Goodme: Strategic Flexibility and the 'Tea Industry's Costco' – Can It Sustain Long-Term Dominance?

$GUMING(01364.HK) In the previous article "Gu Ming: Slow is Fast! Is there a 'Costco' in the Tea Beverage Industry?", we focused on comparing the business model differences among Mixue Ice Cream & Tea, Chabaidao, Aintea Jenny, and Gu Ming, and analyzed the advantages and unique strategies of Gu Ming's supply chain. In this article, we will focus on discussing from an investment perspective:

1) After reaching 10,000 stores, how much more room is there for Gu Ming to open stores domestically?

2) After the stock price tripled post-IPO, how should we view Gu Ming's current investment value?

Let's dive into the analysis:

I. Efficient Store Operation & Management as the Foundation of Expansion

Before discussing Gu Ming's growth potential, Dolphin Research wants to add that, although the biggest difference in specific strategies between Gu Ming and other tea beverage brands lies in Gu Ming's regional dense store opening and high-frequency new product launch strategy, the core driver behind this is an efficient supply chain system and digitally-driven store operation efficiency.

Here we briefly introduce Gu Ming's store operation and management system:

Firstly, in terms of franchisee selection, similar to Mixue Ice Cream & Tea, Gu Ming requires franchisees to operate in-store, emphasizing the cooperation and actual operational willingness of franchisees. In the early stages, they conduct interviews and a series of screenings to select applicants who can establish a long-term presence in the store, rather than accepting investment-type franchisees. In contrast, Chabaidao and Auntea Jenny attract franchisees with lower initial franchise fees and do not rigorously review the actual operational experience of franchisees, allowing third-party management of stores, indicating that Mixue Ice Cream & Tea and Gu Ming have higher-quality franchisees.

In the store operation phase, due to Gu Ming's use of fresh fruit & fresh milk, the production process is more complex. To ensure high-frequency new product launches and consistent taste, Gu Ming adopts a pre-processing supply chain + automated equipment deployment in stores model:

Fresh fruits are washed, sorted, peeled, and pitted at Gu Ming's regional processing centers, and are graded by sugar content/size using an automatic sorting line. The pre-processed fresh fruits are directly delivered to stores via Gu Ming's cold chain, ready for use upon arrival, saving store processing time.

Additionally, in-store, Gu Ming requires all franchisees to purchase internally developed smart cutting machines and automatic tea machines, allowing store employees to complete operations with just a button press, minimizing reliance on manual labor while enhancing product production efficiency and stability. In contrast, Chabaidao and Auntea Jenny have a relatively low proportion of automated equipment, requiring manual intervention in fresh fruit processing.

Furthermore, in store management, similar to Mixue Ice Cream & Tea, according to the prospectus, Gu Ming has equipped a total of 660 supervisors, with each supervisor covering an average of only 15 stores, the highest single-store supervisor ratio in the industry. In addition to conducting weekly on-site inspections, supervisors also remotely monitor various store operation data through the "Store Treasure" system and are responsible for training store employees, coordinating resources, and maintaining long-term franchisee ecosystem stickiness.

II. Stores Still Have Room to Double

For chain tea beverage brands, opening stores is always the core source of growth. Therefore, the most important thing is to determine how much more room there is for Gu Ming to open stores. By the end of 2024, Gu Ming had opened a total of 9,914 stores nationwide, just one step away from 10,000 stores. Theoretically, Gu Ming's future store opening space comes from two parts: regional densification in provinces already entered and expansion into other blank provinces. For Gu Ming, Dolphin Research temporarily does not consider overseas market expansion.

However, based on information from Gu Ming's performance communication meeting, since the 14 provinces not yet entered are mostly remote northern and western regions, Gu Ming's supply chain foundation is weak, lacking warehousing & cold chain logistics facilities, which also means that Gu Ming's greatest supply chain advantage—delivery cost & efficiency—will no longer exist.

Coupled with the significant first-mover advantage of Mixue Ice Cream & Tea and Auntea Jenny in northern regions, and Gu Ming's relatively weak brand awareness, Dolphin Research judges that in the next 3-5 years, Gu Ming will primarily focus on densifying store openings in the 17 provinces already entered.

Below, we estimate the store opening space based on whether different provinces have reached a critical scale (whether more than 500 stores have been opened in the province):

8 provinces that have already reached critical scale (Zhejiang, Guangdong, Fujian, Jiangsu, Anhui, Jiangxi, Hubei, Sichuan); for provinces that have reached critical scale, considering that Gu Ming has already established a dense warehousing and cold chain logistics system and has accumulated a group of loyal and high-quality franchisees with a strong willingness to open second stores, Dolphin Research believes that regional densification on this basis, sinking store opening difficulty is not high.

In terms of specific store opening estimates, we refer to the method in "Luckin Coffee's 'Misfortune', Mixue's Big Bet on 'Fields'?" to anchor the store opening space in other regions by benchmarking against the model market.

According to Narrow Door Restaurant Eye data, Zhejiang, as Gu Ming's base, had a total of 2,139 stores by the end of 2024, corresponding to a population size of 66 million in Zhejiang, equivalent to an average of 32.3 stores per million people, the highest in the country. Considering that the company has clearly stated that it will not conduct large-scale densification in Zhejiang and Fujian, in an optimistic scenario, we assume that the store density in the other 7 provinces reaches the level of Zhejiang, corresponding to 5.51 billion/1 million*32.3, which is 17,800 stores.

However, considering the actual situation that Gu Ming's supply chain maturity and competitive first-mover advantage in other provinces are difficult to reach the level of Zhejiang, Dolphin Research neutrally assumes that other regions will achieve an average store density of 75%-80% of Zhejiang through stepwise densification, corresponding to a store opening space of 13,400-14,200 stores for Gu Ming, with a 72%-82% increase space compared to the current level.

9 provinces already entered but not yet reaching critical scale (Guangxi, Sichuan, Henan, Shandong, Yunnan, Guizhou, Chongqing, Hainan, Hebei): Considering that Gu Ming's stores in these provinces are relatively scattered in the early stage, the expansion of the logistics radius will lead to increased delivery costs, which also means that the single-store profitability in the initial stage is lower than in mature regions that have reached critical scale, and the payback period for franchisees will be longer, so under normal circumstances, franchisees' willingness to join is also lower.

However, Dolphin Research believes that Gu Ming can lower the initial store opening threshold for franchisees and gradually fill the supply chain gaps, replicating the management & operation model of mature regions, and still has first-tier competitiveness in the mid-end price range. In the medium to long term, these provinces are also expected to reach critical scale; Dolphin Research neutrally assumes that the average store density reaches 40%-45% of Zhejiang, and using the same calculation method, the store opening space for Gu Ming is 7,000-7,800 stores, with nearly three times the increase space compared to the current level.

Therefore, without considering the provinces not yet entered by Gu Ming (Dolphin Research believes the probability of entering within 3-5 years is low), the overall store opening space for Gu Ming is 21,000-22,000 stores, with at least double the space compared to the current level.

III. Investment Value Judgment of Gu Ming: Offensive and Defensive, Winning in Certainty

Before analyzing investment value, we first project the medium-term store opening pace and changes in single-store revenue based on our previous analysis of Gu Ming's store opening space and the corresponding performance judgment.

In terms of store opening pace, unlike Mixue Ice Cream & Tea, Chabaidao, and Auntea Jenny, which have accelerated store openings nationwide in recent years, Gu Ming adopts a steady approach, focusing on the matching of supply chain and stores, with an overall stable store opening pace. Therefore, we assume that Gu Ming's future store opening pace remains stable, with an average of 1,500-2,000 new stores opened annually.

Structurally, based on management's information at the performance meeting—"In 2025, first-tier & new first-tier cities will focus on optimizing existing store efficiency, with 60% of new stores opening in non-provincial capital third- and fourth-tier cities", meaning that densification in lower-tier markets will become the main battleground for Gu Ming's future store openings. Based on the above assumptions, Dolphin Research estimates that Gu Ming's store count will reach 19,200 by 2029, approaching the medium-term store opening upper limit estimated by Dolphin Research.

In terms of single-store revenue, although the overall industry price war and the "315" food safety incident caused a short-term impact on Gu Ming's store GMV, with a slight decline in same-store revenue in the first three quarters of 2024, after Gu Ming proactively slowed down the store opening pace in 2024, reorganized and rectified the franchisee network, and strengthened store management, same-store sales recovered to high single-digit growth in Q1 2025 on a low base.

By the second quarter, with the recent summer "takeaway war" + high-temperature peak season, channel research information revealed that Gu Ming's same-store growth in June exceeded 20%, significantly higher than in previous years.

This takeaway war, due to its subsidy nature, mainly temporarily boosted single-store sales, so Dolphin Research made a relatively positive assumption for Gu Ming's same-store growth in 2025, gradually stabilizing after 2026.

Overall, we expect that with Gu Ming's entry into the coffee category and frequent product innovation to enhance consumer repurchase rates, Gu Ming's single-store revenue will maintain mid-to-high single-digit growth over the next five years. Based on the above assumptions, Dolphin Research's revenue expectations for Gu Ming over the next five years are as follows, with a CAGR of approximately 21% in revenue from 2025 to 2029.

Dolphin Research has made relatively positive assumptions about Gu Ming's profitability. In terms of gross margin, although subsidies are needed for franchisees in provinces that have not yet reached critical scale to reduce their upfront investment costs, Dolphin Research assumes that with the increase in the proportion of self-supplied raw materials, improvements in processing methods, and continuous enhancement of scale effects, the overall gross margin is expected to rise slightly and steadily.

On the expense side, due to intensified industry competition in 2024, Gu Ming increased IP co-branding and advertising expenses, leading to a rise in the marketing expense ratio. Dolphin Research assumes that with the enhancement of scale effects and the slowdown of industry price wars, the sales expense ratio will gradually decrease from 5.5% to 4.5%, and the management expense ratio will decrease from 3.5% to 3% with the advancement of digitalization and improvement in operational efficiency, overall, Dolphin Research expects Gu Ming's profit CAGR to reach 25% from 2025-2029, faster than the 21% compound growth rate on the revenue side.

From a relative valuation perspective, since the company is a growth stock, Dolphin Research estimates PE based on the company's net profit attributable to the parent company when it enters a stable growth period, referencing the current mature period PE of peers.

Based on our projection of Gu Ming's store opening pace, without considering regions outside the 17 provinces already entered and overseas, by 2029, Gu Ming's total store count will be close to the upper limit of store openings estimated by Dolphin Research, meaning that after 2029, Gu Ming's performance growth will rely more on optimizing single-store efficiency, and by then, the competitive landscape of the chain ready-to-drink tea industry will have stabilized after five years of chaotic battles and consolidation, so we can assume that Gu Ming will enter a stable growth period in performance after 2029.

In 2029, Gu Ming's profit growth rate is 20%, giving a 23x PE for 2029 (the mature chain restaurant PE is between 15-20x, considering Gu Ming's leading position in the mid-end price range, we give a certain valuation premium), and then discounting back to 2025 using Dolphin Research's DCF valuation with WACC=11.5%, corresponding to a 2025 PE valuation of HKD 77 billion, about 17% higher than the current market value.

From an absolute valuation perspective, assuming WACC=11.5% and a perpetual growth rate of 3%, the DCF valuation under Gu Ming's neutral expectation is approximately HKD 31.7, about 15% higher than the current HKD 27.7; the two valuation scenarios verify each other.

Additionally, unlike Mixue Ice Cream & Tea, Gu Ming's lock-up period has passed, so there will be no stock price impact caused by the lock-up expiration. Overall, Dolphin Research's performance assumptions above do not linearly extrapolate the surge in orders brought by the short-term takeaway war, and are generally rational and neutral, so the 14% premium space, although not particularly attractive, also has considerable certainty.

Summary: At the Current Node, Gu Ming's Potential is Greater

Based on the above analysis, for the three tea beverage companies in the 10-20 yuan mid-end price range (Gu Ming, Auntea Jenny, Chabaidao), Dolphin Research believes that whether in terms of the completeness of supply chain construction or the management and operational capabilities of franchise stores, Gu Ming's competitiveness is significantly higher.

Compared to Mixue Ice Cream & Tea, although both have found their respective "optimal solutions" in their respective price ranges, Dolphin Research believes that at the current node, Gu Ming's development potential is greater, mainly because Gu Ming deliberately slowed down the store opening pace, seeking stability rather than speed, similar to Costco's business philosophy.

On one hand, in terms of store opening space, Mixue Ice Cream & Tea's nationwide accelerated store opening dividend period has passed, and the remaining store opening space mainly comes from continuous densification in lower-tier markets, with a significantly slowed store opening speed.

On the other hand, Gu Ming can not only densify in the current 17 provinces but also has completely blank areas in 17 northern provinces. Although Dolphin Research acknowledges that whether in terms of supply chain construction, brand awareness, or due to climate reasons, consumer demand for fresh fruit tea in northern blank areas is not as favorable as in provinces already entered.

However, referring to the store opening situation of Chabaidao and Auntea Jenny in the north, as long as Gu Ming is willing to invest in improving supply chain construction, there is still franchise demand in blank provinces, but it is just that in the next three to five years, the cost-effectiveness for Gu Ming is not high.

On the other hand, in terms of single-store revenue, Gu Ming officially entered the coffee track in 2025, unlike Mixue Ice Cream & Tea, which established Luckin Coffee to operate coffee categories separately, causing some erosion effect on Mixue Ice Cream & Tea's stores. Gu Ming's coffee is only operated within existing stores, so the coffee business is a real increment for Gu Ming.

Overall, Dolphin Research believes that Gu Ming is also a very high-quality chain-ready-to-drink tea company, breaking through in the seemingly most competitive and crowded mid-end price range of 10-20 yuan, finding its growth code.

Through regional densification, on one hand, it has raised the entry barriers for other brands in key scale provinces, maximizing defensive attributes. More importantly, at the current stage, Gu Ming still has significant densification space in provinces that have not yet reached critical scale, making it a company with both offensive and defensive capabilities.

Related historical articles by Dolphin Research:

July 4, 2025: "Gu Ming: Slow is Fast! Is there a 'Costco' in the Tea Beverage Industry?"