This is an English adaptation of a FoodBud historical article originally published on August 24, 2022.
FoodBud previously published an article on Shuyi Grass Jelly. After Shuyi said parts of the argument were not clear enough, this follow-up lays out the logic in more detail.
On August 23, 2022, Hainan Shuhan, a company almost wholly controlled by Shuyi Grass Jelly founder Wang Bin, increased its stake in Jianbingdao from 9.5% to 19%.
Another investment vehicle, Sichuan Zhanfu, is likely aimed at further expansion into Western-style food categories such as pasta. Its major shareholder Zhao Shuyong previously operated pizza-brand stores and is also the major shareholder of Brano, a Western-food chain with 30 stores. Hainan Shuhan holds 40% of Sichuan Zhanfu.
The first issue is Shuyi Grass Jelly's store data. The previous article cited data from Zhaimen Canyan. Shuyi questioned whether the article had copied Zhaimen's content; FoodBud's position is that it did not.
Looking at the store base, Shuyi was close to 7,000 stores at the end of the previous year, then dropped by more than 500 stores, before gradually increasing again in the first half of 2022.
The concern is that Shuyi's marketing and storefront signage used the claim of 7,000-plus stores. If the actual store scale conflicts with that claim, it raises the question of whether the messaging could be viewed as misleading.
According to Zhaimen Canyan data updated on August 22, 2022, Shuyi Grass Jelly had 6,612 stores, only two fewer than Guming. Guming had previously been smaller than Shuyi but had now overtaken it.
The broader operating environment in 2022 was difficult, and weaker performance can partly be attributed to macro conditions. But FoodBud argues that store-level execution also matters.
In some franchise stores, three new product launches reportedly could not be executed, while advertising for those products was still placed at the store entrance. From a consumer perspective, that creates a poor experience.
One explanation is that franchisees have autonomy over which products they can or cannot make. But from the brand side, this still damages brand perception. FoodBud argues that if stores had profitable new products available, operators would likely be motivated to sell them.
If some stores are underperforming, Shuyi could study Juewei's approach: encourage consolidation among franchisees so stronger operators become stronger across regions. It could also learn from Juewei by subsidizing franchisees under pressure and helping them make money. Otherwise, when stores cannot sell promoted new products, consumers may simply go to nearby Auntie Shanghai or Guming outlets.
When a company's core business reaches a bottleneck, extension through investment can be a sound strategy.
At the company level, Shuyi has invested in back-end supply-chain projects including packaging materials, core grass-jelly raw materials, and plant-based supply-chain companies. On the front-end brand side, it has acquired control of DOC Coffee and was refining the model before opening franchising.
There are comparable examples in the tea-drinks sector.
Nayuki's founders previously invested personally in a packaging-materials company that was also a core supplier to Nayuki. After Nayuki's listing, media reports and investor-relations discussions raised many questions, including whether there could be related-party benefit transfer. Later, Nayuki's investments in Tianye and Cha Yiji were made through the company.
Heytea founder Nie Yunchen's personal investments were made with He Boquan. In dessert chain Zhao Ji Chuancheng, He Boquan held a larger stake than Nie. He is also an investor in Heytea.
In Heytea's later external investments, deals were generally made through the company, or through a company-plus-founder structure. In the previous year, Heytea's founder controlled Raven Coffee and invested in Kuddo Coffee. Both were small projects, possibly used to understand and test operating models: Raven Coffee had only two or three stores, and the Kuddo Coffee stake was relatively small. In coffee, Heytea also had two company-level investments: Seesaw and Minority Coffee.
Returning to Shuyi's founder-led external investments, the stakes are 19% in Jianbingdao and 40% in Sichuan Zhanfu.
If the core business were progressing smoothly, investors might have fewer concerns about the founder using investments to accelerate asset appreciation and pursue a second or third business. But in a difficult 2022 environment, with first-half performance down and external stakes this large, investors may wonder whether management attention on the core business will continue to decline.
More than RMB 600 million had been invested into Shuyi. Investors likely expected the company to keep scaling, strengthen its business, and eventually create liquidity. If the only return path were annual dividends from several hundred million yuan of net profit, FoodBud questions whether investors would be satisfied.
If the founder's external projects are meant to test models and later bring investors into successful opportunities, that would likely be more acceptable.
The tea-drinks market is still far from settled. Guming and Chabaidao were continuing to move forward. Mixue Bingcheng's domestic scale was already large, and overseas it had been building in Southeast Asia for more than four years, entering all 10 ASEAN markets and exceeding 1,000 overseas stores. FoodBud's view was that the international endgame had only just begun.
Note: investment, IPO/listing, dividend, franchising, and forward-looking figures or expectations above are historical references from the August 24, 2022 source article.