Xiangpiaopiao (香飘飘, referred to as XPP after this), a Chinese milk tea brand, was the first company in China to launch reconstitutable milk tea powder packed in cups. This brand has been the No.1 seller in the segment for eight consecutive years, with a market share of more than 60% [1].
Products can be divided into instant drinks (powder requiring reconstitution) and ready-to-drink liquid products. Instant drinks products are the company's primary source of revenue, and sales of these products are supported by sales of ready-to-drink beverage products including bottled milk tea (liquid) and juice tea Meco.
Instant Tea Market: Huge Potential
In April, XPP released an annual report showing that in 2019, XPP realized growth in both revenue and net profit: the revenue in 2019 was 3.98 billion RMB, a year-on-year increase of 22.36%, and the net profit was 347 million RMB (approx. $51.8m), a year-on-year increase of 10.39% [2].
The instant drinks (milk tea powder) segment demonstrated steady growth in previous years (4.7% YoY), and the revenue of this category was 2.94 billion RMB, accounting for 73.8% of the total revenue [2].
The XPP product portfolio has expanded considerably. In 2019, the sales value of beverage products exceeded 1 billion RMB, achieving 140% growth [1]. It accounted for 25.3% of the total revenue in 2019, up from 12.9% in 2018. The performance of juice tea was particularly good, achieving revenue of 868 million RMB, a YoY increase of 332.43%, and a major contributor to the company's revenue [1].
Outstanding Performance in E-commerce Channels
From 2014 to 2018, the compound growth rate of XPP's e-commerce channels was 161.52%, much higher than other retail channels. Since then, the company focused on developing its e-commerce businesses [2]. According to the data [1], XPP made a breakthrough in e-commerce channels in 2019. It achieved a sales value of 125 million RMB, an increase of 58.9% compared to the same period in 2018. Sales of its fruit juice tea category increased by 907% on e-commerce.
Marketing Strategy
1. Buffering against seasonality
Solid brewed milk tea powder (Reconstitutable powder) has been the primary revenue source for XPP for a long time, accounting for more than 90% of revenue in the past. However, this category performs most strongly in the first and fourth quarters of each year. There are strong seasonal sales. As a result, the sales of XPP are extremely uneven throughout the year, and its peak seasonal sales account for more than 70% of its total annual sales [1]. Consequently, the company is under enormous pressure to control capacity, inventory, back-end warehousing, and distribution costs.
To help XPP buffer the impact of seasonal changes, the company introduced ready-to-drink beverage products in 2017, aiming to form a complementary product structure with its reconstitutable solid milk tea. The beverage's ready to drink characteristic makes it sell more in spring and summer, which is the opposite of solid milk tea.
2. Online: Cooperate with KOLs
In cooperation with KOL Austin Li (Li Jiaqi), XPP sold out 300k cups of milk tea within 1 minute and 100K boxes of milk tea within 5 minutes on Austin's live stream [2].
3. Offline: Build a distribution network in low tier cities
In China, low-tier cities account for more than 60% of the population [1]. XPP currently has limited coverage in low-tier cities. Therefore, XPP has focused on increasing its distribution channels in lower-tier cities, where it has now established an almost nationwide sales network covering cities at all levels.
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