Shuyi Grass Jelly Moves Upstream and Into Coffee With Fangde Food and DOC Coffee Deals

This is an English adaptation of a FoodBud historical article originally published on June 6, 2022.

In early May 2022, Shuyi Grass Jelly, a tea-drink chain focused on grass-jelly beverages, completed a broad brand upgrade and launched plant-based products, positioning itself in the “plant-based new tea drinks” segment as China’s tea-drink market became increasingly homogeneous.

By the end of May, the company had made an upstream move in the same direction: it invested in Xuzhou Fangde Food alongside Kunshan Supin Food. After the transaction, Shuyi Grass Jelly held 4.5% of Fangde Food.

Upstream Bet on Plant-Based Ingredients

Xuzhou Fangde Food was established in 2020 with investment from parties including VV Holding, the major shareholder of listed soy-milk company VV Group. VV Holding originally held 25% of Fangde Food; after Shuyi Grass Jelly and Kunshan Supin Food joined as investors, VV Holding’s stake fell to 11.4%.

In 2021, Fangde Food was advancing a food-processing project using production technology for non-dairy creamer and plant-based milk powder. The company aimed to build a leading plant-based milk powder production base in Asia. Its first-phase production line had already entered operation, while second-phase construction had started.

Once completed, the project was expected to support annual production of:

• 30,000 tons of non-dairy creamer
• 10,000 tons of non-dairy creamer concentrate
• 10,000 tons of plant-protein beverage powder
• 20,000 tons of plant-protein beverage concentrate
• 36,000 tons of liquid beverages
• 5,000 tons of oat flour and related byproducts

The project was expected at the time to generate RMB 300 million in sales revenue and RMB 55 million in profit in its first year.

Fangde Food plant manager Jin Yangquan said the company’s target was to reach RMB 500 million in output value in 2022 and pursue a listing within five years.

FoodBud compared Fangde Food’s likely business benchmark to Jiahe Food, a listed company with a market value of RMB 6.3 billion at the time. Jiahe Food’s 2021 annual report showed revenue of RMB 2.4 billion and net profit of RMB 150 million.

Coffee Expansion Through DOC Coffee

The Fangde Food investment was not Shuyi Grass Jelly’s first external deal. In May 2022, the company also extended from milk tea into coffee by investing in Changsha-based local brand DOC Coffee. It then completed an acquisition of control in DOC Coffee.

After Shuyi Grass Jelly took control, DOC Coffee began a brand upgrade and store expansion. Its target for the year was 100 stores, compared with only 7 stores at the time of the initial investment.

A Juewei-Style Investment Pattern

FoodBud viewed Shuyi Grass Jelly’s investment approach as increasingly similar to that of Juewei, using capital to support category extension and upstream supply-chain control.

The operating environment was difficult in 2022, with the pandemic putting heavy pressure on foodservice. Earlier that year, Shuyi Grass Jelly had raised RMB 600 million from investors including Juewei, creating expectations for continued growth.

However, store expansion was already slowing. According to GeoHey brand-monitoring data cited by FoodBud, Shuyi Grass Jelly opened 96 stores and closed 57 stores over the prior 90 days.

The article argued that if Shuyi Grass Jelly wanted to keep growing, it needed to use capital more actively, including category expansion and investment in upstream supply-chain assets.

Examples already included:

• R&D: Shuyi Grass Jelly formed Sichuan Shuyi Jiawei with Chengdu Jiaweitiancheng Beverage Technology Research Institute and others for beverage R&D. Shuyi Grass Jelly held 70%.
• Core ingredients: Shuyi Grass Jelly formed Guangxi Fengyi with Guangxi Yufeng to secure supply of its core raw material, grass jelly. Shuyi Grass Jelly held 40%.
• Packaging materials: Shuyi Grass Jelly formed Sichuan Yihong New Materials with Guangzhou Xinyi. Shuyi Grass Jelly held 70%.

FoodBud’s conclusion was that, with store growth slowing, category expansion and supply-chain asset integration offered Shuyi Grass Jelly a practical route to seek new growth. The company had also just raised a large financing round, leaving it with cash at a time when weaker market conditions could make investment opportunities more attractive.

Note: financing, valuation, store targets, profit forecasts, and IPO-related figures are historical references from the 2022 source article.