyuan Orchard (2411.HK), Zhengwei (2147.HK), Weilong (9985.HK), Shuangcai Zhuang (2321.HK), Youran Animal Husbandry (9858.HK), Jiulongwang (1927.HK), Yumart (9987.HK), Nongfu Spring (9633.HK), Fengxiang Food (9977.HK), Simore (6969.HK), China Feihe (6186.HK), China Tobacco International (6055.HK), Youpin 360 (2360.HK), Wugu Flour Mill (1837.HK), Bababoo (1761.HK), Haidilao (6862.HK), Sustainably Farmed (8609.HK), Longhui Holdings (1007.HK), Xinrong International (1587.HK), Yiyuan Liquor Industry (8146.HK), Jierong International (2119.HK), Bingshi International (1705.HK), Hitachi Foods (1475.HK), Asia Grocery (8413.HK), Chow Tai Fook (1458.HK), COFCO Meat (1610.HK), Yihai International (1579.HK), Zhongdi Dairy (1492.HK), Dalili Foods (3799.HK), Manor Ranch (1533.HK), Vientiane International (0288.HK), etc.