2022 was a challenging year for the new retail industry.

In 2022, the same was true for the vast majority of industries, from logistics, catering, to the film and television industry...All activities tied to offline fulfillment plunged into their darkest hour. Even the newly hyped new retail sector wasn't immune to the moment of its collapse.

For instance, in the high-consumption category of food and beverage retail, according to the statistics from Foodaily Daily Food, the food and beverage industry saw a total of 343 events in 2022. Among them, 257 with public information have an accumulated amount of 426.41 billion yuan. In 2021, the industry facilitated 382 events, with a total amount of 449.98 billion yuan. Both indicators experienced a decline in 2022, with the amount dropping over 5% and the number down by more than 10%.

Since early 2022,主动cut prices, signaling a shift from **exclusive to mass market; by mid-year, Reuters reported that Hema Xiansheng is seeking a valuation of $6 billion, compared to the $10 billion喊出的 earlier in the year, showing a nearly 50% reduction in valuation to艰难extend its life—evidently, the bubble in the new retail industry has burst.

Food and beverage industry independent analyst Lucie summed up, "The food and beverage sector remains a top earner in the new retail race, but a clear trend is that capital is tightening its belt."

Looking back at the top industry players in 2022, it's clear that iteration and upgrading, as well as a focus on profitability, are the consensus among all players. The era of burning money is no longer tolerated by capital, and scaling back to survive the winter has become the common approach.

Can the dawn of the new retail industry in 2023 still be awaited?

Is the game in the tea drink industry over?

In the realm of new retail, there's a contestant that many might overlook.

In the opinion of angel investor Wayne, the distinction between new retail and traditional retail lies primarily in the former's focus on the integration of services and products, as well as online and offline channels. By enhancing average order value through store space design and expanding categories with baked goods, it differs from the conventional street-side milk tea shops in these aspects. Therefore, categorizing a range of new tea drinks, including those mentioned, under new retail is not incorrect.

In fact, it has revealed its intention to transform its tea drink products into new retail offerings. In April 2020, it launched a sub-brand "Xixiao Tea," emphasizing genuine ingredients at low prices, and positioning itself against the new retail industry's pioneer Luckin Coffee. The same year in July, it introduced bubble water products,口号ing "Fiber Added, More Than Zero Sugar," aiming to incorporate functional elements to tap into the e-commerce channels.

Regrettably, these strategies are no longer effective in 2022. In November of that year, Xi Xiao Cha closed its last store, having fought the battle for over two years, yet failed to expand beyond Huaqiangbei. Meanwhile, the "Zhihu Tea" under the popular Changsha-based brand "Chayanyuesè" also announced the failure of its sub-brand strategy. Officially, Chayanyuesè described the closure as "shutting down for upgrades," but everyone knows this means a significant adjustment to overall operations. It also signifies that leveraging mainstream brands to enter the mid-to-low-end market remains fraught with challenges.

Looking at the e-commerce sales path, although the bottled beverage product line has expanded its single sparkling water business to ready-to-drink tea, product awareness across various tracks is still insufficient.

Wayne illustrated, "When it comes to sparkling water, consumers and investors still think of Yuanqi Forest, and the new tea beverage track is fierce, but in the two years since the bottled beverage business was established, the *effect of this area has never been fully utilized in the product line. There must be room for adjustment in internal management and marketing strategies." Chinese food industry analyst Zhu Danpeng also believes that the competition in the domestic tea beverage market is extremely fierce, and the chances of winning are not high since entering the bottled beverage track.

In terms of investment rounds, the decline in the tea drink industry's profits has already become a fait accompli. Public information reveals that in 2022, there were 28 rounds of new tea drink investments totaling 2.256 billion yuan, compared to 33 rounds and 14.5 billion yuan in 2021. A subtle observation is that capital participation is beginning to revert to early stages. Of the 28 rounds, 19 were angel/seed rounds, accounting for 68%. This indicates that investors are no longer blindly adhering to the Matthew effect, where the strong get stronger, but are instead targeting emerging forces, aiming to leverage small investments for big gains and placing broad bets.

In the new tea drink market, on one hand, players at the table are increasingly realizing the importance of penetrating the mass market, flooding into the fiercely competitive mid-to-low-end price segment; on the other hand, capital is losing interest in the "burning money" customer acquisition methods previously claimed by leading enterprises, and insiders have to seek new ways to tell a new story and find new drivers.

Amid various factors, the trend of tea and coffee fusion is intensifying. Companies are looking to restart growth through shifting strategies and rebranding, but with various players vying for dominance in the central region, it's still unclear who will emerge as the next leader.

Seizing the opportunity in the下沉市场 (Downwardly Mobile Market).

Interestingly, behind the waning popularity of tea drinks, coffee is quietly gaining momentum as an underdog. As Lucie points out, brands like奈雪, 乐乐茶, and others are making a push in the new retail space. Whether through price reductions, market penetration, or expansion, they are essentially walking in the footsteps of the pioneering Luckin Coffee.

Luckin has been both praised and criticized, listed and delisted. In the early days, the finance industry was filled with骂声 about it. However, many people are only beginning to realize now that Luckin's approach is to the point, low but effective. It has conquered the下沉 market not just with financial wizardry. Lucie says, despite many coffee industry experts questioning Luckin's reliance on sweeteners to attract下沉 market users, it's undeniable that Luckin has amassed a loyal following. In the world of capital, profit is the bottom line.

In 2022, Luckin Coffee disclosed its operating data in its third quarter financial report. Not only did its net income continue its upward trend, increasing by 65.7% year-on-year to 3.89 billion yuan, but the number of stores also reached a new high with a growth of 651, and the monthly average number of transaction customers increased by 70.5%, with a net profit of 500 million yuan.

In 2022, what was often held up as a model met its downfall in the region. Data shows that the fourth quarter revenue reached $8.41 billion, a 3.3% increase year-over-year, but the net profit was only $878 million, a 50.2% decrease, indicating a situation where revenue is rising but profits are not. The latest data for same-store sales in China shows a 16% decline. As a key market for expansion, the region's decline is undoubtedly impacting the overall pace.

Foodaily Daily Food reported that the next goldmine in the new retail sector lies in the rapidly growing下沉 market, which is easily captured by Luckin Coffee, with its mostly regional茶咖* as a testament. In fact, Foodaily Daily Food had already made a prophecy in its earlier mid-year report. In its summary in August 2022, it mentioned that since the second half of 2021, new retail channels have been flourishing, with retail** channels like集合店, discount chains, and near-expiration discount stores being hot favorites in the capital market. These channels collectively target price-sensitive consumers like convenience seekers, and investors' ultimate aim is to conquer the younger generation in small towns.

Furthermore, numerous new retail businesses have taken a step out of their下沉 market, with price reductions and discounts being clear declarations. For instance, Meituan, which previously maintained a cool demeanor, is now offering discounted group purchases focused on local life; Luckin Coffee has announced the launch of a new round of partner recruitment, emphasizing the importance of third and fourth-tier cities in its strategic layout over the next few years, with the announcement of openings also being made concurrently.

Industry watcher Cao Huatao said, "It's an inevitable trend for companies to focus on the下沉 market, and there's a thirst for this blue ocean that extends beyond just new retail. 'Our country's county-level market includes nearly 300 prefecture-level cities and over 2,800 counties, with a total population approaching 1 billion. This is a vast, limitless, and tantalizing long tail territory that sparks imagination.'"

To substantiate his point, he presented a set of data as evidence. At the HAE**Home Appliances Expo, institutions such as the Central Regional Power Grid jointly revealed the situation of the home appliance market in 2022. Overall demand decreased by 7%, but the下沉 market saw a year-on-year increase of 14.2%.

Retail consumption is more frequent, with lower unit prices and stronger consumer payment intentions compared to home appliances, and it possesses significant market potential. Faced with such a juicy market, ambitious players are undoubtedly eager to grab a piece for themselves. 2023 is bound to be a year of shadowy swords.

Is Owning Directly the Best Option?

In the retail business, the store is a crucial component, and in order to make a name for itself and carve out a niche, expansion has become an industry-wide philosophy. The reason why Luckin Coffee was able to dominate and become a "milestone in Chinese business history" in 2022 has much to do with its continuous pursuit of increasing the number of stores in China.

Companies looking to expand store density and numbers typically wait until they've established a solid foundation before branching out, Wayne says. He firmly believes that maintaining direct operations does indeed guarantee certain quality standards, but ultimately, it's just a matter of time before the decision to give up is made. "At the end of the day, direct operations isn't the way to scale a business."

While the convenience bee is a case in point that validates Wayne's statement.

Starting in March 2022, 7-Eleven began exiting the market by either shortening operating hours or closing stores outright, which contradicts founder Zhuang Chen's plan for "7-Eleven to exceed 10,000 stores by 2023." Subsequently, media reports revealed that 7-Eleven internally decided to implement a "hibernation plan," reducing the number of stores from their peak by over 700, with some closed locations not expected to reopen and many business lines temporarily suspended.

Individuals close to便利店表示 that the company's choice of a direct operation model means taking on the profit and loss independently. Once a store incurs losses, the pressure on the capital chain multiplies. Coupled with the downward trend of the overall economic situation, it's not hard to understand why management made the decision to close stores for survival. In contrast, the Japanese convenience store giant 7-Eleven has also closed numerous stores over the past three years, but "they have a lot of merchants, so it can be said that the losses are all the merchants' money."

The cautionary tale of便利店蜂 illustrates the rationale behind entering the lower-tier market after opening, even at the risk of losing control over quality. Firstly, direct operations demand a healthy cash flow and place a high demand on risk resistance. Among players in the new retail sector like Luckin, only a few have managed to go public, and with the lack of a secondary market channel, it's naturally more strained.

Next, Luckin's joint venture partner system has evolved to involve the establishment of subsidiary companies through partnerships, allowing for a closer relationship between the business and the main entity. This approach also facilitates easier management of stores and control over product quality.

Since its launch, Luckin has demonstrated the effectiveness of this model. Copying this homework, if it succeeds in opening up the market again, it's very likely that the overall promotion will also thrive in the new retail industry.

Of course, the issues facing the new retail industry are far more than just how to build a system. Fine-tuning supply chain management, cultivating specialized talent, and enhancing the company's construction and operational management capabilities are all crucial concerns we are addressing.

The loosening of regional and policy restrictions may have opened the door for new retail players, but truly pushing through requires their sustained efforts and perseverance.