The Historical Evolution of New Style Tea Drink
Chinese have enjoyed tea for millennia, The Classic of Tea (茶經) by LU Yu (陆羽) in the Tang dynasty (around 729-804 AD) is an early work on the subject. In the Classic of Tea writing, it describes how tea plants were grown, the leaves processed and prepared as a beverage. It also describes how tea was evaluated. The civilians enjoyed its flavor while the nobility considered the consumption of good tea as a symbol of their status. By 2018, China remains the largest country of tea production and consumption, with the tea production of more than 1 million tons per year. However, the share of traditional tea industry in China's beverage market is declining, away from its yesterday glory.
From 1995 to the early 21st century, the diversification of the Chinese beverage market made Tongyi (统一) and Kangshifu (康师傅) two major brands that dominate the majority of the bottled tea market. Almost the same time, another ramification of their ancestor, bubble tea or milk tea, made its entrant into China's mainland market in 1998. Although milk tea also has a history of drinking for thousands of years in Tibet, Inner Mongolia, Xinjiang and other regions in China, however in the modern sense, bubble tea originated from European milk tea which appeared in the 17th and 18th centuries, when Europe was in the stage of the rise of capitalism, they imported black tea from India, China and other regions, but because of the bitter taste of black tea, they added some milk, so British milk tea was born. Soon after, British milk tea was introduced into Hong Kong, forming a Hong Kong-style milk tea. Then in 1926, it was introduced into Taiwan, forming a Taiwanese milk tea, later called bubble tea due to the adding of taro doughs. The new style tea drink which is originated from the traditional bubble tea now represents one segment of this market.
The Market Segmentation of Bubble Tea
At present, the main products in China's bubble tea market separate into two segments. One is the traditional instant bubble tea that cupped, boxed or bagged in the form of powder or the liquid instant bottled bubble tea. Their ingredients are basically tea powder, milk powder, saccharin, coffee powder for instant production and use. Despite the traditional products, small street stores made their appearance with the same producing procedure plus manual work for most stores. The other segment refers to like the new style tea drink which originated from street bubble tea, assisted by capper machine and other electronic tools, is freshly made and sold to consumers in the form of stores.
The traditional bubble tea, used to occupy most of the bubble tea market, is facing a slowdown in growth due to product homogeneity and cognitive fatigue of consumers. Xiangpiaopiao (香飘飘), one of the leading brand in instant bubble tea making, who possesses more than 60% of the power bubble tea, also made its first attempt to physical stores in 2018. The reason underlying the Bubble tea upgrading is consumers consumption upgrading, said by Xiangpiaopiao CEO JIANG Jianqi (蒋建琪). The Chinese consumers are shifting from low-quality drinkable tea to New Style Tea Drink, tea products with better ingredients and better design.
The main differences between the traditional and the new lie on the ingredient, price, marketing, and product design.
Highlights and Market Status of New Style Tea Drink
The new style tea drink mainly refers to the beverage that chooses top-quality tea leaves or a concentrated liquid that extracted by various methods as the raw materials, mixing with fresh milk, imported butter, natural animal butter, and seasonal fruits, etc. At present, cheese-toped bubble tea and fresh milk tea are the representatives on the market.
When received a freshly made bubble tea from a physical new style tea drink store, most consumers can immediately notice the difference in taste with the traditional or street bubble tea. The new style drink needs the tea leaves to be boiled for a rather rigorous fixed time. If placed for too long, it will lose its mellow fragrance. Taro doughs also need to be made on site to maintain the chewy taste. At the same time, lots of stores made the production process visible to consumers, which also satisfy their curiosity and will draw increasing attractions both offline and online in social media mobile apps.
What's more, the new style tea drinks are more exquisite in the appearance of packaging than traditional street drinks or even bottled drinks. The positive impact of consumers on the psychological level will enable them to spread more actively on the Internet, so as to enhance their brand image and remain an active status on various social media platforms.
As to the consumptions scenarios, the new style tea drinks have to upgrade both offline and online. The offline locations, unlike the street stores, are located in places with heavy traffic such as comprehensive shopping malls and other places easy to reach. The decorations are more sophisticated, fashionable and warm, which doubles as a function of socializing with friends. The online scenarios, no matter via a WeChat small program or a self-developed application, will also greatly improve the consumer experience and enhance the attachment of recognition.
Based on the characteristics of good quality, exquisite packaging, and upgraded consumption scenarios, the new style bubble tea market boomed, especially in 2018. Below shows the fundraising status of the brands that receive investment for more than CNY 50 million:
The market space expands rapidly with the upgrading of consumption concept and the pursuit of health. According to a report from Meituan (美团)，Based on the sales volume of comprehensive drinks stores in the future, the potential market size of new style tea drinks is estimated to be CNY 4-500 billion.
Also cited from China Merchant Securities, in the third quarter of 2018, the number of new style tea stores in China reached 410,000, with an annual increase of 74%.
Competitive Analysis for the Top Brands
The article picked three top brands (HeyTea, Nayuki, and Lele Tea) in new style tea drinks based on their press exposure, funding status and number of stores to further illustrate this new sector to get a better grasp of the business.
By analyzing their brand pricing strategies, it easy to find that both HeyTea and Lele Tea applied a strategy to fill the blank in the CNY 20 to CNY 30 range when consumers would prefer Starbucks for drinks pricing higher than CNY 30, and choose street bubble stores more randomly with the price under CNY 20. Nayuki, on the other hand, sets a higher price strategy to maintain a CNY 40 per customer transaction. As the wider pricing range means more potential consumers most of the time, the pricing elasticity among those brands, even though within the range from CNY 20 to CNY 40, varies. HeyTea offers a much higher elasticity for customers who can choose their drinks as cheap as CNY 12 (which happens much less than a CNY 20 to CNY 30 consumption) while Nayuki and Lele Tea stays in a narrow range. (See more comparison with HeyTea and Nayuki)
Nayuki's main products include tea and bread aiming to achieve 1+1>2 effects. The key products of HeyTea include cheese-topped tea and fruit tea. It recently started selling snacks and Hong Kong styled coffee. Lele Tea who made its first debut in 2016 after HeyTea in 2012 and Nayuki in 2015, has a similar product strategy with Nayuki that offers tea drinks and Euro-style bread in store and promotes a healthy and qualitative lifestyle which also emphasized by HeyTea who insists using imported cheese in New Zealand to ensure the taste and quality of the cheese-top drinks.
In terms of product iteration, HeyTea launches new products twice a month, while Nayuki keeps on launching new products once a month. Lele Tea, who appears to have a more aggressive strategy in products upgrading, insists on upgrading one or two new products every two weeks, one or two hip-drinks every quarter and one or two fine products every year. Obviously, Lele Tea has a great advantage in the speed of product renewal. Whether the stimulation of new products to consumers can effectively attract new customers and maintain regular customers still needs to be tested.
The new style tea drink has captured the attention of capital market ever since 2015, together with many players rushing into the promising and low barrier market. Yet the strategic plan, quality control, and supply chain management are required to meet a higher level for the new entrants or investors. Location selection in the first-tier cities, whose market have been saturated already, would be more competitive than second-tier or third-tier cities. Combining with the scenario of consumers’ drink purchasing, to open stores in the most demanding areas, the likes of CBDs and urban shopping malls will secure the traffic-profit in work and non-work days. As for the shopping mall, the most important thing is to choose the location of the customers in line with their own, while not to be a dominant one, which will destroy the ecological balance of the brand circle.
Besides, many brands consider Starbucks as their future target, even to become the next Starbucks in China's tea drink market. However, when most brands aim at one goal for a change, homogenization will follow. Since the market is large enough, it is very important for brands to find their own way of branding and style of products, besides continuing innovation and renewing their vitality.