Ruixing Coffee’s total net revenue for the second quarter was RMB 909.1 million (US$132.4 million), a year-on-year increase of 648.2%; the net loss was RMB 681.3 million (US$99.2 million) compared to the same period last year. The net loss was RMB 330 million.
Editor’s note: This article is from Tencent Technology.
Targeting:
All business indicators in the second quarter have performed very well, consumer numbers continue to grow, consumer goods continue to increase, and effective sales prices have also increased, which has driven net income growth, the third quarter These indicators will continue to grow.
The proportion of new customers to total consumer customers is decreasing, indicating that the impact of free gift drinks is decreasing. From the first quarter forecast of the IPO and the current comparison, the user retention rate has not changed much.
In the second quarter, market expenses were relatively large, but in fact the most growth was in the advertising segment. This growth is not for buying traffic, mainly for the brand, as well as the entire word of mouth and the launch of new products.
The cooperation between Ruixing Coffee and Americana is not disclosed due to the agreement of the confidentiality agreement between the two parties. The goal is to jointly develop the Middle East market.
According to the annual growth rate, the growth rate of other products is much faster than the current cooking series. Since tea will be introduced later, it will be a boiled product, which will balance the growth rate of the two categories. It is estimated that the growth rate of cooked and non-cooked meat will be flat in the quarter.
In order to achieve growth trends and profitability, investments will continue, such as the launch of new teas. At the same time, there is a trade-off between profitability and growth. In the third quarter, we will continue to strive to achieve store profitability, increase the number of consumer customers and the amount of customer consumption.
According to foreign media reports, Ruixing Coffee released its unaudited financial report for the second quarter ended June 30, 2019. This is also the first quarterly report released by Ruixing Coffee as a listed company. According to the financial report, Ruixing Coffee’s total net revenue for the second quarter was RMB 909.1 million (approximately US$132.4 million).The ratio increased by 648.2%; the net loss was RMB 681.3 million (US$99.2 million), compared with a net loss of RMB 330 million in the same period last year. Details>>
After the earnings report, Rui Zheng Coffee Chairman Lu Zhengyao, CEO Qian Zhiya, CFO and Chief Strategy Officer Reinout Schakel and other executives attended the analyst conference call and answered questions from analysts.
The following is the main question and summary of the second quarter earnings analyst conference call of Ruixing Coffee:
Credits Analyst: I have three questions. First of all, I would like to ask the CFO, can you explain the recent changes in some major business indicators and the future outlook? Including visitor traffic, and the outlook for the third quarter? I saw that you gave a very strong third quarter guidance. What is the main driving force for the third quarter performance growth?
My second question is about the retention rate. The management did not disclose this aspect before. Can you talk about the changes in the retention rate in the second quarter?
The third question is about the cooperation between Ruixun Coffee and Americana. Can you talk about management’s thoughts on this partnership? For example, the specific cooperation time? What kind of cooperation is expected to be reached?
CFO Reinout Schakel: Regarding your first change in the second and third quarters, I think that in the second quarter we saw all the business indicators are very good, the number of consumers is growing, consumer goods Increasingly, and effective sales prices have also risen, which have driven the growth of net income. In the third quarter, these indicators will continue to grow. I think effective sales price is a very important driver. The main reason for this indicator growth. We have used technology to make flexible pricing.
Second, the proportion of new customers to total consumer customers is decreasing, indicating that the impact of free gift drinks is decreasing. The reduction in VAT from 16% to 13% also has some impact, but I think this has a relatively small impact on effective selling prices. Then, the cost of unit drinks, the improvement of operating efficiency and other factors have caused our operating costs to decline, and this trend will continue. This also gives us confidence to make better predictions for the third quarter guidance, including not only product revenue but also our goal of achieving breakeven at the store level in the third quarter of this year.
For your second retention rate issue, we do not publish specific data on retention rates now, but on page 15 of the PPT, we explain the consumer price per unit of customer for all customer groups, and this value continues to rise. Now it’s 70 yuan per month for a larger customer group, which reflects ourA good indicator of a key indicator. The retention rate of our IPO’s first-quarter forecast is not much different from the current one.
President Charles Lu: This collaboration is my lead, so let me answer. The individual details are not disclosed due to the confidentiality agreement between the two parties. Once they are available for disclosure, we will disclose it. The overall direction is that we use technology and supply chain systems and the current Ruixing brand, these are our advantages; and local partners, Americana are familiar, we will also work with its resources. Jointly develop local markets.
The reason we chose the Middle East is mainly for a good partner. I told you at the last road show that our business model is available all over the world. But we don’t do it ourselves, or we hope to find local partners and empower us with our strengths. Why is the Middle East? Because we first found this partner, so we started to progress. It is not excluded that we continue to communicate in other regions. Once we have more accurate information, we will disclose it. The specific timetable is not easy to disclose because it involves specific cooperation.
Morgan Stanley analyst: I have three questions. My first question is about the product revenue guidelines for the third quarter. What strategies will management adopt to achieve this goal? For example, the number of stores? There are also consumer quantity targets? I hope that the management can disclose some business indicators so that I can better understand the performance trends in the third quarter.
The second question is about how much the current season’s range of products in the second quarter contributed to total revenue? How will it change in the third quarter?
What is the main business for the second quarter marketing spending growth? Third quarter marketing expense budget guidance? In particular, in the third quarter, it is necessary to promote tea and other marketing activities to be carried out and invited new marketing spokespersons.
CFO Reinout Schakel: We had a very good trend in the second and third quarters so we can make a three-quarter guide accordingly. The indicators that I can publish include: First, the growth trend of store numbers in the third quarter is consistent with our full-year outlook, so we will continue to see new store openings, the progress is consistent with the previous announcement. The number of new customers in the second quarter and the beginning of the third quarter increased strongly. Finally, effective sales prices continue to rise, and we also expect steady growth in the future. This is the main indicator. Finally, the number of drinks we sell to our customers is also rising, especially after we have been on the line, we hope that this number will grow. So we are confident that we can achieve these goals.
CEO Qian Zhiya: We believe that the brand is our very important asset at present, and we continue to cultivate well-known brands.Degree, influence, and continuing education of consumer coffee consumption are very important. So in the second quarter, we took advantage of the IPO opportunity to launch a large-scale advertising campaign to promote our claims. Therefore, the market expenses in the second quarter are relatively large, but in fact the most growth is in the advertising sector. The first quarter of 2019 was 43.7 million in marketing expenses, which was 2.4 billion in the second quarter and one hundred million in the second quarter of last year. This growth is not for buying traffic, mainly for the brand, as well as the entire word of mouth and the launch of new products. We invested 140 million in the media, the daily marketing investment of KOL and word of mouth is about 4.5 million, and the LBS cost is about 7 million. The core focus is that these investments are enhanced by the brand made by IPO, and there is no increase in buying traffic. Expenditure.
In the future, because we launched Xiaolu Tea, we will continue to invest in marketing. In addition, in terms of customer cost, the cost of the first customer experience of the new customer has dropped. The current cost of the customer is 48, which is mainly the cost of the brand, not the cost of buying the customer. In terms of marketing expenses in the second half of this year, it is still consistent with our guidelines.
Lu Zhengyao: I add a brand. In the given guidelines, after the IPO, our market expenses are relatively large, because we believe that the strategic need to invest in the brand, so the third quarter of this year is led by the facade level, and investment in the third quarter of next year. We feel that we need to spend more on brands and advertising. Our investment, buying traffic and subsidizing customers are all used to advertise the brand. In the second quarter, we spent 240 million. In the third quarter, we will also spend money because of Xiaolu Tea.
We feel that we still need to take advantage of the favorable position in the market to further increase our visibility and expand the scale of our customers. Therefore, we must invest in the brand, which is in line with the company’s strategy and the guidelines we have given.
CFO Reinout Schakel: Let me answer the second question about freshly cooked products. In the second quarter, we made a total of 66 million cups of cooked products and 20 million other products. According to the annual growth rate, the growth rate of other products is much faster than the current cooking series. This is because we launched a number of non-cooked products this year. Since we will introduce teas that are later cooked, we will balance the growth rate of the two categories. It is estimated that the growth rate of cooked and non-cooked meat will be flat in the quarter. Because we will also introduce other non-cooked products. We hope to find new and popular products by continuously introducing new products to keep it fresh.
Morgan Stanley analyst: Can you specify the percentage of revenue contributed by coffee?
CFO Reinout Schakel: Coffee and non-coffee drinks in the last quarter were probably close to half, although there are still some gaps, but the current trend is this. Due to the influence of factors such as the launch of new products, we expect that todayThe result of the half-point will be achieved by the end of the year.
Citibank analysts: I have two questions. The number of new users is about 6 million. Is the customer retention rate lower than what management expects? The average effective consumer price has risen and the cost has dropped. How does this relate to the number of new users? The second question is whether there is a single-cup cost guide. Can the third quarter achieve the positive operating profit of the store?
CFO Reinout Schakel: Let me answer the first question. First of all, the number of new users in the second quarter is more than we expected, about 6 million, and the monthly average number of customers has increased by 40%, which is basically the same as we expected. The monthly GMV per customer is also growing, indicating that as customers become more mature, they are buying more and more frequently. At the same time, we have effectively implemented effective selling prices, and we have ensured that we give our customers the right price through dynamic pricing. This has little impact on retention and is consistent with the expected results.
We are very satisfied with the achievements in the second quarter, not only in terms of revenue, but also in terms of users. Even if we are now introducing new cooked products and the cost of a single cup is high, our overall single cup cost is also Declining, we are also nearing the end of the year. Overall, the cost of acquisitions, frequency of consumption, effective sales prices, and cost reductions in the second quarter have all contributed.
As for the guidance, we will continue to see an increase in the number of customers and the consumption of the unit customers. At present, the macro environment is under great pressure, but our product quantity, convenience and price advantage are more and more important. In order to achieve our growth trend and profitability, it is very important to continue investing. For example, when we introduce new tea, we need to weigh the profit and growth. We have already promoted the profitability at the store level. We are very confident that we can achieve this goal in the third quarter, but we do not hope that this will cause us to lose. Adding users is the result of our trade-offs.
Citibank analysts: It means that if new user growth is affected, it may not be profitable? What is the specific performance of this trade-off?
CFO Reinout Schakel: We will not give long-term guidance on customer growth. In the next quarter, we will continue to strive to achieve store profitability, increase the number of consumer customers and the amount of customer consumption, we do not think which aspect is more important than the other, but I can not disclose the specific details.
CICC analyst: I have three questions. How many stores are currently in the first-tier cities (such as Shanghai and Beijing), and how many new ones will be added in the next few months? The second question, what is the estimated profit of Ruixing Tea? I think the cost of tea is higher because of the high labor and raw material costs in the production process. The third question, the news report said thatFortunately, some automatic coffee machines will be put into some cities in China. How is the progress now?
CEO Qian Zhiya: At present, the number of stores in the first-tier cities, the total number of stores in the north, Guangzhou and Shenzhen is about one thousand. The future potential of first-tier cities is very large, and the growth potential of customers’ demand is very large. The per capita coffee consumption in China is only six cups. Even in the first-tier cities, there are only fifteen cups, so there is a big gap between other countries and developed cities. The potential is very large, there is a lot of room for the growth of the number of stores in the future, this is the store problem.
The automatic coffee machine is still in the testing stage and has not been officially introduced to the market. The reason why we want to test is because the demand for coffee is growing rapidly, and we have seen the coffee in many areas. Strong demand, in some places that are not suitable for opening stores, for example, in small office buildings or gas stations, the form of automatic coffee machines is more able to expand online stores and return on revenue. This project is still being tested and will be shared with you if further progress is made.
CICC Analyst: I have seen that many new stores are not in the north. So can you think that Ruixing’s strategy is to promote store expansion in different cities?
Lu Zhengyao: We still look at the demand through the heat map, and whether we can find a suitable store at this time, so we still do not follow the needs of the first, second and third tier cities based on the demand for such data. Secondly, our company’s store, but has produced more than one thousand items, largely because we are selling near the customer, so that customers have more and more output. Therefore, an office building of two or three thousand people is very convenient to open a shop. We hope that the store will be able to open every building in Beishangguang. Because there are things cheaper and more products, there are more customers. Every building in the north, Guangzhou and Shenzhen is our goal.
CFO Reinout Schakel: Let me answer the second question about tea. Tea products are an important strategic product. We see great market potential and high user acceptance. We believe that through our brand and value proposition, we can occupy a large market. This product is more in line with the target customer. I can’t provide a specific profit rate, but you will see that the GMV of the tea is higher than other fresh-cooked products, so it can promote the GMV of the ready-to-cook product category. The cost of a single cup of freshly brewed tea is higher than that of freshly brewed coffee, and the profit will be quite different.
Highton International analyst: I have three questions. The first question is about new products. Has it seen changes in the consumer group since the new product went live? For example, there are more female consumers or changes in age structure? Second, what new products will be launched in the next two quarters? What is the specific timetable? Finally, Ruixing Coffee entered the overseas market, including the Middle East and India.Which overseas markets will the management plan to enter in the future?
CEO Qian Zhiya: There has not been a big change in the customer base after the launch of the new product. One important reason is that our main sales channel is to provide a coffee service inside the office building. The main customer is still in the office building. Office workers. But coffee and tea have different periods of concentrated consumption. Coffee is mainly concentrated in the morning, and tea is in the afternoon, which will drive the growth of store revenue.
Our brand positioning is to provide consumers with what they need for everyday consumption. We will continue to push new customers according to their needs, but our SKU (storage unit) is limited, SKU will remain in a hundred or so, of which coffee accounts for 25-30, and will be based on consumers. Performance is constantly changing. On the one hand, it is to maintain the freshness of customers, on the other hand, it must also consider the ability of the supply chain. One hundred kinds of SKUs, the proportion of coffee is unchanged, and others will always change.
Lu Zhengyao: Let me answer the third question. In terms of internationalization, in general, we are still doing some research, and then look at some consumer trends, consumption habits, modeling, and most importantly, to find partners in various places, I think for us, we The advantage is that our technology drives this system. If the partner is strong, we will take the shot. In this respect, we will remain positive, but we will be very cautious.
In addition to the Middle East, we are actually communicating with many international partners. If there is any update, it will be announced to you in time.
Analyst: My first question is about the expansion of Ruixing in low-tier cities. Can you compare the difference between low-line city sales and first-tier cities? The second is pricing, will it have an impact on effective prices, and the third is the operating cost of newly opened stores. The preservation time of coffee beans will be much longer than that of fruits and teas. Will the investment in unit stores rise due to the storage of raw materials? ?
CEO Qian Zhiya: Because we are cost-effective and high-quality, we will be more competitive for third- and fourth-tier cities. In these cities, prices will be more sensitive and lower, but the rents and staff costs of these cities will be lower. Although sales have fallen, the return of single stores is not much different from that of first-tier cities. There is no equipment investment in the production of Xiaolu Tea, and all the coffee equipment is used, so there is no difference in equipment expenditure.
CFO Reinout Schakel: Tea is a strategic product for us because we believe that the potential for tea consumption in low-tier cities is very large. I can only provide a more general description because each city is different and enters the market. Time will also have an impact. The pricing strategy is the same, so there is no difference in the first, second and third tier cities in this respect. But coffee sales in low-tier cities will be much lower than in first-tier cities, so pricing will vary. Single cup cost, thoughHowever, the personnel cost is low, but this advantage will be offset by low sales, so the unit cost is not much different, and the profit rate of the first, second and third tier cities is also different.