Uncover the Secrets of Billion Dollar Valuation
Coffee and tea market gets increasingly popular for both brand owners and investors
The coffee and tea market is getting increasingly popular with emerging brands developing rapidly. Coffee and tea brands such as MIXUE, Shuyi Tealicious, Goodme are actively expanding, and top industry giants from other industries are also tapping into the market. For instance, Huawei recently registered the coffee brand “A cup of coffee absorbs cosmic energy”; well-known sports brand Lining opens “Ning Coffee” in retail stores; Wanda Cinema adds “WANCHA”, the tea brand to the movie business.
Pictures source: Lining Weibo, Post coffee Weibo, QQ.com
CNPC and SINOPEC, the two petroleum giants in China, have also added coffee shops at gas stations. Earlier in June 2021, Nayuki, China’s new-style tea brand, was listed on the Hong Kong as the first listed milk tea company in the world. Despite the hovering pandemic in recent years, coffee and tea are popular among the millennials, and the rising market is successfully grasping investors’ attention.
Financing & Valuation of Coffee and Tea Brands between 2021 and 2022
Three “Highs” might be the key reasons to attract investors
High growth rate is the fundamentals behind the high valuation of businesses
The high valuation of coffee and tea brands is largely built on high expected growth rate. According to the DCF model:
Impact of growth rate (g) is most significant on the valuation. Factors that drive the growth rate include revenue growth, cost reduction, and management efficiency improvements.
Brands can also promote their revenues by quickly expanding footprints on the market. Fast expansion allows brand to generate substantial income and is the primary strategy for most tea brands.
Growing market size allows the brands to deploy more business strategies to drive up valuation
As more and more competitors enter the market, new-style coffee and tea market will develop in a more diversified way with more possibilities. Exerting the strengths in cost saving along with differentiated product and centralized management strategy, companies can quickly expand presences to different markets, including:
- Expanding into lower-tiered market, develop more brands and more subdivided product lines;
- Exploring more new retail scenarios, create social space integrating life, work, and study to shape brand IP output;
- Promote technology upgrades and user online experience and integrate technology with green and wellness, to shape unique competitive advantage and brand.
In conclusion, uncover user demand and foster new consumption habits will promote revenue and profit. High revenue and profit are reasons behind the high growth rate on cash flow, which is also the core to high valuation of different businesses.
