We are the third largest Pu’er tea company in China in terms of revenue generated from Pu’er tea products with a market share of 2.4% in 2022, ranking after two players with market shares of 12.6% and 4.4%, respectively, according to the F&S Report. According to the same source, our market share in China’s Pu’er tea market was 2.8% and 2.5% in terms of revenue generated from Pu’er tea products in 2021 and the six months ended June 30, 2023, respectively. With stringent quality requirements running through the entire industrial chain, we are among the very few tea companies in China experienced in raw material management, product development, production, end customer reach and membership services, according to the F&S Report, which we believe sets us apart from our competitors. After twenty years of operation, we have established ourselves as one of the most famous Pu’er tea brands in China.
Tea is a traditional Chinese beverage with a history of several thousands of years and considered beneficial for health. The market size of China’s tea leaf market in terms of revenue increased from RMB240.6 billion in 2017 to RMB331.8 billion in 2022 at a CAGR of 6.6%, and is expected to reach RMB441.2 billion in 2027 at a CAGR of 5.9% from 2022 to 2027; and in particular, the Pu’er tea market in China is expected to increase from RMB17.4 billion in 2022 to RMB24.4 billion in 2027 at a CAGR of 7.0%, according to the F&S Report. Leveraging our brand and market position, we believe we are able to capitalize on the growth opportunity in the relevant markets.
Over twenty years of operation, we have established Lan Cang Gu Cha (瀾滄古茶) as our core brand, under which we have developed and structured two product lines, i.e., 1966 and Tea Mama (茶媽媽), and launched a new product line, Iland Tea (岩冷), in July 2022, to meet the various demands from different groups of consumers, such as Pu’er enthusiasts, sophisticated tea drinkers, broader mass consumers, and new middle-class consumers with stronger purchasing power.
Focused on the development, manufacturing and sales of classic Pu’er tea leaf products, 1966 has historically experienced stable and sizable growth, serving as the bedrock of our business. Tea Mama was first introduced to the market as a consumer goods product line in 2014. We have capitalized on our rich product development experience in Pu’er tea and applied it to other types of teas, such as black tea, white tea and flavored tea, and creatively employed less traditional but more convenient product forms such as disposable tea cups and tea bags, enriching the product portfolio of Tea Mama. We believe that we have laid a solid foundation for the growth of Tea Mama, which is expected to become our next source of growth.
To better market different products according to their different features, we further classified our products under three product lines into various product series. During the Track Record Period, 1966 and Tea Mama had been our major sources of revenue.
We believe the quality of our products is key to our success. The Lancang flavor, which stands for our unique, recognizable and stable flavor feature, is attributable to our ability to source high quality rough tea leaves, our accumulation of unique production techniques and our stringent quality control measures. Harnessing our experience in fermentation and blending, which are the two core manufacturing procedures of Pu’er tea, we have accumulated a wealth of production data and unique production techniques, which allow us to exert control over the flavor of our tea leaf products and ensure stable product quality across different batches of production. Moreover, the vast majority of our tea leaves are sourced from Pu’er, Lincang and Xishuangbanna, the three major production areas of Pu’er tea in Yunnan, and in particular, Jingmai Mountain in Pu’er, which hosts some of the largest, oldest and best-preserved ancient tea tree plantations in the world and has been included in the World Heritage List since September 2023 for the ancient tea tree plantations in the region. According to the F&S Report, we were the largest purchaser of rough tea leaves from ancient tea trees in Jingmai Mountain in terms of procurement volume during the Track Record Period. We believe that Jingmai Mountain’s successful application for the World Heritage List would not affect our procurement of rough tea leaves from Jingmai Mountain, because (1) as advised by our PRC Legal Advisor, current PRC laws and regulations do not prohibit procuring rough tea leaves from Jingmai Mountain, and (2) we have maintained long-term and stable business relationships with a large number of tea leaf cooperatives including major ones in Jingmai Mountain and expect to maintain amicable relationships with them. Moreover, as Jingmai Mountain has attained world heritage status, we expect our brand image to benefit from such status in light of our longstanding local presence in the region. With years of local presence, we have built strong and stable relationships with over 100 tea leaf cooperatives in the major production areas of Pu’er tea in Yunnan. As of June 30, 2023, we had over 3,700 tonnes of rough tea leaves and in-process tea leaves sourced in more than 15 different years stored in our specialized warehouses, which were sourced from tea plantations in major mountains in the three major production areas of Pu’er tea in Yunnan. Underpinned by our strong relationship with suppliers, adequate stock levels and specialized raw material inventory management, we are able to timely respond to constantly evolving market demands and see to the long-term stable production of our products, which may require blending of tea leaves sourced in different years and from different mountains. Our specialized raw material inventory management enables us to properly store these tea leaves, as we accurately label tea leaves to indicate their respective ages and origins, regularly conduct stock-takings to evaluate the varieties and adequacy of our raw material reserves, and strictly control and monitor storage temperature and humidity for our raw materials.
We have established a national sales network, consisting of direct sales network and distributor sales network, which covers substantially all provincial administrative divisions across China. As of the Latest Practicable Date, we had 557 offline stores, among which 23 were self-operated stores and 534 were distributor-operated stores. Approximately 70% of our distributors as of June 30, 2023 had been part of our sales network for more than three years. During the Track Record Period and up to the Latest Practicable Date, we had been continuously making efforts on managing and optimizing our distributor sales network and distributors’ overall performance, and at the same time expanded into online sales channels such as stores on e-commerce platforms. In the six months ended June 30, 2023, 10.3% of our total revenue was from sales made through our self-operated online stores.
Our Products
During the Track Record Period, we generally marketed our tea leaf products under our core brand, Lan Cang Gu Cha, under which we operated two product lines, i.e., (1) 1966, our classic product line focusing on Pu’er tea leaf products that target Pu’er enthusiasts and sophisticated tea drinkers, and (2) Tea Mama, our healthy lifestyle product line with a product portfolio that caters to a broader consumer base. We launched Iland Tea, a new product line targeting new middle-class consumers, in July 2022.
Lan Cang Gu Cha — 1966
As a classic product line positioned for Pu’er enthusiasts and sophisticated tea drinkers, 1966 is a tribute to our roots as our brand history traces back to 1966 in Jingmai Mountain, Yunnan Province. With years of geographic presence in one of the homes to Pu’er tea, we are able to maintain a stable supply of high-quality rough tea leaves and apply a proven set of Pu’er processing techniques to ensure the stable quality of 1966 products. Through 1966, we have established ourselves as a leading Pu’er tea leaf brand well recognized among Pu’er enthusiasts in China, according to the F&S Report.
Properly stored Pu’er tea products have the potential to maintain their quality for several decades, and typically within that period, the longer Pu’er tea is preserved, the better it tastes and the higher value it possesses, according to F&S Report. 1966 offers a wide variety of fermented and non-fermented Pu’er tea leaf products, which can be further classified into three product series, i.e., famous mountain series, Jingmai series and value-for-money series. In 2022, there were 127 Pu’er tea leaf products sold under 1966. With a rich product portfolio covering a broad spectrum of classic Pu’er tea products, we believe we have built 1966 into a well-rounded classic Pu’er tea product line that is able to cater to Pu’er enthusiasts’ need for drinking, collection and gifting. Generally, our 1966 products are presented in the packaging forms of tea discs, tea bowls and tea bricks. The suggested retail prices of our major Pu’er tea leaf products produced in 2022 ranged from approximately RMB471 per kilogram to RMB50,420 per kilogram. In 2020, 2021, 2022 and the six months ended June 30, 2022 and 2023, the revenue generated from our 1966 products was RMB299.1 million, RMB413.9 million, RMB301.4 million, RMB166.0 million and RMB155.2 million, respectively, accounting for 73.8%, 74.1%, 65.1%, 72.7% and 66.9% of our total revenue in the same periods, respectively. The average selling price range of our major products under 1966 ranged from RMB125 to RMB13,390 per kilogram, RMB135 to RMB10,272 per kilogram, RMB145 to RMB15,969 per kilogram, RMB136 to RMB16,855 per kilogram and RMB139 to RMB11,254 per kilogram in 2020, 2021, 2022 and the six months ended June 30, 2022 and 2023, respectively, calculated by dividing the total revenue from a given product in a given period with the total sales volume of such product in the same period. The majority of our products under 1966, which contributed over 75% of our revenue from 1966 in 2022, had an average selling price range from RMB1,000 to RMB5,000 per kilogram in the same year.
Lan Cang Gu Cha — Tea Mama
With a brand image inspired by our founder, Ms. Du, who is nicknamed ‘‘tea mama,’’ we established Tea Mama in 2014 with a mission to bring motherly love and care to our customers. Tea Mama embodies tea drinkers’ pursuit of a healthy lifestyle and features a product portfolio that caters to a broader consumer base. Leveraging our profound experience in the Pu’er tea production, Tea Mama has successfully expanded its product portfolio into non-Pu’er tea products. In 2022, there were 126 products being sold under Tea Mama, covering various types of tea leaves including Pu’er tea, white tea, black tea and flavored tea, with a price range from RMB500 per kilogram to RMB15,800 per kilogram. Such product variety offered by Tea Mama allows us to attract more consumers with different tea drinking preferences. In addition, in order to adapt to modern consumers’ fast-paced lifestyle, we present our Tea Mama products in different packaging forms, such as petit tea discs, tea bags and disposable tea cups, which are easily available for drink in their daily life. In 2020, 2021, 2022 and the six months ended June 30, 2022 and 2023, the revenue generated from our Tea Mama products was RMB94.8 million, RMB126.7 million, RMB144.4 million, RMB52.8 million and RMB69.9 million, respectively, accounting for 23.4%, 22.7%, 31.2%, 23.1% and 30.1% of our total revenue in the same periods, respectively. The average selling price range of our major products under Tea Mama ranged from RMB203 to RMB1,087 per kilogram, RMB295 to RMB1,067 per kilogram, RMB432 to RMB1,165 per kilogram, RMB409 to RMB1,097 per kilogram and RMB485 to RMB1,172 per kilogram in 2020, 2021, 2022 and the six months ended June 30, 2022 and 2023, respectively. The majority of our products under Tea Mama, which contributed over 75% of our revenue from Tea Mama in 2022, had an average selling price range from RMB500 to RMB2,000 per kilogram in the same year.
Lan Cang Gu Cha — Iland Tea
With our in-depth industry insights, we believe that we have acutely identified the need among new middle-class consumers for tea products that are both tasty and aesthetically enjoyable and launched Iland Tea in July 2022 with suggested retail prices ranging from approximately RMB1,242 per kilogram to RMB4,363 per kilogram. We strive to build Iland Tea into a product line that features quality products, fashionable packaging and convenience in drinking. In 2022 and the six months ended June 30, 2023, we generated an insignificant amount of revenue from sales of Iland Tea products.
Other Services and Products
Other than tea leaf products, we also sold a variety of tea wares and tea making utensils and provided teahouse services to consumers in our stores during the Track Record Period. In 2020, 2021, 2022 and the six months ended June 30, 2022 and 2023, the revenue generated from such sales and services was RMB11.6 million, RMB18.1 million, RMB17.1 million, RMB9.5 million and RMB6.9 million, respectively, accounting for 2.8%, 3.2%, 3.7%, 4.2% and 3.0% of our total revenue in the same periods, respectively.
Source: Lancang Ancient Tea (06911) Prospectus (IPO Date : 2023/12/14) |