Milk tea prices drop across the board! Starting from 4 yuan per cup, "hard competition" with Mixue Bingcheng

Competition in the new tea beverage market is becoming increasingly fierce, and brands have adopted price reduction strategies to compete for market share. From Shuyi Shaoxiancao to Cha Baidao, and then to Mixue Bingcheng, tea beverage brands have all turned their attention to the price range below 10 yuan, trying to attract consumers with more competitive prices. This article will explore the phenomenon of new tea beverage brands collectively reducing prices and the market logic behind it.

More and more tea beverage brands are eyeing the price range below 10 yuan where Mixue Bingcheng is located.

Since the beginning of May, Shuyi Grass Jelly has launched a number of new products, most of which are priced below 10 yuan. Among them, kumquat lemonade is 4.9 yuan per cup after discount, and the new grape series products are 9.9 yuan per cup after discount.

Gu Ming launched a three-month lemonade discount campaign in Guangdong, with the price of a cup of lemonade directly reduced from 10 yuan to 4 yuan.

Cha Baidao, which has just been launched, offers yogurt and purple rice juice for only 2.9 yuan per cup after discount, and green plum green tea for only 6.9 yuan per cup after adding platform coupons.

Mixue Bingcheng, which is famous for its "affordable" products, is also further reducing its prices. The lemonade, which originally cost 4 yuan per cup, only costs 0.68 yuan per cup after adding a 3 yuan group purchase platform coupon; the full cup of passion fruit, which originally cost 7 yuan, only costs 0.44 yuan per cup after adding a limited-time subsidy.

Earlier, Heytea also launched a limited-time event, with buy-one-get-one-free coupons available for more than 10 products. Among them, the "Pure Green Tea Beauty Queen" with an original price of 8 yuan was only 4 yuan per cup after using the coupon, which was comparable to the price-performance ratio of Mixue Bingcheng.

Shanghai Auntie simply launched a sub-brand called "Tea Waterfall", with ice cream costing 2 yuan and chilled lemonade costing 4 yuan. The price of a single cup of drinks in the store is mostly between 4 and 8 yuan, directly targeting Mixue Ice City.

Lowering the price directly to less than 10 yuan has become a collective action of new tea brands, and a new round of price war has begun!

1. The price has dropped below 10 yuan, and the prices of many brands are close to Mixue Bingcheng

In fact, price cuts for new tea drinks are nothing new.

After all, Heytea has increased its average customer spending from 35+ in 2020, to "Heytea says goodbye to 30 yuan" in early 2022, and now to a dozen or a few yuan per cup.

The relevant person in charge of Shuyi Grass Jelly said in an interview with the Beijing News that the future positioning is to take the quality-price ratio route, and it may launch products with prices of 6 yuan, 7 yuan or even lower in the future.

At present, new tea beverage brands are competing for the market, and low price is the most direct and labor-saving means of competition that brands can think of.

More and more brands are approaching the price range below 10 yuan where Mixue Bingcheng is located, seeing that the low-price strategy is effective.

On June 1, Mixue Ice City officially announced that its lemonade sold more than 1 billion cups a year. According to Mixue Ice City's prospectus, the two products, priced at 2 yuan for ice cream and 4 yuan for lemonade, sold 442 million and 913 million cups in China in the first three quarters of 2023, respectively.

There is no doubt that the low-price strategy can indeed attract a group of consumers in the short term and increase brand exposure and popularity.

But playing the low-price card also requires strength to support it. For new tea brands, there are many kinds of raw materials, including milk, tea, various fresh fruits and small ingredients. To achieve low prices while ensuring quality is a great challenge to the supply chain.

More importantly, price cuts will compress profit margins and have a certain impact on the long-term sustainable operation of the brand.

In terms of the coffee industry, Luckin Coffee's latest financial report shows that its revenue in the first quarter of 2024 was 6.28 billion yuan, a year-on-year increase of 41.5%, and its net loss was 83.2 million yuan, while its net profit in the same period last year was 564 million yuan. In other words, the price cut had a significant impact on its profits, and the increase in revenue did not increase profits in the end.

It is said that it is easy to go from frugality to luxury, but difficult to go from luxury to frugality. If consumers develop the habit of buying only at low prices, the brands will suffer in the end. The essence of an enterprise is to make money and profit. Losing money to gain publicity will not last long.

2. The speed of store openings cannot keep up with the speed of store closings, and there are not enough franchisees.

The competition among new tea drinks is not only in price competition, but also in scale expansion.

Since the beginning of this year, many new tea beverage brands have been accelerating their market share. Brands such as Cha Baidao, Shanghai Auntie, and Gu Ming are aiming at the "10,000 stores goal".

But looking at the data over a longer period of time, the speed of opening new tea drink stores has slowed down.

Hongcan big data shows that in the past three months, among the top ten new tea brands in terms of the number of newly opened stores, half of the brands have seen a month-on-month decline in the number of newly opened stores, including Mixue Bingcheng, Cha Baidao, etc.

△Image source: Hongcan Big Data Mini Program

Yilan Business statistics show that in the first quarter of this year, the store opening speed of the 26 new tea beverage brands it has been tracking for a long time slowed down, and the number of new stores opened by some brands was even nearly halved month-on-month.

From April to May, although the number of stores opened by many brands increased compared with the previous three months, the number of existing stores decreased month-on-month. According to Yilan Business statistics, in March, the number of existing stores of 26 new tea brands was 114,900, but in April it was only 110,800, and in May it rose slightly to 114,800. However, compared with March, the net increase in the number of stores was still negative.

In other words, for many new tea brands, the rate of store opening this year is slower than the rate of store closing.

The main factor behind the bottleneck in the expansion of new tea drinks is fierce market competition.

2023 is a year of rapid development for new tea drinks. Many brands, including Heytea, Bawang Chaji, Mixue Ice City, Cha Baidao, Guming, etc., have joined forces and rapidly expanded their stores.

Official data from the brands show that in 2023, Heytea will open more than 2,300 new stores, Bawang Chaji will open more than 2,000 new stores, and Mixue Bingcheng will open more than 6,000 new stores.

According to Yilan Business statistics, the number of stores of 20 chain tea brands including Heytea, Nayuki, Bawang Chaji, Lelecha, and Chabaidao will expand from 78,000 stores at the end of 2022 to 104,000 stores in 2023, a growth rate of 32.5%. The pie is so small, and the surge in players has further intensified market competition.

As for catering stores, when the density of stores in an area reaches a certain level, it will inevitably lead to diversion and affect the revenue of each store. In addition, the costs of store rent, labor, raw materials, etc. remain high, so some brands have to choose to close stores to stop losses.

While brand expansion has encountered bottlenecks, the threshold for joining the new tea beverage franchise has been continuously lowered since this year.

At the beginning of the year, Heytea launched the latest preferential policy for partners in 2024, promising to waive all cooperation fees for newly signed partners in the first quarter. Partners who signed and opened stores in the first half of the year will receive a decoration subsidy of 66,000 yuan for every three stores opened.

Chabaidao followed suit and began to implement preferential measures such as contract exemptions, point exemptions, and material rebates. Nayuki's Tea also announced that it would reduce the threshold for opening a store from 980,000 to 580,000 yuan.

In addition, Shuyi Shaoxiancao launched a new franchise policy of 0 brand fee, 0 cooperation fee, and 0 service fee; Guming officially announced a policy of 0 franchise fee in the first year; Lelecha announced that 350,000 yuan can "cover the bottom line" to open a store of no more than 50 square meters...

Lowering the threshold for joining the franchise seems to be harmless to the brand. After all, compared with the tea business, the brand has been more and more inclined to do the supply chain business of franchisees.

It can be seen from the prospectuses of various brands that more than 90% of the stores of leading brands such as Mixue Bingcheng, Cha Baidao, Guming, and Shanghai Auntie are franchise stores, and their revenue mainly comes from franchise sales of ingredients and equipment.

Data from Mixue Bingcheng’s latest prospectus shows that its franchise fees and related service fees only account for 2% of its total revenue, and more than 90% of its revenue comes from selling ingredients and packaging materials to franchisees.

However, now that brands have collectively lowered the threshold for joining, after a rapid expansion, there may not be enough new tea beverage franchisees.

Li Yewei, who has been in the milk tea shop business for many years, said in an interview with Jiemian News that he has noticed changes in the market, with more and more people entering the market and there is no longer any room for new store locations. Faced with such a situation, he has also begun to think about quitting and is unwilling to "work" for the brand anymore.

Moreover, the number of investors who are eligible to join is limited, and the money in the investors’ pockets is also limited. Most of the new tea brands require in their franchise qualifications that the same franchisee cannot join other competing brands.

The pool of potential franchisees has not grown, but there are more and more new tea brands fishing on the shore. It is foreseeable that the competition for franchisees from new tea brands will intensify in the future.

3. Going Down and Going Out to Sea

In order to find growth, new tea beverage brands have also turned their attention to "sinking" and "going overseas".

According to a report by CIC, the density of ready-made tea shops in third-tier and lower-tier cities is only 247 shops per million people, far lower than the 460 shops per million people in first-tier cities. From 2017 to 2022, the compound annual growth rate of the market in third-tier and lower-tier cities reached 30.2%, the fastest growth rate among all cities. It is expected that by 2028, third-tier and lower-tier cities will account for 51.5% of the total size of China's ready-made tea shop market.

These data show that new tea brands still have considerable room for growth in lower-tier cities. At present, many brands are targeting the sinking market.

For example, before opening for franchising at the end of 2022, Heytea's layout focused on first-tier and new first-tier cities. In the past year, Heytea has successively entered third- and fourth-tier cities in Anhui, Sichuan, Shandong, Jiangxi, Henan and other places. According to Red Can Big Data, about 40% of Heytea's stores are now opened in third-tier and lower-tier cities.

In early March, Lelecha, which lowered its franchise threshold, announced that it would increase the number of stores in Jiangsu, Zhejiang, Shanghai and the three northeastern provinces this year, with a focus on expanding to counties.

At the same time, in the first half of this year, many new tea brands have also increased their investment in overseas markets:

• On January 26, Chabadao opened its first overseas store in Gangnam District, Seoul, South Korea. Subsequently, Chabadao officially announced the second and third stores in South Korea.
• On January 31, 7fentian announced that its first overseas store would open in Vancouver, Canada.
• On February 24, Shanghai Auntie’s first store opened in Malaysia, marking its first step overseas.
• On March 8, Bawang Cha Ji’s first “Drive-Thru” store in the world opened in Malaysia.
• On March 15, HEYTEA officially opened its Apgujeong store in Seoul, South Korea. This is HEYTEA’s first store in South Korea.
• On March 27, Nayuki's Tea said it will continue to increase its efforts to expand overseas markets. Currently, Nayuki's Tea is preparing to open its first stores in Singapore, the United Kingdom, the United States and other countries.
• At the end of March, Tianlala announced that it had added 6 new franchise stores in Indonesia, bringing the number of local franchise stores to 13.

When it comes to overseas markets, the layout strategies of various new tea brands are very similar, such as giving priority to opening stores in landmark buildings and high-end shopping malls.

For example, Nayuki's Tea's first store in Thailand is located in the Emsphere shopping mall in Bangkok, a famous high-end shopping mall in the local area. Brands such as Cha Baidao, Shanghai Auntie, and Bawang Cha Ji have also chosen to open stores in shopping malls with high traffic to build brand potential and enhance brand influence.

For example, when new tea brands go overseas, they often choose Southeast Asia as their first stop. Brands such as Heytea, Mixue Ice City, and Bawang Chaji all started their overseas journey in Southeast Asia and then expanded to broader overseas markets such as Europe, America, Japan, and Australia.

Southeast Asia is hot all year round, and the demand for cold drinks is strong, with no off-season. The local residents' preference for desserts also makes drinks such as milk tea and fruit tea extremely popular in the local area.

According to Momentum Works data, Southeast Asia has a population of 676 million, and the annual consumption of the new tea beverage market is as high as US$3.66 billion, which has huge market potential and consumption capacity.

For new tea beverage brands, the overseas market is indeed a good place to "escape" from internal competition, but they also face some challenges.

For example, it is more difficult to manage overseas franchise stores, and the operation and manpower costs in overseas markets are also higher. Previously, Nayuki's Tea said that the overseas store business is good, but the manpower and operation costs are too high, and profitability is under pressure.

In addition, to expand into broader overseas markets, brands will also face more challenges such as supply chain, eating habits, cultural history, laws and regulations, etc.

IV. Conclusion

As one of the most inward-looking tracks in the catering industry, the phenomenon of "quick in and quick out" of new tea drinks has become increasingly obvious.

For brands, whether it is lowering the threshold for joining, reducing prices, or sinking or going overseas, these attempts and explorations are nothing more than to earn a new space in the red ocean market. They are all looking for opportunities and don't want to miss any possible outlet.

As we enter the second half of the year, many trends will most likely continue, but there are still many unknowns and variables as to who will truly seize the opportunity and come out on top.