The return of 10 RMB milk tea, a showdown of extreme internal competition in the tea industry!

The domestic new tea beverage market is entering an era of intense competition among various factions. In order to seize territory, leading brands are collectively making bold moves.

This is mainly reflected in two aspects: first, against the backdrop of cooling financing, brand operators are still aggressively investing in the sinking market and increasing the density of high-end market stores; secondly, similar to the domestic automobile market, when industry competition becomes fierce, affordability has become the dominant force in the new tea beverage market.

The Reign of 10 RMB Milk Tea

Recently, the self-proclaimed "King of Affordability" and "King of Scale" in the tea beverage industry, HEYTEA, angered two groups of workers with its 1 RMB ice cup, causing pressure on franchise stores due to the excessively low selling price.

In fact, other participants in the industry are also under tremendous pressure. Other tea beverage brands have long been struggling, and with HEYTEA once again lowering prices, isn't it obvious that they are trying to snatch business from their peers?

However, in this fully competitive new tea beverage market, extreme value for money has become the most powerful tool for brand expansion in the past two years. In today's fiercely competitive new tea beverage market, brands like Nayuki Tea (02150.HK), HEYTEA, and Shanghai Auntie, which are positioned in the mid-to-high price range, have been forced to downgrade due to the rise of low-priced brands like HEYTEA, leading to an escalating industry price war.

Recently, in addition to HEYTEA, mid-to-high-priced new tea beverage brands such as CHABADAO (02555.HK), HEYTEA, and GUMING have successively lowered prices through menu adjustments, issuing coupons, and other forms, with many brand products priced at 10 RMB, allowing consumers to experience the era of 10 RMB once again.

Taking GUMING as an example, GUMING recently announced the entry of "Healthy Original Leaf Fresh Milk Tea" into the 9.9 RMB era. Their promotional message shows: from July 15th to 31st, you can buy a cup of light milk tea for 9.9 RMB on the mini-program.

From the perspective of the entire market, the mainstream price range of new tea beverages is gradually shifting downwards. Data from RedMeal shows that in 2020, the proportion of average consumption prices below 10 RMB and between 10-15 RMB was 7.1% and 33% respectively; but by 2023, the proportion of average consumption prices in these two price ranges had significantly increased to 29.6% and 51.4% respectively. Correspondingly, the proportion of prices above 15 RMB continued to decline.

It is undeniable that a low-price strategy does attract consumers successfully in a competitive environment, but price reductions often compress corporate profits, and in severe cases, can lead to companies falling into a vortex of huge losses and being cleared from the market.

Huaxin Securities recently stated in a research report that supply chain efficiency is the core competitive point in the new tea beverage market. Under the backdrop of extreme value for money, the breadth and depth of the supply chain determine the life and death of brands. The firm pointed out that in the supply chain segment, HEYTEA and GUMING have a leading advantage, with both having stronger competitiveness in procurement networks, central factories, logistics warehousing, and distribution capabilities It is not difficult to see that new tea beverage brands supported by supply chain efficiency may be more resilient in the industry price war, while brands with poor supply chain capabilities will find it difficult to fight a "protracted war" in a price-sensitive environment.

Merging in progress: Leveraging Downward Expansion

Listing financing to support market expansion is a common desire for many new tea beverage brands. However, in the capital market, new tea beverage companies have not been favored by capital.

After Nayuki Tea went public at the end of June 2021, its stock price fluctuated downward, hitting a historic low recently with a market value of only over HKD 30 billion. On the day of its listing in April this year, Chabaidao's stock price plummeted by over 40% from the issue price.

In addition, the prospectuses submitted by Migu Ice City and Guming on the Hong Kong Stock Exchange have recently been shown to be invalid, and if Shanghai Auntie's prospectus does not receive a hearing by mid-August, it will also become invalid.

Scale is the first productivity of profitability for new tea beverage brands. Seizing the larger downward market with the help of franchisees has become a focus of competition for new tea beverage brands. According to a report by Zhuo Shi Consulting, as of the end of 2022, the density of freshly made tea beverage stores in third-tier and below cities in China is only 247 stores per million people, much lower than the 460 stores per million people in first-tier cities, with the penetration rate expected to increase in the future.

In July last year, with Nayuki Tea announcing the opening of franchising, leading new tea beverage brands at various price points embraced franchising, using a light-asset model to tap into the downward market as their common approach. To accelerate expansion, new tea beverage brands have lowered the threshold for franchisees, such as Nayuki Tea reducing the investment budget for single stores, and Shu Yixiancao launching a new franchise policy with 0 brand fee, 0 cooperation fee, and 0 service fee.

Huaxin Securities stated that through the combination of gross net profit margin, single store output, and Takerate, franchise profitability is better than direct operation, with Migu Ice City and Guming showing relatively outstanding profit quality.

The franchise model has given new tea beverage brands wings, leading to rapid growth in the scale of chain stores.

According to Red Catering Big Data, Migu Ice City and Guming currently rank first and second in the industry in terms of store scale. Meanwhile, Cha Baidao, Shanghai Auntie, Tianlala, and other new tea beverage brands have also significantly accelerated their store expansion in recent months.

In the past three months, Tianlala has opened 1616 new stores, making it the fastest-growing company in terms of expansion. In addition, Migu Ice City, Cha Baidao, Shanghai Auntie, and other leading companies have also ranked high in terms of the scale of new store additions in the past three months.

A new round of price wars has begun, and the racetrack is becoming increasingly crowded. The new tea beverage industry is facing comprehensive and fierce competition. It can be predicted that the profits of major industry participants may come under pressure due to the impact of price wars and the increasingly saturated market