Milk tea returns to the era of 10 yuan, HEYTEA takes the lead in anti-internal competition and exits low-price competition! Netizens: Not 9.9 yuan, not drinking

Price war in Chinese-style new tea drinks, HEYTEA takes the lead in announcing a "truce"! On September 18th, HEYTEA issued an internal letter to its business partners titled "Creating Differentiated Brands and Products for Users". In the internal letter, HEYTEA pointed out that the current observation of the new tea drink track is that "due to the asynchronous growth of consumer demand and the overall supply growth of the tea drink industry, faced with limited consumer demand, the industry has generally chosen a convergent product and brand strategy, leading to increasingly intense homogenized competition". HEYTEA stated that in the future, they will not produce homogenized products, nor engage in simple low-price competition, but will launch more differentiated products and brand activities. They will also not pursue short-term speed and quantity of store openings, but will focus more on the quality of store openings and store operation quality. However, regarding HEYTEA's withdrawal from low-price competition, many netizens expressed "whoever is cheaper, I'll drink" and "if it's not 9.9, I won't drink". Some consumers also mentioned that a new HEYTEA store opened near their home, but the taste didn't seem as good as before. In recent years, the new tea drink track has been enveloped by the word "roll", and competition between brands has expanded from scale and price to co-branding. As the first-tier tea drink market gradually saturates, expanding through franchising to quickly open stores and advancing the layout in sinking markets has become an important strategy for many new tea drink brands. According to HEYTEA's "2023 Annual Report" released earlier this year, by the end of 2023, HEYTEA's store count exceeded 3,200, with a 280% year-on-year growth in store scale, making it the fastest-growing brand in the industry. The latest data from Narrow Door Restaurant Eye shows that HEYTEA currently has a total of 4,334 stores. This means that in the first eight months of 2024, HEYTEA added over 1,100 stores. Furthermore, the data from Narrow Door Restaurant Eye also shows that the proportion of its stores in first-tier, new first-tier, and second-tier cities combined is about 62.64%, while the proportions in third, fourth, and fifth-tier cities are approximately 19.41%, 12.62%, and 4.92% respectively. In other words, about 40% of HEYTEA's stores are now located in third-tier and below cities. While expanding the scale of the sinking market, price wars have also become a daily reality in the new tea drink industry. Since last year, many brands such as Naixue Tea, HEYTEA, Shanghai Auntie, Shuyi Burnt Grass Jelly, Tea Baodao, Tianlala, and Yi Hetang have successively launched activities like "Weekly 9.9 Yuan" and "9.9 Yuan Special Group Buying", further lowering the price threshold of new tea drink products. According to a research report released by Huaxin Securities at the end of May, in the past three years, the growth rate of affordable tea drinks has been faster than that of medium-priced and high-priced ones. The proportion of tea drink consumption below 10 yuan has increased from 7% to 30%, while the proportion above 20 yuan has dropped from 33% to 4%. With "below 10 yuan" becoming the focus of competition for major new tea drink brands, on August 18th, #Milk tea prices collectively plummeted#! The news of #milk tea returning to below 10 yuan# surged on multiple platforms. However, the growth rate of the new tea drink market has slowed down. The "2023 New Tea Drink Research Report" released by the China Chain Store & Franchise Association (CCFA) shows that the growth rate of China's new tea drink market is expected to slow down from 44.3% in 2023 to 12.4% in 2025 Amidst industry competition and a slowdown in market growth, many companies are facing a consensus of declining business performance. On August 9th, HEYTEA issued its first profit warning since going public. Based on preliminary assessments, it is expected that the adjusted net profit for the first half of 2024 will decrease by no more than 36.45% compared to the same period last year. The net profit is estimated to be between approximately 220 million to 250 million RMB, a decrease of no more than 63.03% from the 595 million RMB in the same period last year. On August 2nd, Nayuki Tea also issued a profit warning, forecasting revenue of about 2.4 billion to 2.7 billion RMB for the first half of this year. The adjusted net loss is expected to be between 420 million to 490 million RMB, with the half-year loss approaching the full-year net loss of 2022. Looking at the secondary market performance, Nayuki Tea (02150.HK) has dropped by 58.36% since the beginning of this year, while HEYTEA (02555.HK) has dropped by 72.57%. In this situation, HEYTEA seems to be rejecting the idea of engaging in price wars or scaling battles. In an internal memo, HEYTEA also stated, "In the history of the tea beverage industry, there have been multiple cycles of rise and fall of different categories and brands, and many brands with large-scale stores have not successfully navigated through each wave. Therefore, store scale is not the key to success in this industry." HEYTEA revealed, "In the coming months, we will strictly control the speed and quantity of store openings, limit store density, prioritize user experience, and effectively improve the quality of new store openings and the operational quality of existing stores."