This is an English adaptation of a FoodBud historical article originally published on August 29, 2021.
After listing in Hong Kong, Nayuki delivered its first results report with a clear shift in store strategy: it was no longer only pursuing large-format spaces, and its next move was to accelerate expansion of Nayuki PRO stores.
For the first half of 2021, Nayuki reported net revenue of RMB 2.13 billion, up 80.2% year on year. Store operating profit reached RMB 385 million, up 497.2%. Adjusted net profit attributable to the parent was RMB 48 million, compared with a RMB 63 million loss in the same period the previous year. Net cash from operating activities increased 18.4% year on year to RMB 380 million.
By brand, Nayuki remained the core business:
Nayuki defines other revenue as headquarters-generated revenue and other income, mainly including tea gift boxes, seasonal limited gift boxes, souvenirs, and retail products.
By product category:
Other products mainly included souvenirs and retail products such as sparkling water, tea gift boxes, snacks, and seasonal limited gift boxes.
Nayuki launched its PRO format in 2020. Its stores were divided into three main types: standard stores, shopping mall PRO stores, and community/office PRO stores.
In the first half of 2021, Nayuki opened 93 new stores and closed 6. The article states a net increase of 8 stores, though the later breakdown indicates a much larger net increase from PRO formats.
PRO stores have more flexible space and staffing requirements and do not require dedicated smoke-exhaust infrastructure. That allows the format to enter not only shopping malls, but also premium office buildings and residential communities aligned with Nayuki’s high-end lifestyle positioning, locations where standard Nayuki stores are harder to place.
Because these non-mall locations generally have lower foot traffic than malls, Nayuki expected average revenue per store for community/office PRO stores to be lower than that of standard stores or shopping mall PRO stores. However, the company argued that its brand strength could help secure better rent terms, while labor costs also had room to fall. On that basis, Nayuki believed the profitability of community/office PRO stores could exceed that of shopping mall PRO stores.
Chairman and CEO Zhao Lin said the actual number of new stores opened in 2021 was expected to exceed the original target of 300.
By store type, Nayuki added:
Average daily sales per store were:
Store operating profit margins were:
In store-count terms, standard Nayuki tea stores increased by 9 net units in the first half, while PRO stores increased by 78 net units, more than eight times the standard-store increase.
Nayuki continued to focus network expansion on first-tier, new first-tier, and key second-tier cities. In the first half, it opened 61 stores in first-tier and new first-tier cities, accounting for 65.6% of new openings.
At the end of the reporting period, the store base was distributed as follows:
In selected core cities:
The company’s focus on first-tier and new first-tier cities reflected its emphasis on higher-income consumers. According to its prospectus, Nayuki’s average order value reached RMB 43 in 2020, ranking first among China’s premium freshly made tea chains, compared with an industry average of about RMB 35.
Nayuki also used membership to improve customer stickiness and repeat purchase. By the end of June 2021, it had 36.5 million registered members. In the second quarter alone, active members reached 7.4 million, with an active-member repurchase rate of about 30.3%.
In 2021, Nayuki’s material cost ratio was 31.5%, down 8 percentage points year on year, reflecting emerging scale advantages.
Employee costs accounted for 31.5% of revenue, up 0.3 percentage points year on year. Nayuki store employee costs represented 24.3% of Nayuki revenue, while headquarters employee costs represented 7.6% of group revenue. The company expected headquarters costs to be increasingly spread across revenue growth.
Depreciation of right-of-use assets, rent and related expenses, asset depreciation, and amortization together accounted for 18.4% of revenue, down 6 percentage points year on year, helped by Nayuki’s stronger rent negotiation position.
Marketing, delivery, logistics/warehousing, and utilities together accounted for 10.8% of total revenue:
Co-CFO and board secretary Shen Hao said at the results meeting that tea drinks and bakery revenue continued to maintain a ratio of around 3:1. Order channels also remained relatively stable, with in-store cashier orders, mini-program pickup orders, and delivery orders each accounting for roughly one third.
According to the announcement, about 29.1% of Nayuki tea store revenue came from delivery orders placed through third-party platforms, while about 5.2% came from delivery orders placed through Nayuki’s self-operated platform.
Shen described three drivers of future growth.
First, as store numbers increased, pressure from new-store expansion declined, and existing markets matured, store operating profit margins were expected to grow naturally. As Nayuki scaled, marginal costs fell, which was a key factor behind the 497.2% rise in store profit. Nearly 90% of the new stores opened in the first half were Nayuki PRO stores, a format with more flexible site selection, lower labor and rent costs, and improved operating efficiency.
Freshly made tea drinks also supported profitability. According to the prospectus, Nayuki’s gross margin for freshly made tea drinks stayed above 66% from 2018 to 2020.
Second, as the higher-profit PRO format increased its share of the store base and store density improved consumer habits, Nayuki expected average store operating profit to rise.
Third, Shen said technology improvements would gradually lift operating efficiency and store operating profit across the store network.
Nayuki had built 10 three-temperature food warehouses across China, covering frozen, chilled, and ambient storage. Raw materials were centrally inspected and sorted after arriving at warehouses, then transported through temperature-controlled cold chain logistics. Inter-warehouse transfers could arrive in as little as two days.
In the first half of 2021, Nayuki invested more than RMB 100 million in digitalization and supply-chain construction, including RMB 48.3 million in technology and digitalization and RMB 60.2 million in supply chain.
The company had begun laying out its digital transformation strategy as early as 2018. It developed automated equipment to simplify tea preparation, improve operating efficiency, and support standardized output, while integrating business systems to build a more intelligent operating decision system for store-level production and sales planning.
In retail, Nayuki expected to begin launching retail products through offline chain malls and other channels in the second half of 2021. It had also introduced products such as sparkling water and snacks. Although retail was still a small share of the business, Nayuki expected it to have broad future prospects.
For Tai Gai, Nayuki said all stores were still self-operated. If standardization and automation could sufficiently reduce risks from franchisee misconduct and offset gaps in franchisee production and management experience, the company might consider gradually opening Tai Gai to franchising at an appropriate time.
The results also raised the question of how the RMB 4.3 billion fair-value change loss on convertible preferred shares would affect Nayuki’s long-term performance.
The fair-value change in convertible redeemable preferred shares referred to a non-cash item across all classes of preferred shares. After automatic conversion into ordinary shares at the global offering, gains or losses from changes in fair value of those preferred shares would no longer arise.
In simple terms, the large loss recognized at listing was mainly due to multiple pre-IPO strategic investment rounds structured as preferred shares. Nayuki had issued four tranches totaling 336 million preferred shares, mainly to investors including Chengdu Tiantu, Yongle Gao International, PAGAC Nebula, and Hongtu Venture Capital.
After listing, these investors would eventually need exit options, making conversion to ordinary shares likely. After conversion, the preferred shares would be presented as equity and no longer measured through profit or loss, so they would not affect company profit after conversion.
Note: Forward-looking store-opening, retail, franchising, profitability, and IPO-related figures are historical statements from the 2021 source article.