Ruixing Coffee, which has a net loss of 530 million, announced the first profit at the store level. What is the moisture content behind the 12.5% profit margin?
Editor’s note: This article is from WeChat public account “Fueling Finance” (ID: rancaijing ), author Dawn, Edit Wei Jia.
After half a year of listing, Ruixun Coffee handed over a “very satisfied” answer.
On the evening of November 13, Ruixun Coffee released its Q3 financial report for 2019, with revenue of 1.54 billion yuan, a five-fold increase over the same period last year. The cumulative number of trading customers increased to 30.7 million, and the average monthly trading users were 9.3 million. Both increased by 4 times year-on-year. For this financial report, Rui Zhi Coffee founder and CEO Qian Zhiya said “very satisfied.”
But on the most concerned loss issue, the company is unambiguous, with a net loss of 530 million yuan in Q3.
It is worth noting that although it is still losing money, it is the smallest amount of losses in the past four consecutive quarters. In fact, its net loss is 22% lower than Q2.
Another surprising data is that Ruixun Coffee’s offline coffee shop has survived the break-even point at the operational level, achieving a profit margin of 12.5% and a profit of 186 million yuan.
Long-term burning and unprofitable has always been the most questionable point of Ruixing Coffee. But now, the company seems to show signs of profitability in the future.
The stock price is moving. On the evening of the 13th, US stocks opened. Ruisheng Coffee’s share price opened 15% higher. During the session, the stock price fluctuated slightly. The stock finally closed at 21.46 US dollars, up 13.07%, and the market value was 5.157 billion US dollars.
Is the store of Ruixing Coffee really profitable? How much water does this 12.5% store operating profit rate contain? Burning money will take you to find out.
01 Dismantling the history of Ruixing Coffee Burning
To know where the operating profit of the 186 million yuan store comes from, let us first explore how the company lost money in the past.
At the level of overall operations, the company has never been profitable. Since its inception in 2017, Ruixing Coffee has lost a total of 3.4 billion yuan. In the past four quarters, its single-season net loss has fluctuated around 600 million yuan, and Q3 in 2019 is the lowest in the near term.
Cartography / Burning Finance
The root cause of the loss is that the subsidy is too high and the expenses are too large. Taking marketing expenses as an example, in Q3 of 2019, only this one, Ruixing Coffee spent 558 million yuan. If we break down the cost structure, we can know where Ruisheng Coffee is at a loss.
The cost of Ruixing Coffee consists of six major components: raw material costs, store operating costs, depreciation expenses, marketing expenses, management fees, and opening expenses. Among them, the cost of raw materials includes the cost of warehousing and logistics. The operating costs of the store include store rent, store staff and utilities. The marketing expenses include the cost of advertising, the first cup of free promotion, and the delivery cost of takeaway.
Cartography / Burning Finance
Compared with the cost structure of ordinary coffee shops, the biggest unique thing about Ruixing Coffee is a special expense item – marketing expenses. All of its money-burning marketing moves are reflected in this category.
Rui Xun coffee was first known, not because of its store, but because of its online advertising. In 2017, Ruixing Coffee was established shortly. A coffee advertisement endorsed by popular stars Tang Wei and Zhang Zhen suddenly occupied the elevator room of the first-tier city and simultaneously screened in the circle of friends.
In 2017, Ruixing Coffee only opened 9 stores and sold 220,000 yuan of coffee, but spent 2.391 million yuan on celebrity endorsements and advertising. In the first year of operation, Ruixing Coffee had a net loss of 56.37 million yuan.
Advertising costs will soon start in 2018 with billions of dollars. At the same time, the subsidy for the first cup of coffee exemption was in full swing. In 2018, Ruixing Coffee invited new users to drink 130 million yuan of coffee for free, which undoubtedly increased its losses.
Another issue is in the delivery. Ruixing Coffee mainly sells kitchen stores in the early days, and its take-out delivery is done in cooperation with SF. SF’s cost per order is between 7-8 yuan. For Ruixing Coffee, it is basically a single loss. In 2018, Ruixing Coffee produced a distribution fee of 240 million yuan, but the delivery fee charged from the order was only more than 50 million yuan.
According to this style of play, it is not easy for Ruixing Coffee to make a profit. Even with opinion analysis, Ruixun Coffee will open to 10,000, and it will take 110 years to return to the book.
In the second half of this year, Ruixun Coffee began a new round of expansion. The coffee business has not yet been profitable, and it has begun to enter the new tea market, and it is connected with the tea. The same strength discounts and subsidies as coffee directly lead to an increase in marketing expenses.
For most people, this is a story of burning money that can’t be seen.
02 Where does the profit of the store come from?
However, the story of Ruixing Coffee seems to have changed a little in Q3 in 2019.
According to Ruixing Coffee, the average net income of a single store in the quarter was 450,000 yuan, and the operating level of the store achieved a profit margin of 12.5% and a profit of 186 million yuan. This is the first profit at the store’s operational level.
In fact, the calculation process of store profit is quite straightforward: the net income of the quarterly products is 1.493 billion yuan, the cost of raw materials is 721 million yuan, the operating cost of storefront is 477 million yuan, the depreciation expense of equipment is 109 million yuan, and the last three are fixed costs. The decrease was the profit of the store of 186 million yuan and the profit margin of 12.5%.
Cartography / Burning Finance
Before this, the profit margin of Ruixing Coffee’s stores was negative. The root cause of the store’s breakeven point is the increase in income.
In 2019, Q3, Ruixing coffee products net income of 1.49 billion yuan, an increase of 558%, an increase of 72%; total revenue of 1.54 billion yuan, an increase of 540%, an increase of 70%. The large increase in revenue makes it possible to realize the profitability of the store at the operational level in the case of a small change in fixed costs.
In these three months, Ruixing Coffee opened 717 stores, second only to the speed of Q4 in 2018. In addition, it officially launched Xiaolu Tea to the whole country in July, and entered the new tea drinking track. In September, Xiaolu Tea was operated as an independent brand and launched a new retail partner model to sink the market. In terms of product categories, Ruixing Coffee continued to expand on light food and introduced nut snacks.
In terms of revenue structure, from Q4 2017 to Q19, Q3, the proportion of coffee-based fresh-grown drinks in the total revenue of Ruixing Coffee has dropped from 86% to 74%. The proportion of other food-based products increased from 10% to 23%.
Cartography / Burning Finance
Light food is a category that has a higher profit margin than coffee. It is clear that Ruixun Coffee is trying to share the cost by expanding the category to improve the efficiency of liquidation. In Q18, in 2018, a store of Ruixing Coffee could only earn 70,000 yuan a day. By 203 in 2019, the income of a single store reached 450,000 yuan.
Rui Xun Coffee is trying to tell a story about the scale effect by continuously expanding, reverse-changing the supply chain, and improving industrial efficiency. In September this year, Ruixun Coffee and Louis Dreyfus Group (LDC) signed a strategic cooperation agreement in Singapore, intending to jointly build a joint venture to jointly develop juice. Earlier, it held a groundbreaking ceremony in Pingnan, Fujian, to build a coffee roasting base.
The story is beautiful, but the profit at the company level is still not realized. One fact that has to be faced is that the most controversial marketing expenses for Ruixing Coffee are not included in the operating expenses of the store. This is the root cause of the huge loss of Ruixing Coffee.
This means that even if the Ruixing coffee shop reaches the break-even level at the operational level, it is still possible to sell a single loss.
03 How long does it take for Ruixing Coffee to lose?
To some extent, whether Ruixun Coffee can achieve profitability in the future will depend on the changes in these three expenses – one is how long the advertising costs will be high-profile, and the second is how long the free subsidy will last. How much is the delivery cost of the takeaway order.
The above three fees are included in the marketing expenses. In Q19, 203, Ruixing Coffee’s marketing expenses were 558 million yuan. It did not disclose the amount of the detailed item in the financial report.
We look at the trends in these data from some historical data published by Ruixing Coffee.
First look at advertising. At the beginning of Ruixing Coffee, a very aggressive advertising bombing strategy was adopted. Advertising is to get the brand’s volume and use the channel to play the brand. Its investment in advertising marketing reached its peak in Q3 in 2018, and spent 127 million in that quarter. However, since Q4 in 2018, Ruixun Coffee has begun to significantly reduce its advertising budget.
Cartography / Burning Finance
Second look at the new. In terms of new user acquisition, Rui XingcaiBrown took a very simple and rude strategy: free and subsidized. In Q4 2018, the subsidy for the first cup of coffee exemption reached a new height, costing 659.5 billion yuan, but the expenditure of Q1 in 2018 was controlled and reduced to 29.82 million yuan.
The cost of obtaining the customer of Ruixing Coffee has gradually decreased from 104 yuan in Q1 in 2018 to 17 yuan in Q1 in 2019. However, starting from Q2 in 2019, Ruixun Coffee started a new round of subsidy wars in order to push the deer tea, and hired a new spokesperson Liu Yuran and Xiao Zhan, which increased the cost of pulling new, and the customers of Q2 and Q3 in 2019. The cost rose to 48.1 yuan and 55.2 yuan respectively.
Cartography / Burning Finance
Look at the delivery last. Ruixing Coffee has advertised itself as a new retail coffee, which can be delivered through the APP. This model innovation is ahead of Starbucks. But at the same time it increases the cost. Ruixun Coffee tries to increase the distribution cost by increasing the density of stores and the scale of orders.
In 2019, Q3, 93% of Ruixing Coffee’s stores are cache stores, and the proportion of take-out orders has dropped from the highest point of 62.2% to 12.8%, which means that the proportion of orders to store consumption has increased. . In addition, as early as the end of 2018, Ruixun Coffee began to increase the order-free delivery threshold.
From the data point of view, through the increase of income, Ruixun Coffee has solved the problem of profitability of single store operation, but in order to achieve the overall profit at the company level in the future, in addition to continuously improving efficiency and reducing costs, it is necessary to take marketing expenses. .
But the other question is, if Ruixun Coffee cancels the first cup of free and discount subsidies, reducing the amount of advertising, how long can those so-called “active users” still be active?
Rui Xing Coffee said last year that it will not stop subsidies within five years. Its goal is to open stores to 4,500 in 2019. Anyway, this is a story that sounds exciting.
Daily topic
How many cups of Ruixing coffee did you buy this month?