Coffee Beans Tree Economics and the Push Into Lower-Tier Cities

Heytea confirmed on November 3 that it will open franchising for business partners, with the partnership fee kept within 500,000 yuan and franchise stores mainly under 50 square meters. The company says it will draw on a decade of experience to develop partnership operations in non-first-tier cities and will support partners with branding, products, quality control, food safety, operations, training and supply chain.

The move follows the closure of Heytea's budget sub-brand Xixiaocha and years of price adjustments and IP collaborations aimed at lower-tier markets. Reported partner costs sit near the 350,000 to 400,000 yuan other brands require. Whether the tea sector enters another round of competition, and whether direct-operated rival Nayuki follows, remains to be seen.

Following the closure of the last store of its sub-brand Xixiaocha, Heytea confirmed on November 3 that it will open franchising, with the business partnership fee kept within 500,000 yuan, and the franchise store format mainly under 50 square meters. Heytea stated that it will rely on a decade of accumulated experience and resources to develop its business partnership operations in non-first-tier cities with suitable store formats, and provide partners with comprehensive support in branding, products, quality control, food safety, operations, training, and supply chain. In recent years, Heytea has accelerated its expansion into lower-tier markets, successively adjusting prices, launching IP collaborations, and shutting down its budget sub-brand. Now, opening franchising is seen as a key step to further capture market share in third- and fourth-tier cities. Whether the new tea beverage sector will usher in a new round of involution, and whether direct-operated brand Nayuki will follow suit, is worth watching.

For professional coffee knowledge exchange and more coffee bean information, please follow Coffee Workshop (WeChat public account: cafe_style)

For more specialty coffee beans, please add the private WeChat account Front Street Coffee (FrontStreet Coffee), WeChat ID: qjcoffeex

On November 3, media reported that Heytea is about to open franchising. This news came quite quickly — not long ago, Heytea had just closed the last store of its sub-brand Xixiaocha, and immediately afterward, the franchising plan was reported.

According to the latest information officially released by Heytea, the cost of becoming a business partner is no more than 500,000 yuan, roughly in line with the initial investment of 350,000 to 400,000 yuan for other brands in the industry. Unlike the large-area stores Heytea opened in the past, the official explanation this time specifically emphasized "suitable store format," with franchise stores limited to within 50 square meters.

Information from recruitment platforms shows that Heytea has posted the position of "Heytea — Business Partnership Management Manager," mainly responsible for connecting and following up on investment promotion and customer management, while also advancing partners' store opening progress and completing the accompanying work for business partners. The job requirements explicitly state that applicants must have more than three years of franchisee management experience in well-known chain industries.

At present, multiple media outlets have obtained confirmation from Heytea: the brand is indeed preparing to open franchising. Heytea stated that this move aims to let more consumers drink Heytea faster and experience its quality. On the basis of having fully implemented the store partner mechanism across all national stores, Heytea will leverage the experience, capabilities, and resources accumulated over the past decade to carry out business partnership operations in non-first-tier cities with suitable store formats, and provide support for business partners in dimensions including branding, products, quality control, food safety, operations, training, and supply chain.

Marketing expert Tang Li said bluntly: "Heytea has not received new financing for a long time, and failed to land on the Hong Kong stock market as wished this year. Opening franchising not only opens up lower-tier markets for Heytea, but also reduces its financial burden."

Public information shows that Heytea originated in Jiangmen City, Guangdong Province, and opened in 2012. It was originally named Royaltea, and due to obstacles in trademark registration, it was fully upgraded in February 2016 to the registered brand Heytea. In August 2017, it entered the Beijing market. The brand has always operated under a direct-operated model, insisting on using real milk, real fruit, real tea, and real sugar to make genuine-quality, affordable products. At present, it has opened more than 800 stores in nearly 70 cities worldwide, among which the number of stores in cities such as Shanghai and Shenzhen has exceeded 100.

In the new tea beverage industry, besides Heytea, brands such as Nayuki and Chayan Yuese have also always insisted on direct operation. Compared with the franchising model, direct-operation management is indeed smoother, but the number of stores is mostly maintained at around several hundred, while brands mainly using franchising basically have more than a thousand stores. According to the prospectus previously released by Mixue Bingcheng, Mixue Bingcheng has more than 20,000 stores, Gu Ming has more than 6,600 stores, Shuyi Shao Xian Cao has more than 6,500 stores, and ChaPanda has more than 5,800 stores.

In recent years, the downward expansion trend in the new tea beverage market has become increasingly obvious. Perhaps in order to seize market opportunities in third- and fourth-tier cities, Heytea has frequently taken actions, successively adjusting prices, launching collaborations, introducing transparent windows for freshly peeled real fruit, carrying out the Axi full-body collection contest, closing the budget sub-brand Xixiaocha, and now opening franchising. After opening franchising, will the new tea beverage sector usher in a new round of involution?

In early February this year, Heytea announced the completion of comprehensive price adjustments, with stores in many parts of the country seeing order surges. As of June this year, products priced below 19 yuan accounted for 80% of Heytea's menu. At the same time, this year Heytea also continued to enhance brand momentum through various collaboration activities with IPs such as Hiroshi Fujiwara, A Dream of Splendor, Genshin Impact, and Empresses in the Palace.

The special collaboration product between Heytea and the hit drama A Dream of Splendor sold nearly 300,000 cups on the first day of launch, with the highest single-store sales reaching about 1,000 cups. The collaboration between Heytea and Empresses in the Palace sold out immediately upon release. As the first new tea beverage brand to collaborate with the national-level TV drama Empresses in the Palace, this collaboration once inspired netizens' creative enthusiasm and formed a very strong brand differentiation.

According to official Heytea data, in the past few years, Heytea's store expansion speed has slowed markedly. In 2018, the number of stores was 163; in 2019, the number of stores was 390, with a growth rate as high as 139%; in 2020, another 320 stores were added, with a growth rate of 78%; in 2021, the number of newly added stores was 202, with a growth rate of only 26.3%, with the annual increase in stores decreasing year by year.

Now that Heytea has opened franchising, is it to quickly seize the lower-tier market? The problems and challenges of the lower-tier market should not be underestimated. Whether Heytea can break through into the lower-tier market with the help of the franchising model remains to be verified by the market. However, then again, now that Heytea has opened franchising, can Nayuki, also a representative direct-operated brand in the new tea beverage sector, be far behind?

Image source: Internet

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