The “A and B” sides of the tea beverage industry: Who is failing? Who is running wild?

The tea beverage industry is facing unprecedented challenges. From internal brand involution and product homogeneity to external cross-border competition, major brands have to find a new balance between innovation and cost control.

In the recent tea beverage industry, there are more “new accidents” than “new stories”.

Not long ago, the topic of "Too many Shuyi Shaoxiancao stores closed down, and second-hand equipment was unsalable" became a hot search; Nayuki's Tea store growth stagnated; Gu Ming released a video of employees with their hands tied and apology signs hung, which aroused consumers' disgust and complaints...

It seems that only a few brands such as Bawang Cha Ji are still indirectly reporting "good news". Most brands are becoming more and more "painful": on the one hand, they continue to launch new products, on the other hand, they suffer from the difficulty of launching hit products; on the one hand, they are busy following consumer tastes, on the other hand, they are deeply trapped in the vortex of homogeneity and price wars.

Consumers' tastes are constantly changing, which requires that the updating of tea products must meet the triple requirements of "fast, accurate and ruthless". Brands must also control costs and resist price wars initiated by competitors.

The tea beverage industry seems to have entered an infinite vicious circle. The more a brand pursues hot spots to promote its products, the more passive it will become. The more frequently it does marketing, the greater the risk of failure.

On the other hand, brands from other industries frequently cross over to make milk tea, and cross-border milk tea is often more talked-about than milk tea making cross-border products.

Not long ago, Luckin Coffee and Starbucks both entered the market and put a lot of effort into their new milk tea products, pricing them at 9.9 yuan and closely following the current trend of light tea and Chinese tea. Luckin Coffee's new tea product, Qingqing Jasmine, sold over 44 million cups in the first month of its launch.

Under the pressure of internal industry reshuffle and external cross-border brands entering the market to "divide the cake", some old brands in the industry have begun to reflect on low prices and homogeneity.

Heytea previously issued an internal letter, which pointed out that Heytea will no longer produce homogeneous products or simply engage in low-price internal competition, and will launch more differentiated products and brand activities.

The two requirements mentioned in this letter really hit the key point of the current weak growth of tea brands: insufficient innovation. Looking back at the tea brands that have been able to achieve rapid expansion in the past, they were all loved by consumers because of their own uniqueness.

However, innovation is becoming increasingly difficult in today's tea industry.

01 Closing stores, crashing, tea brands moving forward in anxiety

Competition in the tea beverage industry is even more intense this year.

According to data released by Zhaimen Canyan in June this year, the number of new stores opened in the tea industry in the past year was 165,000, with a net increase of 46,000. This means that nearly 120,000 tea shops disappeared in one year.

In August this year, the number of newly opened stores in the past year was 167,000, basically the same as in June, but the net growth was reduced to 35,000, and tens of thousands of stores were closed within two months.

The industry has also spawned the profession of "tea shop second-hand equipment recycler", which specializes in the recycling of tea brand equipment. The operating status of tea brand stores can also be seen from the mouths of these recyclers.

Previously, "Too many Shuyi Shaoxiancao stores closed down and second-hand equipment was unsalable" became a hot search, and a recycler told China Business News that when he was clearing out his inventory, he sold more than a dozen sets of equipment that he had previously spent 60,000 to 70,000 yuan to recycle as scrap metal for 2,000 yuan. Another industry insider said that he received 13 calls from Shuyi Shaoxiancao franchisees in one day to close their stores.

Image source: Shuyi Shaoxiancao official Xiaohongshu account

In the ever-increasing tide of the tea beverage industry, the niche market in which Shuyi Herbal Jelly is located - Herbal Jelly - has gradually been forgotten by consumers. Although the brand is in the tea beverage industry, which is a "gathering place" for marketing and collaborations, it rarely has any marketing moves that go beyond the circle. Therefore, its presence has not been high in recent years.

Chen Baoping, an observer of the catering industry and founder of FeiMa Technology, told Lianjie Insight that Shuyi Shaoqiancao once had advantages because the Shaoqiancao category was unique at that time, and with good products and a complete expansion system, it developed.

Nowadays, the competitive pressure is high, the products are highly homogenized, have lost their uniqueness, and have weak cultural attributes, making it difficult to differentiate themselves, so development is hindered.

In fact, tea brands are becoming more and more similar, and their marketing actions are becoming monotonous. Apart from co-branding with the most popular IPs, they produce some co-branded packaging bags, coasters, sticker peripherals, etc., which are used to promote new products. There are fewer and fewer marketing activities outside the circle.

In addition, because tea beverage brands are closer to consumers' lives and are generally well-known, bad things about well-known tea beverage brands are more likely to spread far and wide, and there are always tea beverage brands that are exposed to failures.

Previously, the account of Gu Ming Guangdong Branch posted a video on Douyin and Xiaohongshu platforms. Many Gu Ming employees lowered their heads with cardboards with words such as "Crime of forgetting to put in the straw" and "Crime of missing the expiration date" hanging on their chests, and their hands were wearing double-cup milk tea cup holders shaped like handcuffs. The video copy contained content such as "As a warning, there won't be a next time", which caused a lot of discussion.

Gu Ming's official Weibo account also immediately issued an apology statement, saying that the company had removed the video as soon as it received feedback from netizens. It also explained that the video mainly borrowed the ideas of the popular memes on the Douyin platform, "Dog Licking Crime" and "Double Cup Holder Handcuffs", but "our self-proclaimed 'playing with memes' has caused misunderstanding and discomfort to some netizens."

There is also Cha Baidao, which was pushed to the forefront of the "Fat Cat Incident" and encountered consumer boycotts for a period of time after the incident.

Even after the incident, Cha Baidao officials immediately provided a solution by issuing an apology statement, promising refunds, compensation, firing the employees involved, immediately terminating the contract with the franchise stores, and donating in the name of "Fat Cat", but it still could not satisfy everyone.

Image source: Cha Baidao official Xiaohongshu account

Chen Baoping analyzed that the tea beverage industry as a whole is not doing well at present. This is the universality of the current contradictions in the tea beverage industry: first, there is extreme involution, too many peers, serious homogeneity, and oversupply; second, the cost of traffic is getting higher and higher.

However, even so, more and more new players are pouring in, which means that no player can be careless and needs to do their best to grab the cake.

02 Cross-border players are pouring in, and tea brands are under pressure

Brand growth within the industry is sluggish, and cross-border players are beginning to pour in.

Especially with the efforts of the two major coffee giants, the wall between coffee and tea is becoming thinner and thinner.

Previously, Luckin Coffee launched a new product "Light Jasmine Light Milk Tea". Judging from the design of the cup body and the taste of the product, Light Jasmine is suspected to be targeting Overlord Tea Princess's Boya Juexian.

Luckin Coffee, which is good at marketing, also invited Liu Yifei to be its spokesperson and used its signature "killer weapon" - 9.9 yuan per cup. The sales volume of Qingqing Jasmine exceeded 44 million cups in the first month, and it is expected to take over last year's sauce-flavored latte and become a new hit product.

Image source: Luckin Coffee's official Xiaohongshu account

After a successful start, Luckin Coffee immediately launched another new tea product, “Qingqing Oolong Light Milk Tea”, which also received a good response on the day of its release on September 2.

A week after Luckin Coffee launched its milk tea, Starbucks could no longer sit still. While launching a new type of "tea coffee", it also launched two milk tea products, namely Longjing Green Grape Milk Tea and Dahongpao Snow Pear Milk Tea.

You know, Starbucks has always been the target pursued by domestic tea beverage brands and even Luckin Coffee. Many brands have stated that their goal is to surpass Starbucks and become the Starbucks of the tea beverage industry.

Today, Starbucks has launched its first milk tea product, which uses an oriental tea recipe, apparently to cater to the tastes of domestic consumers. Some consumers say that the product tastes a bit like Ba Wang Cha Ji.

However, unlike Luckin Coffee and Bawang Cha Ji, Starbucks did not use the tea + milk combination production mode, but chose two tea bags: Camellia flavored Dahongpao tea bags and Jasmine Longjing tea bags. This means that the tea bags need to be soaked for a period of time before the tea flavor can be released.

Therefore, Starbucks' new milk tea only supports the "Star Delivery" takeaway channel. Many consumers have also reported in Xiaohongshu that the tea flavor of Starbucks' two milk teas is not strong enough, and after receiving the product, it needs to be left to sit for more than half an hour before the tea aroma can be smelled.

Image source: Starbucks official mini program

Chen Baoping analyzed to Lianjie Insight that Starbucks is a company based on American culture, and what it has made has always been the output of American culture. Therefore, for Starbucks, the challenge of cross-border is still relatively large.

In addition to the two coffee brands, many companies have also made moves to cross over into the milk tea business.

For example, Lao Xiang Chicken opened a "Lao Xiang Tea Cafe" that specializes in selling tea and coffee products; previously, China Post had opened a milk tea shop called "Youyang Tea", which attracted many netizens to check in; dairy company Wandashan also crossed over to the tea industry to make money and launched the "Ruci Fresh" brand. As of the end of June this year, Wandashan's "Ruci Fresh" chain stores have expanded to nearly 40 stores.

Recently, Juewei Duck Neck has also started selling milk tea. According to a report by Red Star Capital Bureau, Juewei Duck Neck has launched the milk tea business in 4 or 5 stores in Changsha.

Generally speaking, most of these aggressive cross-border brands have reached their peak as soon as they debuted, because cross-border means that the brand has to enter a track that it is not familiar with and has become a red ocean, so it is inevitable that it will not be able to adapt to the local environment.

Nowadays, the tea beverage industry is full of giants, and every track in the industry is crowded with well-known brands.

For example, Heytea and Nayuki are representatives of high-end tea drinks; Mixue Bingcheng and Guming have formed a unique operating logic and cost control system in the sinking market; brands such as Cha Baidao, Bawang Chaji, and Shanghai Auntie are competing fiercely in the price range of 17-25 yuan.

And judging from the financial reports, many players in the industry are quite strong, and the number of stores of most companies is still increasing.

As of the end of 2023, the number of HEYTEA stores has exceeded 3,200, including more than 2,300 business partnership stores, and the store scale has increased by 280% year-on-year; the brand's directly-operated stores have achieved significant year-on-year growth in monthly sales for 12 consecutive months, with the highest monthly year-on-year growth rate reaching 80%.

The number of Chabaidao stores and members is still growing. As of June 30, 2024, Chabaidao's stores nationwide have increased to 8,385, an increase of about 20% over the same period last year; the number of members has reached 114 million, an increase of more than 70% over the same period last year, of which 35 million are active members.

In Shanghai Auntie's prospectus, we can also see the year-on-year expansion of the store network. In 2021, 2022 and the first nine months of 2023, the number of Shanghai Auntie's stores was 3,776, 5,307 and 7,297 respectively.

In terms of nationwide city coverage, Shanghai Auntie is also one of the brands with the widest distribution in the mid-price range of milk tea. At the end of the reporting period, Shanghai Auntie, Gu Ming, and Cha Baidao had entered 343, 195, and 335 cities respectively.

Among the new players, Bawang Chaji is still running wild. This new tea brand with an oriental paper-cutting logo, ink-wash design on the cup body, and original leaf fresh milk tea as its main product, achieved a GMV of 10.8 billion yuan in 2023. By the end of 2023, Bawang Chaji had more than 3,900 stores, a year-on-year increase of 233%.

Judging from the single-store data, the average GMV of a single Bawang Cha Ji store was 483,000 yuan, an increase of 88% year-on-year. In terms of the number of cups delivered, it is equivalent to each store delivering 800 cups of milk tea to consumers every day, which is 24,000 cups in one month.

In 2024, Bawang Tea Princess continued to "soar", achieving a GMV of over 5.8 billion yuan in the first quarter. As of May 20, the number of registered members of Bawang Tea Princess has exceeded 130 million, doubling in less than half a year.

Image source: Bawangchaji official Xiaohongshu account

In fact, the tea beverage industry has become an extremely inward-looking track. New and old players have been involuted to the extreme. The pressure on cross-border players who want to grab a piece of the pie can be imagined.

Chen Baoping analyzed that companies like to cross-border because they encounter obstacles in their original fields and want to break through. However, cross-border means crossing into a field that others are good at, and you must find a way to surpass the cognition of existing entrepreneurs, otherwise it will be difficult to cross successfully.

03 Homogeneity and price wars go hand in hand. If you don’t innovate, you will be eliminated.

In the past, tea brands formed the current rich product system by cleverly arranging and combining various tea ingredients.

However, as the industry has moved from the development stage to the mature stage, the ingredients of the products have been exhausted, new combinations are becoming fewer and fewer, and homogeneity is becoming more and more serious.

Take Luckin's Qingqing Jasmine as an example. The main ingredients of this product are jasmine tea, pure milk, light milk, green coffee liquid and original flavored syrup. The main ingredients of Bawangcha Ji Boya Juexian are jasmine snow buds, milk, ice brown non-hydrogenated base milk, etc. Both contain "jasmine".

In the tea beverage industry, almost every brand has produced products with "jasmine" as the main flavor. When searching for "jasmine milk tea" on the Ele.me platform, the search results show brand stores such as Jasmine Milk White, Coucou, Bawang Cha Ji, Cha Baidao, and Yidiandian. The flavors of the related products under each brand are not much different.

As homogeneity intensifies, brands can only pursue advantages in price.

Take "Jasmine Green Milk" for example, most consumers only need to spend about 14 yuan to buy a cup of Jasmine Green Milk. Among them, the price of Chabaidao cold drink large cup 650ml Jasmine Green Milk is 13 yuan; Yidiandian large cup 640ml is 14 yuan; Mixue Bingcheng 505ml is only 5.6 yuan.

Image source: Mixue Bingcheng Xiaohongshu official account

Chen Baoping told Insight that the milk tea market is now highly homogenized, with not much cultural differentiation. It has become a fully competitive market where prices are the key.

In this case, it all depends on who has higher efficiency, lower cost and larger scale. If a brand cannot reach its own efficiency scale point and continues to fight a price war, it is likely to be a dead end.

Therefore, continuing to engage in price wars is not conducive to the long-term development of the brand. If tea brands want to achieve further growth, they can only rely on innovation.

Looking back at the development of the tea beverage industry, innovation has always been the foundation for brands to survive. The well-known brands that are still standing today have all relied on innovations in products, marketing, and models to stand out from their competitors and accelerate their expansion.

The beginning of every brand can be called a model of product innovation.

For example, in 2016, Heytea used a tea base made by brewing original leaves at high temperature and extracting them at high pressure for 60 seconds; imported fresh milk from Europe; and milk cap made from cheese blocks imported from Australia, replacing the previous milk tea that was simply mixed with creamer and non-dairy creamer, completing a transformation from brand to category.

Nayuki Tea first introduced the innovative dual-category model of milk tea + European bread, attracting young users aged 20-35; Mixue Ice City caused a sensation in the market through a series of high-quality and low-priced products - fresh ice cream cones, lemonade, etc.; Bawang Cha Ji focuses on the concepts of original leaf tea and light milk tea, which is in sharp contrast to other brands.

There are countless examples of marketing innovation in the tea beverage industry. Mixue Bingcheng’s brainwashing hit “You love me, I love you, Mixue Bingcheng is so sweet” has been lingering in the minds of many consumers; Heytea’s collaboration with FENDI and “Dream of the Red Chamber” also brought the brand both popularity and sales at the time.

In the past, brands relied on innovation to attract capital and consumers’ attention, but now the need for innovation is as urgent as ever.

Earlier, China Business News reported that Heytea issued an internal letter to its business partners, stating that Heytea will no longer produce homogeneous products or simply sell at low prices, but will launch more differentiated products and brand activities.

At the same time, Heytea also stated that it will not pursue the speed and quantity of store openings in the short term. In the next few months, it will control the density of stores and pay more attention to the quality of store opening and store operation quality.

At the same time as the internal letter was released, Heytea was also making attempts to differentiate itself. It also mentioned in the internal letter that the company's previously launched new product, the Champion Slimming Bottle, had a total sales volume of over 8.7 million bottles.

Image source: Heytea official Xiaohongshu account

In the future, the tea beverage industry still has room for recovery.

Chen Baoping said that overall, although the tea beverage industry is currently in a mature stage, it does not mean that it has entered a recession.

Because consumers' demand for tea drinks is already very stable, there is no question of whether to drink tea drinks, but only a question of which brand to drink. The tea drink market is very large, and as the economy recovers, the industry will achieve further development.

In drama or literary works, the story of the protagonist's final transformation after suffering is often more deeply rooted in people's hearts. And tea brands seem to have also followed their own story lines and reached the critical period of "killing monsters and upgrading".

Text/Dou Wenxue Editor/Ziye This article is written by the author of Operation School [Connect Insight], WeChat public account: [Connect Insight], original/authorized to be published in Operation School, and any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.