This summer just rolled around for another hot season of the sparkling milk tea drinks, but the impact of the coronavirus pandemic could still be felt.
As Heytea and Naixue’s Tea raised the prices of several drinks to over 30 yuan (US$4.6), citing the soaring cost of raw materials and labor during the pandemic earlier this year, more affordable brands like CoCo and Mixuebingcheng, whose beverages can be priced as low as a few bucks, have come under a brighter spotlight.
“You get what you paid for. True enough. But the pandemic just pours cold water on the rise of mass consumerism in China and leads to the budgeting mindset,” said Yang Lu, a 29-year-old project manager at a Beijing-based telecommunications company. “Before digging deeper into their pockets for a cup of drinks, even some milk tea addicts may ponder whether the beverage is worth that much and should be priced that high.”
Such a budgeting mindset has prompted Chinese consumers to refocus on instant milk tea brands, which paved the way for the dizzying growth of the trendy milk tea beverages in earlier years.
To be sure, the tea market in the world’s second-largest economy is by far the biggest on Earth, boasting a retail value of US$78.7 billion and a 9.3 percent growth rate in 2020, projected by Daxue Consulting.
Thirty-eight percent of its value comes from the instant tea category. One of the top segments of the instant beverage market in China is milk tea and bubble tea.
U-loveit and Xiangpiaopiao stand out as dominant brands. The former is famous for its celebrity endorsement by renowned singer-songwriter Jay Chou, while the latter — the country’s first listed milk tea company — impresses consumers with its successful advertising slogan: “As many as one billion cups of Xiangpiaopiao have been sold in one year. All the cups connected together can wrap around the globe three times.”
With more players joining the fray, the crowded bubble tea market shows signs of saturating and critics warn a classic bubble is here: By the end of June, the number of tea stores in China hovered around 480,000. Last year, however, the country was home to nearly 500,000 milk tea shops, data from Shenzhen-based Forward (Qianzhan) Industry Research Institute shows.
Heytea entered Hong Kong in late 2018 and had eight stores in the city at its peak. The aspirational brand put the brakes on its overseas expansion plans and withdrew quietly from the overcrowded local market this year, shutting down most of its outlets with only one store at Times Square in Causeway Bay still open.
Yet with the perpetual hunger for trendy beverages and sparkling drinks, Peter Wong, an analyst at market research provider Euromonitor International, said the so-called “down-trading would be a temporary phenomenon before the premiumization trend picks up its momentum again in China”.
“There is a fundamental shift toward consumption sophistication, as there is a positive correlation between wealth and taste sophistication, as seen in many countries in the West,” Wong noted. “As a result, once the Chinese economy fully recovers from the pandemic, it will not be surprising to see middle-class Chinese consumers going back to their premium bubble tea consumption routine, same as they would for resuming traveling once the pandemic is truly controlled.”
Moreover, venture capital firms seem to have sustained trust in the potential of leading milk tea brands to rival big-name international beverage brands like Starbucks. Heytea, backed by Tencent and valued at more than US$1 billion, closed its new round of funding with an undisclosed amount of investment in May. Previously, the company had completed two rounds of funding totaling 500 million yuan.
Naixue’s Tea, whose valuation rocketed nearly 80 percent in less than a year to US$2.42 billion, closed its latest round of US$100 million financing in June. The company reportedly filed confidentially for a US$400 million IPO in February, but the listing venue is said to have been changed from the United States to Hong Kong.
