CBN Friday Special丨Tea is the new coffee: China’s “new-style tea” takes domestic market by storm
S: Hello everyone. Welcome to CBN Friday Special. I’m Stephanie LI.
R: I’m Zhang Ran. Hey Stephanie， a new milk tea shop opened yesterday right down our office building， do you want to get a cup of bubble tea now?
S: I’d love to， but we’re in the middle of the show.
R: No worries. It takes orders on its mini-program on WeChat and takeaway tea will be delivered to you in no time. See， it’s all done!
S: Fantastic， and quite convenient. While waiting for our tea to be ready， let’s talk about the new beverage phenomenon in China. Milk tea， or known as bubble tea， has become somewhat of a national obsession and a booming business in China. For example， in April 2021， Sexy Tea， a viral tea brand based in the central city of Changsha， opened its first pop-up store in south China’s Shenzhen. The arrival， even though only temporarily， was met with unreserved enthusiasm among that city’s young， well-to-do residents. At one point， the line to enter the store grew so long that local traffic cops had to intervene， and shrewd scalpers were able to resell a 16-yuan cup of the store’s signature milk tea for upward of 200 yuan.
But recently， the so-call “new-style tea” market is getting increasingly crowded and competitive. Its popularity has fuelled many retailers whose main activities lie elsewhere to open milk tea stores to generate extra revenue and attract more customers， as drugstores， supplement makers and even postal services throw in their hats. Last month， two leading upscale brands HeyTea and Nayuki， both originated in Shenzhen， announced to cut their prices， while China’s milk tea industry sees overall inflation of costs.
So what do you think， Ran， is it just a “bubble” economy?
R: Good question. In fact， it’s hard for milk tea stores to survive amid fierce competition in the industry. Nayuki announced last month 135 million to 165 million yuan of net losses in 2021， while its shares have tumbled over 60 percent after debuting in the Hong Kong Stock Exchange in 2021. And the popular beverage chain Sexy Tea was complained by its staff for lowering the salary after halting about 80 stores in 2021， while HeyTea scrambled to defuse rumours on a massive layoff as it is reportedly preparing for an IPO.
S: Like many other businesses in the food and drink industry， milk tea brands are also hard hit by the pandemic， with Sexy Tea shutting down dozens of its physical stores across the country last year， and the Guangzhou-based Lelecha closed its last store in the city last month， due to declined revenue and increasing cost in raw materials， on top of the impact of the ongoing pandemic， which has made any catering service rely heavily on takeaway online orders as their lead revenue format.
R: Although the number of businesses is fast-growing， there's an increasing number of firms shutting down. For individuals who want to start a business， data shows that tea drinks stores are among the business choices that are most likely to fail. The average life span of tea drinks stores is less than 14 months， half of that of coffee shops. Data from a food and beverage industry research institute shows that 65 percent of the stores couldn’t survive the first year. Analysts conclude three main reasons for the stores’ failures， including severe product homogenization， supply chain shortage， and lacking innovation.
S: Nonetheless， hot money continues to flow into the industry. Investment into tea drink makers hit a 10-year peak in the first six months of 2021， with more than 5.3 billion yuan flowing in， according to Chinese Venture magazine. There are a few reasons behind investors’ passion in tea. First， tea drinks contain addictive substances like caffeine， which also helps people feel happier and less tired. Second， the classic combination of caffeine， sugar and fats is what our body desires， regardless of health. Last but not least， tea is more popular and widely accepted in China than coffee， as the tea industry has a market scale five times bigger than that of coffee. But the industry is at a crossroads where it must contend with over competition and an investment frenzy.
R: You’re right. The mania of investment could easily create a bubble in the market， while what tea brands should pay more attention to， is how to improve their products and services in order to rebrand themselves as healthy， tasty food providers. Because preferences have changed， with more Chinese consumers concerned about food safety and health. Typical milk tea consumers， 70 percent of whom are millennials and Gen-Zs， care most about the quality and safety of tea drinks， a survey by CBNData shows.
S: Apart from a trend to eat and drink healthier， customers are more price-sensitive in wake of the pandemic. So the latest price cut of HeyTea and Nayuki is deemed to be a move to reposition itself as a more affordable drink brand， with a decent profit gain laying the foundation. Such a move strengthens their positions in a time other brands have weakened， with their most ardent consumers naturally delighted to get the same high-quality product for less cost.
R: Also， in order to be more attractive to Gen-Zs， beverage brands are putting more effort in digital construction， ranging from online ordering services to virtual humans. For example， Nayuki released its first virtual brand ambassador NAYUKI in December last year， together with blind boxes， art toys， and NFTs of the character， raking in 190 million yuan in 72 hours.
S: Analysts also suggest that brands could expand the “social functions” of their products， as data shows that 46 percent of the Gen-Z consumers buy tea beverage drinks to connect with their friends， lovers， and colleagues. HeyTea is trying to do so by starting live-streaming shows， which aims to tell stories of the brand and arouse consumers' empathy.
R: Right. Oh look Stephanie， our milk tea order is on its way here. So before we end， a quick look at the stock market. Chinese stocks closed lower on Friday as the CIPS and oil and gas sectors recorded losses. The benchmark Shanghai Composite lost 0.96 percent and the Shenzhen Component was down 1.37 percent. The Hang Seng Index tumbled 2.5 percent， dragged by the TECH sector.
Executive Editor: Sonia YU
Editor: LI Yanxia
Host: Stephanie LI， ZHANG Ran
Writer: Stephanie LI， ZHANG Ran
Sound Editor: ZHANG Ran
Graphic Designer: ZHENG Wenjing， LIAO Yuanni
Co-produced by 21st Century Business Herald Dept. of Overseas News & SFC Audio/Video Dept.
Presented by SFC
21世纪经济报道海外部 南财音视频部 联合制作