Heytea, Naixue Holdings and other major Chinese tea chains are changing their strategies after a difficult year in 2022 due to the pandemic. The year 2023, however, is expected to be more competitive as players start to reach out to their target consumers who can now enjoy shopping or dine-out at their preferred stores or locations.
Shenzhen-based Heytea has lowered its average price with 60% of its drinks now cost below Rmb 25 (US$3.70). It has also started to accept the franchise model at the end of last year charging each store Rmb 500,000 (US$72,645) fee.
Meanwhile, some have made acquisitions to consolidate their market share. Naixue has invested Rmb 525 million (US$76.3 million) in Lelecha in 2022 making it the largest shareholder with 43.6% stake.
China’s modern bubble tea sector is growing fast, but not many players can survive the fierce competition. According to data technology service firm, Tianyancha, “Almost 60% of newly founded tea firms folded within 3 years”. Even larger players are also feeling the heat. Lelecha withdrew from Xi’an market in October 2021 and from Guangzhou in February 2022, while Heytea started to layoff workers in early 2022.
With the recent market opening, business should gradually improve but competition is expected to get tougher. Tea chain operators are expecting a 40% jump in sales in 2023. Currently, the market is valued at around Rmb 145 billion (US$20.4 billion) with more than 486,000 outlets spread across the country.
About 80% of total orders for milk or bubble tea products come from digital mini sites and delivery platforms as the digitalization trends continue to gain traction. The market has about 200 million customers, majority of whom are young urban consumers. The market however grew slightly at 3.7% in 2022 due to the pandemic restrictions.
Market players have also diversified in terms of product offering. Heytea has added bottled drinks last year which are now available through delivery sites and grocery stores. Meanwhile, players are introducing seasonal fruits and other new flavors, with an average of 11 new offerings every 3 months.
Nayuki rebranded to Naixue
With rising nationalism and anti-Japanese sentiment in China, a major milk tea brand, Nayuki has recently rebranded and changed its Japanese-sounding name to ‘Naixue’.
Nayuki, a homegrown Chinese brand that sells tea-based drinks, is replacing a Japanese possessive particle in its Chinese name with a Chinese character meaning the same, and changing its English name to pinyin, Naixue, to exactly reflect its Chinese pronunciation.
Recent check showed that some of its stores have already started using the new brand name.
The company asserted that the brand name change is part of a ‘strategic branding upgrade’ at a time when consumers are increasingly choosing to buy domestic products.
The name Naixue was based on company founder’s online nickname. The brand is also trying to emphasise more in its Chinese identity.
In the past, Chinese companies often mimic Japanese or western styles and names to identify themselves as of superior quality to appeal to the modern younger consumers. Lately, however, with rising nationalism, brands and businesses started to adopt Chinese names, philosophies and business cultures in line with state promotion of domestic enterprises.
In 2020, another drink producer, Genki Forest, which originally had a similar Japanese look in its branding, replaced a Japanese character meaning air on its packaging with the corresponding Chinese character qi.
