Heytea goes overseas and copies the next Mixue Ice City

Faced with the "temptation" of the vast overseas market, many brands have chosen to go overseas to dig for gold, and some new tea brands are among them. However, is the overseas expansion of new tea brands smooth? While Mixue Ice City has already achieved some success in overseas markets, can other new tea brands copy Mixue Ice City's overseas expansion path?

Recently, Heytea announced that it will gradually open franchise applications in multiple overseas cities to embrace global partners. It has only been 4 months since Heytea opened domestic franchise applications in November last year.

Just in February of this year, Mixue Ice City opened its first overseas store outside of the Asian market. According to relevant media reports, the popularity of this Sydney store far exceeded expectations, with coupons alone selling more than 100,000 yuan during the preheating period.

Of course, there are huge differences in brand positioning and product prices between HEYTEA and MICHEULING CITY. Moreover, MICHEULING CITY has always been mainly based on franchising, while HEYTEA has always been mainly based on direct operation. This also means that the "franchising road" that MICHEULING CITY can take may not be easy for HEYTEA.

However, Heytea’s recent development pace is almost following in the footsteps of Mixue Bingcheng. If it wants to “copy” Mixue Bingcheng, what are Heytea’s chances of success?

1. Is “going overseas” the antidote for HEYTEA?

In fact, Heytea’s founder Nie Yunchen had publicly stated in the early days that he did not want to franchise. For a long time after Heytea was founded, Heytea used “direct operation is more conducive to controlling quality” as a selling point. From the actual results, Heytea’s product research and development, and product quality are indeed well-known in the tea industry.

However, the repeated epidemics in recent years and the continued weak consumer market have had a far greater impact on the tea beverage market than expected. Heytea has had to bow to reality. Developing in the sinking market is the common choice of all new tea beverage brands.

On the one hand, the market space for mid- to high-end "Heyteas" in first- and second-tier cities has become saturated, and everyone needs to find a "new battlefield" with larger space and lower costs; on the other hand, under the pressure of weak consumption, consumers are more sensitive to prices, and price cuts are also a way to adapt to the trend of "mid- and low-end" tea drinks. Data shows that Heytea's customer flow increased by about 10% after the price cut.

After the brand and products began to "sink", Heytea was also ready to open up for franchising. In fact, after the announcement of opening up for franchising at the end of last year, some industry insiders believed that Heytea's move might be to prepare for listing and hoped to improve its operating data first.

However, Heytea must have figured out whether its franchise model can bring the expected results and whether it is a good choice to rush from domestic to overseas.

Let’s first look at the short-term benefits of joining. It must be said that compared with other tea brands, the franchise fee of Heytea is really not cheap. The fee to be paid in the first year alone is as high as 413,000 yuan.

Let's look at the franchise fees of Luckin Coffee and Mixue Ice City. According to relevant media reports, excluding rent and labor costs, the "investment fees" of Luckin Coffee and Mixue Ice City in the first year are approximately 350,000 yuan and 370,000 yuan, respectively, and this already includes certain raw material purchasing costs.

Compared with the hard work of direct operation, the franchise fee of Heytea is indeed considerable. Heytea once revealed that it received more than 10,000 franchise applications on the first day of opening franchise. So, what is the actual situation?

In November last year, Heytea announced that it would open up franchising to business partners, mainly promoting stores with a size of less than 50 square meters and a franchise fee of less than 500,000 yuan. However, the recruitment of business partners this time is "limited", and the requirements are that they must be Heytea employees, have worked in the store for more than 3 months, pass the promotion assessment of 4 positions in the store, pass the food safety and quality control inspection assessment of existing stores for more than 3 times in a row, and have the ability to serve as store managers.

At present, Heytea has not announced the number of franchise stores, but has revealed that there are about 20 franchise stores after the Spring Festival. It seems that Heytea's domestic franchise situation is not very enthusiastic, which may be related to Heytea's high requirements for franchisees, such as requiring a turnover of less than 1 million, and also related to the current cold consumer market and more cautious investment sentiment.

In this context, it is not difficult to guess the reason why Heytea went overseas. On the one hand, the imagination space of the domestic sinking market is far less than that of the overseas market. According to data released by Momentum Works in 2022, Southeast Asian consumers spend as much as US$3.66 billion (about RMB 26.8 billion) on new tea drinks a year.

According to data from the food delivery service platform GrabFood, consumers in the Southeast Asian market buy an average of 4 cups of bubble tea per month, while Thai consumers drink an average of 6 cups. Compared with China, even in 2020 when new tea drinks are popular, only 30% of consumers drink an average of 10 cups of milk tea per month. This shows that the habit of "drinking tea" in foreign markets has long been cultivated.

On the other hand, supply chain scale advantage is also one of the purposes of Heytea's overseas expansion. Since last year, the prices of raw materials for most tea drinks have been rising, but the end products have to be reduced in price, which has further increased Heytea's cost pressure. Therefore, Heytea also hopes to expand its sales scale through domestic and foreign franchises to gain stronger bargaining power.

Finally, the impact of going overseas on the Heytea brand will be more positive than negative. Firstly, Heytea’s overseas market is almost blank at present, and going overseas can empower the brand and also create momentum for the domestic market.

Secondly, Heytea’s brand influence is mainly in China. Even if its overseas franchise model does not work in the end, the impact on domestic brands will be relatively smaller. Since the “franchise model” is inevitable, Heytea will have the opportunity to seize the initiative and overtake others by starting with overseas.

2. The “unspeakable pain” of franchise business

Franchising business seems easy, but it is difficult to do well, and franchising overseas is even more difficult.

The first is the franchise management issue. When Heytea launched its domestic franchise plan, it was criticized as "too fast and too hasty." A franchisee said that Heytea only spent about a month from planning to opening a store to completing decoration training, and the management of store decoration and staff training was not in place.

For example, the decoration of Heytea stores in Chenzhou, Hunan, was criticized for being too "down-to-earth", and some stores were poorly located and had a relatively chaotic surrounding environment. In addition, according to the Times Weekly, some consumers said that the taste of franchised store products was different from that of directly-operated stores.

Secondly, how to protect the interests of dealers. These days, franchisees have almost become a "scarce resource". Faced with the increasingly saturated tea market, everyone's attitude has become more conservative, and the return on investment period is the first issue everyone considers.

On the other hand, Heytea has increased its requirements for franchisees, such as the aforementioned 400,000 yuan start-up capital and 1 million yuan capital verification. Moreover, the capital verification requirement is even 3 million yuan in actual implementation, and it is also necessary to ensure that a certain scale of stores can be opened in the future.

With such high requirements, can Heytea help franchisees make money? According to Heytea, its business partnership stores are expected to have a gross profit margin of 60%. But generally speaking, after deducting various operating costs, the net profit margin of a single store in the tea industry is about 25%.

A simple calculation shows that the initial capital required to join Heytea is about 400,000 yuan, plus the staff, water, electricity, etc., at least 600,000 yuan must be invested. If the franchisee wants to make a profit within a year, the monthly net profit must be about 50,000 yuan, and the turnover is about 200,000 yuan/month. Based on the average price of 20 yuan per cup of Heytea, 333 cups must be sold every day.

Heytea has announced that its franchise stores have an average daily sales of 2,000 cups, but the highest sales of a single Mixue Bingcheng store is only over 3,000 cups. After checking relevant reports, some media have calculated that the daily sales of a single Heytea store is around 200 cups, which is quite different from the data announced by Heytea. The concerns of dealers are not unreasonable.

Once the distributors are anxious to recoup their investment, there may be more safety hazards. Take Mixue Ice City as an example. Many stores have been exposed to food safety issues. On the Black Cat complaint platform, there are more than 200 complaints in a month. It can be seen that the larger the team, the more difficult it is to eradicate the hidden dangers.

Finally, when franchisees move abroad, the management difficulty will increase again and again. Take the investment return cycle as an example. Due to the different market conditions at home and abroad, the labor and rental costs are higher than in China, and the payback time may also be longer.

In addition, supply chain costs are another challenge. Most of the current new tea products are inseparable from fresh fruits, but to obtain high-quality fruits, it is necessary to control the source supply chain, and it is a big test for the company's transportation, storage, and infrastructure.

This is also an important difference between Heytea and Mixue Bingcheng. Therefore, although Heytea seems to have become the "advanced version" of Mixue Bingcheng and its development paths are becoming more and more similar, Heytea's supply chain has not yet built a moat. Therefore, there is still a lot of uncertainty for Heytea's "going overseas".

3. The “Age of Exploration” of New Tea Drinks

However, we can also find some inspiration from the history of "direct overseas sales" of brands such as Heytea and Nayuki. In fact, brands such as Heytea and Nayuki had already gone overseas as early as around 2018, but the results were not ideal.

Both Heytea and Nayuki chose Singapore as their first overseas destination, as Singapore has a large Chinese population and a high consumption level, which is more in line with the brand's high-end positioning. In addition, Japan is the second destination for most tea brands, and settling in Japan has helped to improve the brand's fashion sense and popularity.

However, Nayuki's Singapore and Osaka stores have suspended operations; Heytea, which once announced that it would enter Tokyo in 2020, has also slowed down its pace due to the epidemic; Machi, a milk tea shop that once became popular because of Jay Chou, has now closed its Tokyo store.

On the other hand, Mixue Bingcheng also opened its first store in Vietnam in 2018. It currently has more than 4,000 franchise stores overseas, and has become the first tea beverage brand to break out of Asia.

If Heytea wants to "copy" Mixue Bingcheng, the first thing it needs to figure out is probably how to successfully move stores overseas. Previously, Heytea and Nayuki had also shelved their overseas store plans.

First of all, we need to consider how to smoothly move the supply chain overseas. Taking Mixue Bingcheng as an example, its domestic raw material transportation can be delivered to stores within 24 hours, but the logistics and distribution in overseas markets are not as convenient as in China. When combined with domestic to overseas transportation, there may be problems such as shortage of raw materials and untimely delivery.

In the face of supply chain problems, building factories overseas and going to sea nearby are the most likely solutions. In July last year, Mixue Ice City began to build its Asian headquarters in Chengdu. After that, its self-produced tea, flavored milk, and other raw materials can be shipped to sea nearby through Chengdu's transportation network. In addition, there was news last year that Mixue Ice City would invest in a coconut milk base in the Philippines.

These paths may provide some "inspiration" for Heytea, but its future supply chain sorting task is still arduous. Heytea's current domestic supply chain still relies on third-party suppliers for some raw materials and distribution, and the supply chain efficiency has not been fully utilized. The cost pressure of overseas products will be borne by the "high-end brand image".

In addition, there is the problem of overseas business methods. Previously, Heytea and Nayuki encountered setbacks in their "direct overseas sales" due largely to their unfamiliarity with overseas markets, such as differences in overseas consumer tastes, the use of overseas e-commerce and food delivery platforms, and store location issues.

When a new tea brand has only two or three stores overseas, it is more like a single store operation. The lack of support from the mid- and back-end decision-making team makes it difficult for them to respond quickly to product development and product promotion. On the contrary, if they can find a local general agent with strength, or directly recruit a team overseas, they can improve their overseas operating efficiency.

For example, Mixue Bingcheng has operating companies in Hong Kong, Indonesia, and Vietnam, which are mainly engaged in purchasing, franchising, materials, etc. When the overseas market reaches a certain scale, these are unavoidable demands.

Finally, both Mixue Ice City and Heytea will probably face losses in the short term. As of March 2022, Mixue Ice City's more than 200 stores in Vietnam have not yet achieved profitability.

When Heytea only had two or three directly-operated stores abroad, it could ignore profitability and even choose to close stores directly. But when Heytea expanded its franchise business overseas, it had to force its supply chain and overseas teams to optimize and upgrade, even at the cost of a short-term loss.

However, for new tea brands going overseas, it will be difficult to go from 0 to 1, but there are infinite possibilities from 1 to N. Only by taking the first step can Heytea find more possibilities. Otherwise, becoming bigger and stronger will always be just empty talk.

Author: Kaikai, Editor: Yuejian

Source public account: Xinentropy (ID: baoliaohui), insight into business variables and exploration of the essence of business.