HEYTEA takes the lead in saying &#34;no&#34; to the internal competition of new tea drinks.
On September 18th, HEYTEA sent an internal letter to its business partners titled &#34;Creating Differentiated Brands and Products for Users&#34;.
In the letter, HEYTEA stated that homogeneous products and brands are continuously eroding consumers' enthusiasm for tea products and brands. Faced with this situation, HEYTEA decided to &#34;reject the inertia of homogenized thinking and avoid simply engaging in low-price competition&#34;.
The bitter internal competition in the new tea drink industry has been going on for a long time. HEYTEA's letter also points to the current situation of the ready-to-drink tea market - low-price competition and product homogenization.
In the intense competition in the industry, the new tea drink industry is filled with smoke of competition, including scale expansion, collaborations, and innovation. After exhausting all possibilities of competition, the industry will eventually move towards a genuine and sustainable development.
Is this &#34;anti-competition&#34; move by HEYTEA a reluctant choice or another important step in its business exploration?
HEYTEA &#34;declares peace&#34; and exits the competition game
Since its inception, HEYTEA has been known for its high-end tea drinks. Its high-quality products and pricing strategy have attracted many consumers to line up for purchases.
According to Sullivan's &#34;China New Tea Drink Industry Development White Paper&#34;, in 2020, HEYTEA's average customer spending reached 52 yuan to 56 yuan, far exceeding the industry's average of 35 yuan.
In the past two years, as competition in the new tea drink market intensified, HEYTEA began to explore franchising and price reduction strategies. In early 2022, HEYTEA proactively adjusted its product prices. By the end of the year, the mainstream price range of HEYTEA's regular stores' menu was between 15-19 yuan, accounting for over 80%.
In May of this year, HEYTEA launched a limited-time promotion, including more than 10 products such as light milk tea and premium tea, where consumers could enjoy a buy-one-get-one-free promotion, with some products costing only 4 yuan per cup after using a coupon.
In just a few years, HEYTEA has completely shed its noble image. However, even so, HEYTEA has not been able to recreate the bustling scenes of queues from the past. After all, under the high-end brand positioning, expansion and price reductions have to some extent affected the brand's momentum.
Earlier this year, HEYTEA released its &#34;2023 Annual Report&#34;, showing that by the end of 2023, the number of HEYTEA stores exceeded 3200, a year-on-year growth of 280%; the total number of members exceeded 100 million, becoming the first tea drink brand in the industry to have a private user base of over 100 million. However, compared to &#34;the king of expansion&#34; HEYTEA with over 36,000 stores and the &#34;queen of registered members&#34; with over 130 million members, HEYTEA faces considerable pressure.
Faced with the dilemma of industry competition, HEYTEA has chosen to launch the first shot in the &#34;anti-competition&#34; campaign.
In the internal letter, HEYTEA stated that in the future, it will reject the inertia of homogenized thinking and avoid simply engaging in low-price competition, and will introduce more differentiated products and brand activities.
At the same time, it will not pursue short-term speed and quantity in opening stores. In the next few months, store expansion will be controlled, focusing more on the quality of store openings and operational quality.
Furthermore, the upcoming products will not follow the trend of popular categories in the industry. New products will no longer replicate the current product structure, but will explore more differentiated new products and categories in the direction of healthy tea drinks
Simply put, it's about the differentiation of products and brand activities, as well as controlling the number of stores.
On the product side, HEYTEA has already sent out some signals of &#34;differentiation&#34;.
This summer, HEYTEA took the lead in the industry by launching the &#34;Feather Slimming Bottle&#34;, using real quality healthy vegetables and fruits such as kale, chia seeds, apples, etc., paired with Green Beauty Tea soup. Sales exceeded 10 million bottles in a month and a half, becoming a &#34;sold-out king&#34; at one point.
On September 19th, HEYTEA officially launched the second product in the new category &#34;Super Plant Tea&#34; series, the &#34;Fire-Reducing Slimming Bottle&#34;, continuing the previous inspiration.
All signs indicate that under the trend of healthification, the plant tea track focusing on health has eaten up the new direction that HEYTEA is betting on.
On the brand activity level, HEYTEA is also familiar with the differentiation strategy.
In an internal memo, HEYTEA specifically mentioned this year's &#34;Love of Light and Night&#34; collaboration and Paris flash mob event.
Take &#34;Love of Light and Night&#34; for example, this wave of love game collaboration attracted a large number of users. According to HEYTEA officials, some stores sold 3,000 cups of the collaborative drinks on the day of the event. As the tea of joy, HEYTEA gave out 1.38 million joy certificates for the collaborative peripherals.
HEYTEA stated that a differentiated brand is the fundamental reason why everyone chooses HEYTEA, and it is also the strongest demand of current users for tea drinks. It is also what HEYTEA has always been good at and truly doing.
In the coming period, HEYTEA will increase investment in brand design and packaging, brand activity content, store space, peripherals, etc., through a series of measures to highlight differentiation, once again presenting a HEYTEA full of uniqueness and attractiveness.
The new tea industry, unable to sustain the competition
Behind the continuous internal competition in the new tea industry is the overall slowdown in industry growth.
Data released by iMedia Consulting shows that from 2017 to 2019, the new tea market showed rapid growth, with a highest year-on-year growth rate of up to 136%. After 2023, the growth of the new tea market gradually slowed down, with growth rates dropping to single digits. It is estimated that the year-on-year growth rate of the market in 2024 will be 6.4%, and by 2025, the year-on-year growth rate of the new tea market will further decline.
Previously, the most severe internal competition among brands mainly focused on scale and price.
In terms of scale, some new tea brands are unable to sustain the competition, with the expansion speed slowing down and store closures becoming the norm. In the &#34;battle&#34;, more and more tea shops are closing down.
Taking the listed company Naixue as an example, after one year of franchising, Naixue did not embark on a high-growth trajectory as planned.
In July 2024, Naixue Tea disclosed its operating conditions for the second quarter of 2024, adding 48 Naixue Tea directly operated stores, closing 48 Naixue Tea directly operated stores, with zero growth in absolute value for directly operated stores.
In addition to the stagnation in the growth of directly operated stores, the growth rate of Naixue's franchised stores is also below expectations.
In March 2024, Naixue Tea's management proposed development goals, planning to open 2,000 to 3,000 franchised stores in the next two to three years. However, as of June 30, 2024, Naixue had a total of 297 franchised stores. At this rate, achieving the goal of 2,000 to 3,000 franchised stores will be quite challenging
Taking another look at &#34;the second largest new tea drink&#34; that recently went public, HEYTEA.
According to public data, from 2020 to 2023, HEYTEA's store scale growth rates were 126.3%, 25.3%, and 22.7% respectively, showing a continuous downward trend. In the first 6 months of 2024, the company added a net total of 581 franchised stores, with 826 newly opened stores and 245 closed stores, approximately 2.55 times the number of closures in the same period in 2023.
In addition, second-tier milk tea brands such as GUMING and SHUYI SHAOXIANCAO have also started to slow down their store expansion.
According to Narrow Door Restaurant Eye's data, looking at this year's store expansion data for new tea drink brands, the overall expansion speed of each brand this year is much lower than in 2023.
Specifically, in 2023, NAIXUE, HEYTEA, GUMING, HUSHANG AYI, SHUYI SHAOXIANCAO, and TIANLALA added 579, 2017, 2745, 2876, 1635, and 2925 stores respectively. However, by 2024, the number of new stores for these brands has rapidly declined.
As of September 10, 2024, the number of new stores for HEYTEA, GUMING, HUSHANG AYI, SHUYI SHAOXIANCAO, and TIANLALA were 1205, 692, 1352, 470, and 1225 respectively, all of which are less than 50% of the new stores opened in 2023.
In this internal memo, HEYTEA also stated, &#34;In the history of the tea drink industry, there have been many rounds of rise and fall of different categories and brands, and many brands with large store scales have not successfully crossed each wave, so store scale is not the key to success in this industry.&#34;
Since last year, major brands have been lowering product prices, using &#34;below 10 yuan&#34; as a new competitive battleground. Behind the frenzy of price reductions is the new tea drink brands' desire for traffic and volume. However, along with long-term low profits from low prices, it is also easy to trigger a backlash against the brand.
Intense competition has led to rising raw material prices, high costs such as rent and labor. In order to maintain market share, some brands have had to engage in price wars, further squeezing profit margins. At the same time, the excessive expansion of stores has brought about management challenges, making it difficult to ensure service quality.
The practice of exchanging market share for ultra-low prices is not a long-term solution. HEYTEA has also been affected by this price war, with its original high-end positioning being impacted. In an internal memo, HEYTEA stated that they will not engage in simple price reductions, indicating that HEYTEA may break out of the price war cycle and explore new profit models and development paths.
Today, HEYTEA's &#34;anti-price reduction&#34; action can be seen as a &#34;turning point&#34; in HEYTEA's development, bringing a breath of fresh air to the tea drink market. Compared to the emphasis on scale in the past, new tea drink brands represented by HEYTEA may be more pragmatic in the future

HEYTEA

HEYTEA released an internal memo on September 18, announcing its rejection of low-price competition and homogenized thinking, aiming to create differentiated brands and products for users. Faced with intense competition in the new tea beverage market, this move by HEYTEA signifies an exploration of its business path. Despite facing challenges to its high-end positioning in recent years, the number of stores and membership size have both significantly increased, yet it has not been able to restore its former popularity

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