Nayuki's Tea Stock Hits Lowest Point After ¥28,000 Fine! How to Solve Food Safety Issues?

Nayuki's Statistical Violation and the Slide in Its Share Price

On December 1, Beijing Nayuki Catering Management Co., Ltd. was fined 28,000 yuan by the Beijing Xicheng District Bureau of Statistics for providing a false "2020 total employee wages indicator," in violation of the Statistics Law of the People's Republic of China. After the penalty was announced, Nayuki's share price slipped slightly, from HK$9.35 per share to HK$9.25. By December 3 it had fallen to HK$8.84, the lowest point since the company listed.

Troubles Since Going Public

Nayuki listed on the Hong Kong Stock Exchange on June 30 this year. As the first stock in the new-style tea beverage sector, it fell below its issue price on the very first day of trading, dropping as much as 13.54% to HK$17.12 per share. Since then, frequent food safety problems and insufficient profitability have kept the share price in a steady decline, including a particularly sharp fall of 26.8% on July 27. Today the stock trades at nearly half its opening price, and the company expects a full-year loss for 2021.

Sector Challenges and Food Safety Concerns

Looking at Nayuki's dismal performance since listing, Heytea is also testing the waters. Heytea, which has repeatedly been rumored to be preparing for an IPO, still has not made a move, because new-style tea beverages - once a favorite of investors - now face scrutiny and skepticism. The main source of that skepticism is food safety.

Since Nayuki's listing, third-party platforms have seen a steady stream of consumer complaints against it, including foreign objects in drinks (hair, plastic, paper scraps and the like), unhygienic conditions at drink preparation counters, and food on sale showing signs of mold.

Media Exposure and Public Backlash

By August 2021, Xinhua News Agency reported that several Nayuki stores had issues such as falsified raw material records and unhygienic environments, sparking public concern. The reports noted problems including cockroaches running around, unwipe rags, and inaccurate labeling dates. In the wake of the coverage, Nayuki handled the matter only privately, without offering consumers any explanation. Xinhua therefore kept pressing, pointing out that some stores were still using fruit after employees had cut away the rotten parts. When the news broke, netizens erupted. Nayuki immediately launched overnight investigations and rectifications of the stores involved, invited market regulatory departments to inspect, and released the results promptly.

Brand Reputation and Competitive Pressure

After the exposure, Nayuki's food safety problems kept recurring, doing significant damage to its brand reputation and reducing consumers' willingness to spend, which in turn weighed on the share price. On top of that, competition in the sector has intensified, and Nayuki lacks clear advantages.

Among the "three giants" of new-style tea - Heytea, Lelecha, and Nayuki - Nayuki, beyond making its to-go cups easier for women to hold, does not match Heytea and Lelecha in product update speed, uniqueness, or appeal. Even when it launches new products, the flavors resemble those of Heytea and Lelecha, while the drink presentation and sales methods are less attractive than the other two.

Business Model and Competitive Disadvantages

Although Nayuki was the first to introduce a "tea plus soft European bread" sales model, it failed to spark consumers' desire to buy the combinations. Lelecha later launched the same model and, with more appealing products and prices, quickly captured a large slice of Nayuki's market. Heytea, meanwhile, has kept collaborating with other brands on milk teas and merchandise, giving it stronger brand recognition than Nayuki.

On the business model side, Heytea and Lelecha run smaller stores, which keeps operating costs under control. Nayuki, however, has to bake European bread fresh on site, so it cannot cut costs through central-kitchen preparation or by shrinking its stores. There is also the concern that smaller stores would not meet the needs of customers who prefer a larger social space.

Conclusion

In short, until Nayuki resolves its food safety and profitability problems, its share price will stay sluggish and may fall even further.

Image source: Internet

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