This is an English adaptation of a FoodBud historical article originally published on November 25, 2021.
Nayuki still had room to maneuver.
In early November 2021, Nayuki launched a winter product, “Dominant Cheese Hawthorn Strawberry.” FoodBud viewed the layering as solid and saw the launch as another sign that Nayuki’s R&D capability remained credible. Earlier that year, Nayuki’s emblic-lemon products had become a hit, driving raw-material prices upstream sharply higher, with both positive and negative implications.
For tea chains, constant product launches are a way to keep interacting with consumers. But the underlying business still depends on stable classic products.
Tea drinks resemble coffee in one important way: once consumers build a habit around certain flavors, repeat purchase can be high. A brand may look active by launching new items every few days, but much of the actual consumption still comes from classic products.
For Nayuki, much of the company’s R&D was therefore focused on small iterations of core products: adjusting sweetness and acidity around new fruits while keeping classic-item revenue stable at about 70%. New products help bring new customers into stores and encourage repeat visits from existing customers, but their role is more marketing-led; not every new launch can be expected to become a standout hit.
Nayuki’s share price performance after its 2021 listing was painful. The stock broke issue price after listing and, by the time of the article, had not traded above its offer price. In that sense, listing day looked like the peak.
Lei Jun said in a 2021 speech that after Xiaomi broke issue price at listing, he was scolded by investors for more than an hour “like a primary-school student.” Given Nayuki’s share-price trend, the pressure on the company was unlikely to be light.
FoodBud’s overall view was that founder Peng Xin was still young, born in 1988, with a long runway ahead. The company’s product innovation was strong and it was willing to test and iterate. But FoodBud also argued that Nayuki appeared to have taken several detours.
Nayuki’s packaging needs mainly included tea cups, paper bags and similar materials.
From 2018 to 2020, Nayuki’s packaging-material costs were RMB66.336 million, RMB213 million and RMB280 million, respectively, representing 6.10%, 8.53% and 9.17% of revenue in those years.
Across the same three years, Dongguan Zundao Environmental Packaging Industrial Co., Ltd. was Nayuki’s largest supplier among its top five suppliers. Zundao’s sales to Nayuki were RMB37.612 million, RMB94.611 million and RMB94.447 million, accounting for 56.70%, 44.33% and 33.68% of Nayuki’s packaging-material costs.
Zundao was established on October 25, 2017 and was a related party of Nayuki. Nayuki founders Peng Xin and Zhao Lin, a married couple, indirectly held 50% of the company. Luo Liangshan and Zhao Xingmin, also a married couple, held the remaining 50%.
The issue was optics and governance. Zundao became Nayuki’s largest supplier in its second year after establishment, and it supplied packaging materials. Peng Xin and Zhao Lin also entered Zundao in 2018 with a 50% stake. According to the article, this may not have involved a capital increase: Zundao’s registered capital remained RMB10 million, while the ownership structure changed from Luo Liangshan and Zhao Xingmin each contributing RMB5 million to Peng Xin and Zhao Lin indirectly holding RMB5 million of contribution, with Luo Liangshan and Zhao Xingmin holding RMB3.15 million and RMB1.85 million respectively.
Luo Liangshan and his spouse were also shareholders of Shenzhen Jinggongxin Technology Co., Ltd. Its Tianyancha company profile stated that it was the only designated packaging-material supplier for Nayuki and Taigai.
Nayuki had responded to this issue. The company said that during its Hong Kong Stock Exchange listing process, auditors and lawyers had reviewed related-party transactions strictly, including whether transactions were fair and whether suppliers were replaceable. The conclusion, as summarized in the article, was that pricing was fair and comparable with other suppliers, and that Zundao was replaceable.
FoodBud also noted an internal expectation that Zundao’s share would likely decline over time because the supplier’s growth would not keep up with Nayuki’s overall scale.
Even so, the structure was likely to keep drawing questions over whether other related-party transactions existed.
Nayuki’s earlier core format was the standard store. It later shifted toward the Pro store as the main format for expansion.
In prime commercial districts in top-tier cities, FoodBud argued that Nayuki and Lelecha had a disadvantage versus Heytea. The difference came from store requirements.
Heytea’s standard stores were about 70-100 square meters and focused only on tea drinks, so they did not require smoke-exhaust infrastructure. For many shopping centers, smoke exhaust was already a requirement associated with heavier foodservice. On first floors in core commercial areas, properties with those conditions were relatively scarce.
That gave Heytea an advantage in locations such as Raffles City People’s Square in Shanghai and Taikoo Li Sanlitun in Beijing. Heytea could use smaller retail units without smoke-exhaust requirements. Those same units could not accommodate Nayuki or Lelecha, which needed roughly 100-200 square meters and smoke-exhaust infrastructure.
The standard-store model therefore ran into site-selection limits: locations were hard to secure because smoke exhaust was unavailable, fire authorities would not allow bakery operations, or the space was not large enough at 200-250 square meters. That pushed Nayuki to make the Pro store its main format.
At the time, Nayuki’s Pro stores had reduced labor and rent costs. Rent was down by 3-4 percentage points, labor by 5 percentage points, and store-level adjusted profit margin could reach 28-34%.
FoodBud contrasted this with Heytea, which made fewer extra moves in store-format experimentation and shut down its bakery effort after testing it.
Nayuki, by comparison, had tried more formats, including gift stores, Blablabar and bookstore concepts. These stores extended use cases and gave members a sense of belonging, but they were not suitable for large-scale rollout.
Nayuki’s decision to keep bakery came from a belief that bakery products improved consumer happiness and that many customers visited specifically for them. The company viewed this as capable of creating medium- to long-term shareholder value, rather than optimizing only for short-term financials. Financially, bakery had lower gross margin and lower profit. Operationally, however, bakery experience could help Nayuki later develop snacks and short-shelf-life products.
The company had accumulated some short-shelf-life bakery know-how. One-day shelf-life products and two- to three-day shelf-life products differed in taste. Nayuki’s operating approach was to ship fully frozen products from central factories, have stores thaw according to sales plans, and require all thawed products to be sold within the day.
Nayuki had previously planned to open five central factories over three years, with each central factory supporting 200-300 Pro stores. Its second central factory had already started construction in the East China market.
FoodBud’s conclusion was that Nayuki was trying to walk two tracks at once: tea drinks and short-shelf-life bakery.
Note: IPO, share-price, investment and forward expansion figures above are historical, reflecting information available as of November 25, 2021.