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Bubble Tea Overload: China’s Tea Shops Multiply, But At What Cost?

Daniel Kim Views  

Xinhua News Agency

The thing that comforts young Chinese people suffering from chronic economic difficulties is none other than milk tea, also known as bubble tea. Even the time spent waiting in line can be described as a time to catch their breaths. However, it is pointed out that the sweet “sanctuary” that young people enjoy to relax has degenerated into excessive competition that causes burnout for companies.

According to Bloomberg on Tuesday, about 420,000 bubble tea shops opened throughout China last year. The total sales reached a staggering 247 billion yuan (approximately $38.8 billion). This boom has been attributed to the rapid spread of new stores trying to cash on the bubble tea popularity.

Thanks to this trend, small bubble tea shops have evolved into billion-dollar worth of food businesses attracting corporate investment. HeyTea, China’s top bubble tea brand, has a brand value exceeding 60 billion yuan ($9.4 billion) after receiving investments from IDG Capital and Hillhouse Investment. ChaBaiDao, which started in Chengdu, Sichuan Province, raised 970 million yuan ($152.4 million) through funding in 2021. Then, in April of the following year, it went public on the Hong Kong Stock Exchange (HKEX), raising $300 million.

Due to large investments and the bubble tea craze, Chinese bubble tea makers are rapidly expanding their stores. Those that have successfully attracted investment are opting to increase the number of stores rather than managing them directly. As a result, there’s an average of 50 bubble tea shops on the streets near major shopping centers throughout China.

However, Bloomberg pointed out that the unchecked expansion of bubble tea shops is a “cannibalization” that jeopardizes both brand image and profitability. ChaBaiDao’s average sales per store in 2023 decreased by 12% to log 2.4 million yuan ($376,800) compared to 2021 after it went public in Hong Kong.

Bubble tea brands are not only expanding their store numbers but are also excessively competing to launch new drinks every week to attract the younger demographic. Last year, ChaBaiDao introduced 48 new items. Auntea Jenny, known as the fourth largest in the bubble tea industry, launched about 100 new items. This has led to frequent imitation among competitors. As the competition in China’s bubble tea market heats up, the stock prices of other bubble tea companies including Nayuki Holdings and Sichuan Baicha Baidao, have plummeted even after their stock debuts.

Bubble tea makers that struggle to generate stable profits in China are turning their eyes to overseas markets. Mixue, China’s largest bubble tea chain with the most number of franchises, has over 3,000 stores outside of China.

HeyTea landed in New York at the end of 2023. However, Bloomberg added that it remains uncertain whether these companies, which imitate and undercut each other, will be sustainable.

In recent months, China’s overheated bubble tea market has been drawing international criticism. While government subsidies for electric vehicles (EVs) in China have been criticized, the bubble tea industry is experiencing excessive competition even without government intervention. Bloomberg pointed out that the Chinese business mantra of “expand until you succeed” is deeply rooted in the country, but this behavior is causing domestic companies to destroy each other.

Daniel Kim
content@viewusglobal.com

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