To try and create greater familiarity for those living elsewhere, we’ll periodically profile some China brands and businesses that we believe will be household names across the world soon. This month let’s look at one of the hottest tea brands in China – HeyTea (喜茶）.
Background and History:
China is synonymous with tea-drinking, yet in a country steeped in a tradition of drinking tea, a business model built around inventing new tea traditions is doing remarkably well. Heytea (喜茶）which started life in 2012 as a small tea shop in an alley in Jiangmen in China’s Guangdong province, was most recently valued at $2.3 billion and has raised $95.1 million over 6 funding rounds.
Are they profitable? How much revenue do they make? There is a 2020 “annual report” which is not a standard annual financial report (it’s not a public listed company) but more of a curated report card with some highlights of the year. Apparently the company generated $116 million in revenue for the farmers in its supply chain – which points to some significant scale. They now have 695 stores across 61 cities in China (and now Singapore).
Their WeChat mini-program (major source of online orders) now has over 35 million members. There is now a Hey Tea Mini sub-brand which has 18 stores of its own that sold over a million drinks in 2020. The sub-brand has also sold 1.4 million bottles of sparkling water and over 250,000 tea gift boxes.
At its core, Hey Tea is about innovating tea. They started with a foamy layer of “Salty Cheese” on tea which proved to be a successful innovation but apparently are relentlessly pursuing a new product strategy that has them launching a new product every 1.2 weeks (this from their 2020 report so presumably they launched about 40 new products over that year).
Success Factors:
HeyTea has been remarkably successful with developing digital channels for communication and business, building a following among youth, using WeChat and Tmall very well. Most importantly, they own their customer relationship and data and use these assets very well.
Their independent order and delivery model (as separate from the 3rd party delivery apps) gives them direct access to their consumer data. More importantly, they use customer data to read trends that drive product innovation – like switching to less sugary sweeteners and trying out new flavors and product innovation. This proprietary data and control of their relationship with consumers is a massive asset that is being leveraged very well to keep growing and their development of the digital channels is a significant competitive advantage that their competitors lack.
Future Outlook:
Are they likely to be a financially successful company long term? Analyst estimates for their 2020 business suggest around 6 billion RMB in revenue and a 800 million EBIT but this isn’t public data and may not be accurate. It does feel like at this moment they’re chasing a valuation and exit rather than slowing down to build a profitable business. The frenetic pace of store openings and new product launches suggests a race to win as many consumers and markets as possible before they can go public.
Market expansion is clearly on the agenda. So far the brand has only expanded to Singapore but key Chinese speaking markets are not likely to be far behind. Additionally, there is the opportunity to go to big cities around the world that have a market for Chinese cuisine and lifestyle products – brands like Din Tai Fung that are now in multiple countries around the world are a good model to follow.. .so whether or not the company is profitable at this moment, there’s a good chance it could soon be popping up in a shopping mall near you.
While our focus as a consultancy is making new brands famous in China, there are many (already) famous Chinese brands that aren’t well known overseas. We will be bringing them to light in this series over time.
If you’d like your brand to be famous and successful in China reach out to us at enquiries@searchlightchina.com – we work with both local startups as well as international brands that would like to do better in this market.