This is an English adaptation of a FoodBud historical article originally published on July 10, 2022.
FoodBud reported on July 10, 2022 that Nayuki, after previously saying it would focus on product development while Heytea was investing aggressively, had begun making brand-side investments of its own. Nayuki took a strategic stake in tea-drink chain Cha Yiji, with a 19.9% shareholding.
At the time, Heytea had built a much broader brand matrix through self-built brands, investments and acquisitions. FoodBud counted 13 brands in Heytea's orbit, including acquisitions such as Wang Ning Lemon Tea and Yecuishan, with Suge Fresh Fruit Tea seen as a likely next acquisition target.
Nayuki's portfolio looked thinner. Its self-built brands included Nayuki, Tai Gai and Lishan, but Lishan had already been discontinued. Including the investment in Cha Yiji, Nayuki effectively had three brands.
Around the first anniversary of its Hong Kong listing, Nayuki was under pressure in the public market. FoodBud described the company as having peaked at listing, with its share price broadly declining. Its market capitalization was about HK$10.8 billion, equivalent to RMB9.2 billion, while 2021 revenue was RMB4.3 billion.
Nayuki had made few external investments before this. FoodBud highlighted two main examples:
Both were supply-chain-side investments. The Cha Yiji deal was therefore Nayuki's first attempt, in FoodBud's framing, to invest in a consumer-facing tea-drink brand.
Internally, Nayuki had tried to incubate Tai Gai and Lishan. After Lishan was discontinued, Tai Gai remained, but its scale was limited. According to Nayuki's annual report, Tai Gai generated RMB140 million in 2021 revenue, slightly down year on year, accounting for only 3.3% of group revenue.
FoodBud's reading was that Nayuki faced two linked issues: public-market pressure as its share price declined, and limited performance from internally incubated sub-brands. The company had also disclosed a ready-to-drink product line and intended to make a major push there, but 2021 annual-report data suggested the base was still very small and would require investment to develop.
The positive factor was cash. At the end of 2021, Nayuki still had RMB4.05 billion in cash and equivalents, a level FoodBud said relatively few companies in the market could match.
Investing in supply-chain companies and automation equipment helped solve efficiency, scale and replication challenges for the core Nayuki brand. The deeper question was whether Nayuki needed growth beyond its main brand, and where that growth would come from. FoodBud saw two routes being pursued by leading players: developing ready-to-drink products, and building a wider brand matrix through investments in tea or coffee chains.
Cha Yiji positioned itself as a new Chinese-style tea-drink brand focused on sugar control, promoting fresh-cut fruit tea and a lower-guilt consumption proposition. Its first store opened in June 2020 at Cloud Nine Shopping Mall in Shanghai's Zhongshan Park area, with first-month sales exceeding RMB400,000.
According to Cha Yiji's website at the time, its stores were concentrated in Jiangsu, Zhejiang and Shanghai. It had 29 stores: 17 in Shanghai, 8 in Hangzhou, 3 in Jiaxing and 1 in Suzhou. Its core products were fresh fruit teas priced between RMB15 and RMB20.
FoodBud identified two main points.
First, Cha Yiji emphasized sugar control and promoted L-arabinose. Founder Zhang Xiaoqiu believed 2020 was not an easy time to launch a new tea-drink brand, so he looked for differentiation through sugar control. In searching for a healthier sugar solution, he visited several countries and found L-arabinose in Japan.
The article described L-arabinose as a pentose sugar, also known as gum aldose or pectin sugar, with the chemical formula C5H10O5. In nature, it is rarely found as a monosaccharide and is usually combined with other monosaccharides in heteropolysaccharides found in gums, hemicellulose, pectic acid, bacterial polysaccharides and certain glycosides. It is relatively stable under heat and acid.
FoodBud cited reports saying that adding 3.5% L-arabinose could inhibit 60%-70% of sucrose absorption and reduce the rise in blood glucose by about 50%. Cha Yiji claimed it was the only tea-drink brand in China using L-arabinose, making sugar control its biggest point of differentiation.
Second, FoodBud said Cha Yiji had some discipline around franchising. This came from Zhang's earlier experience as an agent for another tea-drink brand.
In 2016, Zhang became the Shanghai regional general agent for Cha Ji Bian, a tea-drink brand under Hangzhou Bodu Group. After launching a large-format fruit tea product, the brand opened more than 1,800 stores nationwide in one year. At its peak, a single store reached monthly sales of RMB860,000.
Later, the parent company adjusted the brand strategy, and the team became caught up in rapid franchise recruitment. Performance dropped quickly and many stores closed. Zhang then decided to build his own brand, using supply-chain resources accumulated over years to create Cha Yiji.
In mid-2021, Zhang said on a program that Cha Yiji was ready to open franchising. Beyond franchise fees, the headquarters would assess franchisees every year; those whose comprehensive scores fell below requirements would lose franchise eligibility. Each store also needed three employees to pass assessments before opening approval.
FoodBud viewed this experience with the boom-and-bust cycle of rapid franchising as a potential advantage for Cha Yiji's team.
Nayuki already had investments in packaging and fruit-related raw materials, so FoodBud saw potential procurement and automation-equipment synergies with Cha Yiji.
For mid-market tea-drink chains, national expansion still depended heavily on franchising. Nayuki had limited experience building a franchise system. FoodBud suggested that learning how to expand franchised stores quickly and effectively, potentially nationwide or even globally, may have been one reason Nayuki was interested in the project.
Note: IPO, market-capitalization, cash, store-count and forward-looking expansion figures are historical references from the July 10, 2022 source article.