Why cultivation coffee matters to Heytea's pricing strategy

Heytea announced it will not raise prices this year and will stop selling drinks priced above 30 yuan, while its affiliate Shenzhen Maixing Technology added fruit cultivation to its business scope on February 23. The tea chain is moving upstream to control fruit costs at the source, a shift that echoes similar moves in the coffee sector.

Fruit is a core ingredient in almost every new-style tea drink, and each cup requires a large amount, so brands are looking toward farming to balance cost and quality. Mixue Bingcheng set up an agricultural company in August 2021, and this industrial coffee-style logic of owning the supply chain is spreading across the beverage industry.

Competition in the new-style tea beverage sector is becoming increasingly fierce, with brands constantly adjusting their strategies on products and pricing. Heytea has made frequent moves recently: on one hand, it announced that it will not raise prices this year and will no longer launch drinks priced above 30 yuan; on the other hand, its affiliated company added fruit cultivation to its business scope, attempting to control costs from the source. At the same time, Heytea is also facing controversies over layoffs and internal management. This article will sort out the logic behind Heytea's moves, as well as the trend of the new-style tea beverage industry extending upstream into cultivation, and briefly discuss the similar path in the coffee sector from brewing to cultivation.

New-style tea beverage brands can be described as flourishing in the domestic market, with Chayan Yuese in Changsha, Heytea and Nayuki in Shenzhen, Mixue Bingcheng in Zhengzhou, and LELECHA in Shanghai. These brands each have their own characteristics, but there are also commonalities at the product level—almost all new-style tea beverages cannot do without fruit as an ingredient.

Some brands are constantly moving closer to the upstream of the industrial chain in order to cut expenses. According to a February 23 report by Beijing Business Today, Shenzhen Maixing Technology Co., Ltd. recently completed a change in its business registration information, adding fruit cultivation to its business scope. The company was established in January 2019, with legal representative Liu Zhichao and registered capital of 300,000 yuan, and is indirectly wholly owned by Heytea (Shenzhen) Enterprise Management Co., Ltd.

After Nayuki's Tea launched "Baqi Yu Yougan" and it quickly became popular, new-style tea beverage brands invested more effort in finding specialty fruits. Because each cup of drink requires a large amount of fruit, some brands began to look toward the more upstream cultivation stage in order to balance cost and quality.

There is already precedent for this approach. "Snow King," made deeply recognizable by the advertising jingle "You love me, I love you, Mixue Bingcheng sweet honey," established an agricultural company at the end of August 2021.

In early 2022, many new-style tea beverage brands raised prices one after another, but Heytea went against the trend, with prices not rising but falling. Although this move won considerable praise, it also raised doubts. Some netizens said, just how large is the profit margin of new-style tea beverages?

Around the Spring Festival, there were also reports that Heytea had cut 30% of its staff. Reports online quoted Heytea employees as saying that the year-end bonus was only 188 yuan and that employees were treated harshly. Heytea responded that this was internal optimization and adjustment. Another leak attributed to a self-claimed Heytea employee pointed out that there were factional struggles within the company's senior management team, relatively chaotic management, and frequent personnel turnover.

In the past two years, Heytea has invested in many new-style tea beverage and coffee brands, such as SEESAW COFFEE and Yeshancui. However, the pace of expansion of Heytea's own offline stores has slowed noticeably. As of the end of 2021, Heytea had a total of 865 stores, with a net increase of 170 for the year, 135 fewer than in 2020.

The problem of homogenization in new-style tea beverages is becoming increasingly prominent, and brands are eager to "play together" with young people, yet mistakes frequently occur in this process.

Relying only on price cuts is already making it difficult for consumers to feel Heytea's sincerity. At present, there are no drinks starting with the number 3 on Heytea's standard menu. On the afternoon of February 24, Heytea announced that it would not raise prices this year and would no longer launch products priced above 29 yuan.

When attracting fans by cutting prices as a "rebellious child" is no longer enough, consumers will be more satisfied if prices can be kept from rising. But the reality of rising costs forces Heytea to find ways to reduce its burden, and agricultural cultivation is precisely one of the controllable links.

This is like how the endpoint of drinking coffee is brewing coffee, the endpoint of brewing coffee is roasting coffee, and the endpoint of roasting coffee is growing coffee. To ensure stable raw material quality and low prices, growing it oneself is almost the only choice. The ingredients of the taro mud boba series are a typical example.

Image source: Internet

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The above content is compiled by CoffeeHunters, a coffee news website.