Tea and coffee shops are eyeing young people’s breakfast

Milk tea and coffee are the "life-saving remedies" of today's young people, but have you ever eaten breakfast in a tea or coffee shop? This article analyzes the phenomenon of well-known tea brands entering the breakfast market. Let's take a look.

Hanging out in tea shops was once a symbol of young white-collar elites, but in the past they drank coffee and tea, and now they eat breakfast.

Recently, workers in some cities have discovered that there are some new options for breakfast - in addition to chain restaurants and coffee shops such as KFC, McDonald's, and Starbucks, more tea shops have also started selling "super value breakfasts."

For example, the new tea brand Gu Ming recently launched a trial breakfast service in some of its stores in Hangzhou, which will be open from 7:30 a.m. Customers can purchase a set of coffee and cheese ham croissant or cheese beef roll breakfast for 15 yuan by placing an order in the mini program.

This discount is equivalent to adding one yuan to the original price of coffee and getting a breakfast.

Image source: Nayuki's Tea official Weibo

Nayuki's Tea also launched a breakfast set in April this year for as low as 9.9 yuan, including a cup of tea or coffee, and a homemade baked product. Some netizens posted photos and menus of Nayuki's Tea breakfast on Xiaohongshu. The baked products include purple sweet potato and taro double-ingredient buns, thick-cut rock-roasted cheese toast, etc., and the beverages are either coffee or black tea.

As the new tea beverage industry becomes increasingly saturated, various brands are looking for a "second curve" of growth. Some brands have chosen to go overseas, trying to gain new growth through overseas markets, while others are looking for new growth points in the domestic market, eyeing the "prime time slot of 8 am".

1. Eat cost-effective breakfast at a milk tea shop

For a long time, new tea drinks have not been an option for office white-collar workers' breakfast.

For many workers, breakfast options include Chinese breakfasts such as pancakes, fried dough sticks, and tofu pudding sold at street stalls, as well as Western fast food such as KFC and McDonald's. In recent years, chain coffee shops such as Starbucks and Tims have also started selling breakfast.

The breakfast set in the cafe mainly consists of sweet or savory croissants, bagels and other snacks, plus a cup of coffee; KFC and McDonald's have richer breakfast options, including not only hamburgers, hash browns, coffee, etc., but also Chinese breakfast items such as rice balls, pancakes, fried dough sticks, porridge, and soy milk.

A breakfast at McDonald's or KFC would cost about 20 yuan unless you purchase a membership card to get a discount, while breakfast at a cafe would be more expensive.

Now, new tea beverage brands have also begun to test the breakfast market, and the response has been good.

On Xiaohongshu, many netizens posted photos of themselves eating breakfast at Nayuki Tea. The most popular item is the purple sweet potato and taro paste double-ingredient package, which only costs 9.9 yuan with a drink and is known as the "poor man's treasure breakfast."

This set meal is very cost-effective - "The bread is half purple sweet potato and half taro paste, both are whole grains, nutritious and healthy, and the filling is very solid and not too sweet!" said a netizen. She also said that the latte uses Weiquan fresh milk instead of ordinary room temperature milk, which is very cost-effective.

But she didn't give a very high evaluation to another breakfast baked product, Rock Roasted Cheese. Some people thought it was a bit expensive, not enough ingredients, and not as thickly coated with butter, cheese and syrup as the same product in the bakery; but some people liked the simpler coating, felt it was refreshing and not greasy, and it was not bad to eat a piece for breakfast.

Gu Ming only opened a breakfast shop in Xiaoshan, Hangzhou to test the new business, and the breakfast is also very cost-effective. After trying Gu Ming's breakfast, a netizen on Xiaohongshu described that the amount of cheese and beef in the beef roll was "sufficient", and the egg in the ham croissant was fragrant and soft, praising Gu Ming's breakfast as "affordable angel".

2. New tea breakfast focuses on a trend

For urban workers, a nutritious and delicious breakfast provides a source of energy for the whole morning. However, under the pressure of overtime, staying up late, and commuting during the morning rush hour, most workers do not have the energy to prepare breakfast for themselves. Therefore, more and more diverse breakfast shops have become the choice of young people.

In the past, except for Chinese breakfast, Western breakfast was "monopolized" by McDonald's, KFC and Starbucks. In recent years, more and more convenience stores have begun to sell rice balls, sandwiches and simple hamburgers. Young people working in commercial areas can easily buy a simple and cheap breakfast to fill their stomachs on their way to work.

As coffee and new tea brands enter the breakfast market, consumers have more options, which also creates higher profits for stores. Moreover, coffee chain brands and some new tea brands do have certain advantages in breakfast.

In recent years, new tea drinks and a series of emerging coffee chain brands have completed the initial consumer education. At the beginning, they showed themselves with stunning internet celebrity images, and then expanded rapidly with the blessing of capital, becoming a symbol of urban lifestyle.

When drinking coffee, consumers often need to pair it with snacks such as bread or cake to balance the bitterness of coffee. Therefore, many coffee brands have their own "baking genes", and coffee shops also sell a variety of snacks.

The new tea drinks that emerged later also continued this business model. A few years ago, Lelecha quickly became popular with the combination of "tea + soft European bread", and Nayuki's Tea and Heytea soon began to sell baked products.

Compared with the old chain stores selling breakfast, new brands have more innovative advantages in breakfast - in order to attract customers, they must constantly innovate and create hot products to lead the trend, so they have stronger innovation capabilities.

Compared with new tea drinks, coffee has set its sights on the breakfast market earlier: Luckin Coffee, a popular coffee brand, launched baked products such as croissants a long time ago, and most of its stores are located near office buildings, so white-collar workers can buy breakfast before going to work; Tims, a chain brand that entered the Chinese market in 2021, has also started its breakfast business a long time ago.

Melody, who works in Beijing, recently tried breakfast at the trendy coffee shop M Stand, which cost about 33 yuan for a cup of coffee and a Western-style "dough stick". Melody thought the coffee was good, the "dough stick" tasted good, and the portion was large. But Melody's friend felt differently. She found ice chips in a "dough stick" with sausage, and had to ask the clerk to reheat the food - it was obvious that the breakfast baked goods in the store were pre-processed frozen products.

Youyou, who also works in Beijing, prefers Tims breakfast. The first breakfast she tried in the store was a combination of coffee and bagel. Before that, Youyou had only tried breakfasts from a few chain stores, and she preferred KFC the most. She had never heard of the word bagel.

This time, she was deeply impressed. Youyou described the donut-shaped bread as more flexible on the surface, and the egg sauce and meat in the middle were full of flavor, which made her interested in trying the breakfast in the new coffee shop.

It was not until a few months later that bagels became a new generation of Internet celebrity products as a healthy light meal that Youyou realized that the breakfast she had was so "trendy". In recent years, new tea drinks and coffee have been imitating and penetrating each other. Luckin Coffee, which mainly sells coffee, once launched a tea drink series product Xiaolu Tea, and many new tea drink shops also began to sell coffee products. Now, new tea drinks are trying to take away coffee's breakfast business and provide consumers with another breakfast option.

New tea brands that have a certain amount of experience in baking, as well as the genes of Internet celebrities and innovation advantages, have entered the breakfast market and provided "poor man's welfare" affordable breakfasts, which are attractive enough to consumers. From this perspective, new tea brands do not even need to invest in user education. It is enough to just move up the business hours a little bit and provide breakfast that satisfies consumers.

Judging from the data, breakfast in new tea shops is indeed very popular. According to the data recently released by Nayuki’s Tea, sales of breakfast packages increased by about 620% in the first half of this year.

This is indeed a market with great potential.

3. Is it a good business to be involved in the “early eight prime time”?

New tea drinks did not start targeting breakfast this year.

After all, it is hard for new tea drinks not to be jealous of McDonald's, KFC, Starbucks and other catering brands that have long occupied the breakfast market.

The first new tea brand to try the breakfast business was Heytea, the first generation of Internet celebrity brand. In mid-October 2019, Heytea launched the "Inspiration Breakfast" series of products, which are a combination of pure tea/coffee + croissants, and are sold before 11 o'clock every day.

At the beginning, Heytea only sold breakfast in hot wheat shops that focused more on baking, and later tried it in other stores.

At the end of 2019, some netizens asked when Heytea would launch the "inspiration breakfast" on a large scale, and Heytea officially promised that "it will be accelerated next year." The following year, Heytea launched more baked products on the original basis, but as the profit of new tea drinks declined, Heytea began to close hot wheat stores and stopped expanding into the breakfast market.

Currently, Heytea stores are still selling baked products such as croissants and scones, but they are sold around the clock, no longer in time periods, and emphasize the "breakfast" concept.

Nayuki's Tea also started selling breakfast in 2020. However, the product selection was limited at the time, and the price was higher. The drinks were only pure tea or coffee for 12 to 19 yuan, and the staple food was three sandwiches for 12 to 16 yuan, with an average price of more than 24 yuan per person.

In the same year, the new tea industry was becoming more and more involuted. Due to too many brands and too dense stores, competition intensified, sales and profits declined, and the two giants Nayuki's Tea and Heytea were no longer glamorous.

In 2021 and 2022, Nayuki's Tea streamlined and reduced the prices of its breakfast product line, reducing the prices of its set meals to starting at RMB 16 and RMB 13, respectively.

At the beginning of 2022, in order to cope with the impact of many mid-level brands, Nayuki's Tea and Heytea began to lower prices almost at the same time, bidding farewell to the "30 yuan era", with prices covering all ranges from 10 yuan to 30 yuan, and began to maintain their market size by "trading price for volume".

However, the price cut did not bring more profits to Nayuki's Tea. In the first half of 2022, Nayuki's Tea's revenue was 2.045 billion yuan, a decrease of 3.8% from 2.126 billion yuan in the same period last year. This was the first time that Nayuki's Tea's revenue declined since its listing, and its profit also turned from profit to loss, from 48.71 million yuan in the same period of the previous year to -257 million yuan.

Heytea's strategy is not limited to price cuts. At the end of 2022, Heytea, which has always insisted on direct operation, decided to open up for franchising and started recruiting partners in many overseas cities, restarting its overseas expansion path that had been stagnant since 2018.

Last month, Heytea officially announced that its first store in Europe will be located in London, England.

As market competition intensifies and revenue and profits decline, new tea drinks generally need to find new growth points. Heytea chose to open up franchises and go overseas, while Nayuki's Tea tried to squeeze into the "8:00 prime time" by offering "super value breakfast".

However, is serving new tea drinks for breakfast really a business that is sure to make money?

Naixue and Guming, which are now popular for their breakfasts, are focusing on their cost-effectiveness and attracting customers with preferential prices below 15 yuan. In addition to price, another major advantage of Naixue is the "third space" it provides for consumers. On Xiaohongshu, there are also notes of people who bought Naixue's 9.9 yuan breakfast and then spent the whole morning studying on Naixue's WIFI: "I have been studying at Naixue for the whole morning!... The 9.9 yuan Naixue meal is so delicious!"

However, for new tea beverage brands, it is not easy to successfully operate the breakfast business and maintain low prices for a long time, and it is very easy to become "well-received but not popular."

Operating a breakfast business requires material preparation at least one hour before opening the store, which requires more manpower and will also incur higher costs.

Most McDonald's and KFC stores open at 6:00 a.m., Tims' opening hours are 7:30-8:00 a.m., and some Starbucks stores can open as early as 7:00 a.m. In order to ensure efficient preparation and sales, most of these chain brands need to arrange early shift employees.

Compared with these "diligent" fast food chains and coffee shops, Nayuki's Tea seems to still be operating breakfast with a "Buddhist" attitude and is not fully prepared to enter the breakfast market.

Nayuki's Tea provides breakfast between 8:00 and 9:00, which is suitable for consumers and students who go to work late, but it cannot meet the needs of all office workers. Some consumers also reported that when they went to Nayuki's Tea to buy coffee during breakfast time, they were told by the staff that the coffee was not ready yet.

If Nayuki's Tea opens earlier and hires early-shift staff, the cost increase will eventually be reflected in the price, bringing it back to similar prices as other chain stores: McDonald's and KFC customers can get breakfast for less than 10 yuan if they buy breakfast cards, but if they don't buy breakfast cards or go all-you-can-eat in the store, the cost of the meal may be around 20 yuan. At Starbucks and Tims, the price of breakfast may be 20 to 30 yuan.

Nayuki Tea is in urgent need of profitability, but if it really wants to use breakfast as a new growth point, the 9.9 yuan breakfast may not be enough to cover the increased costs. In the end, it may still return to the price of most chain breakfasts - the current extreme cost-effectiveness that consumers are talking about may no longer exist in the future.

In addition, competition in the breakfast market is also fierce. New tea brands face competitors including other new tea brands, various coffee shops, and fast food chains such as Yonghe King, McDonald's, and KFC, not to mention the convenience stores and mom-and-pop stores that can be found everywhere.

Compared to simple bread + coffee/pure tea, some shops specializing in breakfast have richer products and more diverse flavors.

Some chain stores have embarked on the path of combining Chinese and Western cuisines. KFC has long begun to experiment with localization, launching several types of porridge and fried dough sticks for breakfast; Yonghe King, which specializes in Chinese breakfast, has also launched coffee; although the breakfasts of Starbucks and Tims are more expensive, they have both desserts and savory sandwiches, croissants, bagels, etc., and coffee also has a variety of flavors to choose from; husband-and-wife stores are more "down-to-earth", selling inexpensive local foods such as steamed buns, porridge, fried dough sticks, tofu pudding, soy milk, and pancakes.

Heytea and Nayuki Tea, which already have a certain foundation in the baking industry and have tried breakfast, are still not very optimistic. It is even more difficult for most new tea brands that only sell tea drinks and do not sell baked products to enter the breakfast industry.

Compared with new tea drinks, it is easier for coffee shops to make breakfast. Since coffee needs to be paired with snacks, most coffee shops already have a mature supply chain, whether they make their own snacks or purchase them. New tea drinks have problems such as small store areas and lack of baking equipment. If they want to squeeze into the breakfast market, they not only need more manpower, but also need to purchase equipment and reshape the supply chain, which will bring more additional costs.

In addition, whether they are top brands or mid-tier brands, many new tea drinks are located on the first floor of shopping malls or on pedestrian streets. These places are often not open before 10:00 in the morning, making it difficult to provide services for office workers who seek convenience in breakfast.

An industry insider told Value Planet that not all milk tea shops are qualified to serve breakfast. Although the breakfast market seems to have unlimited prospects, it is not easy for new tea drinks to really squeeze into the "golden time slot of 8 am" and take a piece of the pie from the relatively mature breakfast market.

However, for the new tea beverage industry, which is already on a downward trend, brands have to come up with various unique strategies in order to survive in an environment where there is no room for maneuver.

Image source: Heytea official Weibo

From wholesale price cuts to opening stores for franchising, to following the trend of freshly made yogurt and launching related products to boost sales... Even for leading new tea brands such as Nayuki's Tea and Heytea, the "good days" on the cusp are gone, not to mention the survival status of other new tea brands. "In the past two or three years, opening a store was very popular, and many people would choose such projects with relatively low barriers to entry when starting a business. But now the new tea industry is in a state of internal competition, and many small stores are closing down," Chen Tao, an entrepreneur in the new tea industry in Guangdong, told Value Planet.

"For example, the previous hand-beaten lemon tea was indeed very popular, but it was only popular for a year or two, which only shows that the life cycle of this product is not very long. I don't think this wave of yogurt popularity will necessarily last for half a year," said Chen Tao.

For new tea brands, competing for the breakfast market may only be a "painkiller" to temporarily delay the decline in performance.

Author: Danmu, Editor: Maji

Source: Public Account: Value Planet (ID: ValuePlanet), discovering company value and telling capital stories.