Beverage firms see China as their cup of tea

New-style brewed brands finding sweet spot with curious consumers
With increasingly fierce market competition, new-style tea beverage brands in China are taking their best shot to look for new growth points in order to better satisfy consumers' particular, dynamic and sometimes fickle gustatory desires.

From business mode to marketing strategies, they are trying their best to win the hearts — and taste buds — of tea drinkers.

In September, Heytea, a popular beverage chain brand based in Shenzhen, Guangdong province, launched a milk-based product exclusively used for new-style tea beverages. Through adjusting the dairy content and using advanced processing technologies, it creates a richer taste, which is more suitable for the palates of new tea product fans.

The company said the protein content of the milk is as high as 3.8 grams per 100 milliliters, some 27 percent more than regular additives.

"The launch of the customized milk additive filled in a market vacuum in the new-style tea beverage market. Previously, such milk was more often used in the coffee sector," said Zhu Danpeng, an independent food and beverage analyst based in Guangzhou, Guangdong.

According to the report jointly released by the tea and new beverage committee of the China Chain Store and Franchise Association, as well as the Meituan Research Institute, China's new-style tea beverage market is expected to reach 149.8 billion yuan ($21 billion) by the end of this year, and surpass 200 billion yuan by 2025.

As of Aug 31, there were roughly 515,000 new-style tea beverage outlets in the country, a 36 percent increase from the end-2020 level. Broken down by region, the number of outlets in Guangdong's Guangzhou, Shenzhen and Dongguan; Sichuan province's Chengdu; as well as Shanghai and Chongqing, all surpassed 6,000. Specifically, Guangzhou shops alone surpassed 12,000, the report said.

Beginning this year, market competition has become particularly fierce. In August, ChaPanda, a Chengdu-based new-style tea beverage chain brand, officially submitted a listing application to the Hong Kong stock exchange, with China International Capital Corp Ltd as the exclusive sponsor.

Prior to that, at least five other local chain brands, including Mixue Bingcheng, Chagee, Auntea Jenny and Guming, were also planning initial public offerings, Bloomberg reported.

"Competition is particularly fierce among mid-end new-style tea beverage brands. To some extent, IPOs may be their last chance," said Shi Li, an F&B analyst at online retail media Lingshouke.

Leading enterprises are also shifting their strategies. Last year, Heytea and Naixue lowered some of their product prices from over 30 yuan to between nine yuan and 19 yuan.

"The price adjustment of high-end brands, which enables them to almost cover the whole price range, was a severe blow to mid-end competitors, whose product prices are set within the 15 to 25 yuan range. Amid such a price range, consumers tend to choose those of higher quality and thus higher production costs," Shi said.

Meanwhile, top-tier brands are introducing smart devices to raise production efficiency and cut costs.

The production process of new-style tea beverages is complicated, which previously basically relied on manual labor wherein a store needed to be staffed with dozens of employees, said Peng Xin, founder of Naixue.

Manual labor costs have been high. According to the prospectus submitted by Naixue at the beginning of 2021, its manual labor costs surged from 340 million yuan in 2018 to 920 million in 2020.

Starting from 2021, Heytea and Naixue have established professional teams, recruiting mechanical and electrical engineers to design and develop in-house smart devices. In 2022, the first batch of smart devices was put into operation in Heytea and Naixue shops, said a report from Guangzhou-based media group Bright Media.

Bright Media said Heytea's self-developed smart devices are more comprehensive, which refine the steps of tea making, with each step expected to have its own intelligent devices. Meanwhile, Naixue emphasizes "small and exquisite", and uses smart devices in conjunction with automatic scheduling systems.

On July 4, Heytea officially launched a whole set of milk tea technology solutions, including intelligent scales, smart tea dispensers, automatic peeling machines, corers, lemon squeezers, dicers and intelligent steaming and boiling machines, covering multiple facets such as raw material preparation and management as well as tea blending.

The production efficiency has jumped correspondingly. Taking the automatic peeling machine as an example, in the past, manual peeling of a basket of grapes took about 15 minutes. Now, machine peeling only takes a minute — and pulp retention is more complete. The intelligent tea machine completes the production of a cup of tea in as fast as four seconds, Heytea said.

"Apart from all these, another blow for mid-end brands is that leading enterprises are quickly expanding their outlets," Shi from Lingshouke said.

Last November, Heytea officially launched its franchise model. On July 20, Naixue took the same action, with Lelecha also following their leads.

Currently, there are over 2,500 Heytea outlets nationwide, covering over 240 cities, among which more than 1,000 were set up based on a franchise model.

In overseas markets, a Heytea outlet in the Soho area of London has been well-received by consumers. Since opening in August, the outlet sells an average of 1,300 bottles per day, and has set a single-day record of 2,000 bottles — generating sales revenue of 12,000 pounds ($15,145).

On Oct 13, Heytea officially opened an outlet in Swanston Street, Melbourne, Australia. Its first outlet in Canada, located in Crystal Mall near Vancouver, was opened at the end of October.

Likewise, Naixue plans to open its first direct store in Bangkok, Thailand, at the beginning of December. It has launched rebranded tea beverage products in its China outlets in advance, offering domestic consumers an undifferentiated experience like that in Thailand — a new attempt in the new tea beverage sector.

Mid-end new-style tea beverage brands have no choice but to meet the challenge head-on. This year, Guming and Auntea Jenny both have goals of establishing 3,000 new outlets, heading to the goal of running 10,000 outlets nationwide.

The expanding number of outlets has higher logistics and supply chain needs, which means huge amounts of capital inflow, Shi said.

A prospectus from Mixue Bingcheng showed that between 2019 and the first quarter of 2022, warehousing and financing costs of the company increased year-by-year. In 2021 alone, the company set up 12 rental warehouses and logistics bases.

According to the IPO plan of Mixue Bingcheng, the beverage player is expected to raise a total of nearly 6.5 billion yuan, and a major part of the funds raised will be invested in further optimizing its industrial chain, combining research and development, manufacturing, warehouse and logistics, sales and chain store operation.

With mounting competition, Bo Wenxi, chief economist at marketing firm Interpublic Group China, offered his suggestions.

"Leading brands may take advantage of marketing strategies, such as new product launches and cross-branding, in order to constantly attract new customers and raise sales revenue. They may also consider expanding business overseas to satisfy demand from global consumers and increase market share."

Yi Wan, a 30-year-old consumer in Beijing, said: "I have tasted so many different milk teas. Now, apart from the ones that I usually buy, I hardly try any new products unless they're an IP cross-branding that I'm interested in."

For mid-end enterprises, differentiated competition is likely the best way forward. For example, they can offer customized products for a specific consumer group, or other more personalized services. Furthermore, through supply chain management optimization, they are able to increase production efficiency and lower costs to further enhance market competitiveness, Bo said.

"Small enterprises may focus on a niche market and offer professional products and services. They may also consider localized marketing strategies and working with major enterprises, so as to seek out new growth points," Bo said.

zhengyiran@chinadaily.com.cn