This is an English adaptation of a FoodBud historical article originally published on November 8, 2021.
FoodBud reviewed a China Chain Store & Franchise Association report that defined several categories in China’s made-to-order tea market and summarized findings from its 2021 New-Style Tea Beverage Research Report.
Made-to-order tea beverages are classified by the ingredients added to the tea base:
The report describes four stages of China’s tea beverage market:
1. Tea 1.0: “tea + milk.” This covers 1990 and earlier, when pearl milk tea developed rapidly. 2. Tea 2.0: “tea + milk + fruit.” Mainly 2012-2019, when new-style tea emerged and many brands iterated quickly. 3. Tea 3.0: “tea + milk + fruit + culture.” This is the current stage described by the report: capital has accelerated industry growth, COVID-19 has sped up consolidation, and supply chain development, talent inflow, and digital operations have become key brand capabilities. 4. Tea 4.0: a future stage in which multiple tea brands successfully expand overseas and build global markets.
The report frames new-style tea around five areas: new ingredients, new flavors, new technology, new consumers, and new cultural communication.
New toppings and ingredients continue to emerge. Examples include probiotics and collagen peptide additions, which give beverages more “functional” positioning.
Compared with traditional beverages, new-style tea also carries more cultural content. In the past two years, Chinese-style cultural trends have created new product and branding opportunities for tea chains.
The report highlights three product traits: short shelf life, omnichannel sales, and accessibility.
Sugar control has become a visible trend. One survey found that during afternoon tea, 48% of orders on a delivery platform requested reduced sugar. In the current-year survey, 95% of sampled companies offered options such as “half sugar,” “less sugar,” or “no added sugar.” Half of sampled companies had tried sugar substitutes, making calorie control a key topic that year.
At the end of 2020, China had 9.608 million registered catering-related companies, up 25.5% year on year. China’s foodservice revenue for 2020 was RMB 3.95 trillion.
Within that market, made-to-order beverage shops totaled about 427,000 stores at the end of 2019, accounting for 5.9% of catering-related companies. By the end of 2020, the store count had reached about 596,000, accounting for 6.2%.
Within beverage shops:
By the end of 2020, the chain penetration rate for beverage shops reached 36%, above the 15% average chain penetration rate for China’s overall catering industry.
New-style tea brands open different store formats based on strategic needs and the combined demand for products and service.
In top-tier cities, Class A locations in Class A commercial districts are relatively scarce. When tea brands enter these locations, leasing teams may ask for relatively higher rent. To reduce rent pressure, brands have increasingly paired flagship or core-district stores with smaller shops nearby or island stores inside shopping centers.
The core customer profile has not changed significantly: young women remain the main audience, though the age range has expanded slightly.
Brand positioning and target audiences vary by brand, and the same brand can perform differently across cities. The sample survey showed notable differences between members in Beijing and Guangzhou:
For one typical company, heavy users accounted for 80% of members. In the sampled companies, one new-style tea brand had 78% of members buying one drink every 2-7 days on average, while 1% of members bought at least one drink per day on average.
FoodBud previously calculated several figures from Nayuki’s financial report.
Nayuki had 7.4 million active members and a 30.3% repurchase rate. By comparison, Starbucks China had 16.3 million active members in the first quarter of that year, contributing 72% of sales. Nayuki’s report did not disclose member sales contribution.
The article noted that China’s tea chains had strong online operations. Nayuki’s online orders accounted for 72.2% of revenue, while Starbucks China’s mobile orders accounted for 34% in the second quarter.
Nayuki also disclosed delivery costs equal to 5.2% of total revenue, which FoodBud considered relatively high.
Delivery revenue came from two channels: third-party platforms accounted for 29.1%, and self-operated delivery accounted for 5.2%. Total delivery revenue was RMB 690 million, while delivery spending was RMB 110 million.
Using an estimated average order value of RMB 43, FoodBud estimated that Nayuki had 15.996 million delivery orders in the first half of the year, with delivery cost of RMB 6.9 per order. FoodBud compared this with Luckin’s Q1 2019 data and argued there was room for Nayuki to reduce delivery costs and encourage more customer pickup.
Nayuki’s online order revenue included RMB 761.115 million from mini-program orders and RMB 687.83 million from delivery. With 7.4 million members and a 30.3% repurchase rate, FoodBud estimated 5.1578 million one-time purchasing members, contributing RMB 220 million at an RMB 43 average order value. Repurchasing members totaled 2.2422 million and contributed RMB 1.23 billion, or an average of RMB 548 per person over three months. That equals about RMB 182 per month, roughly 6-8 Nayuki purchases.
Supply chain capabilities differ widely by brand. The report argues that supply chain management is decisive for store expansion, innovation, and profit margin. Among sampled companies, supply chain control varied, with most companies in the middle range of capability.
Fruit accounts for a relatively high share of cost. Fruit supply is complex because there are many varieties, standardization is relatively low, seasonality is strong, prices fluctuate significantly, and supply volume is challenging. In the current year, niche fruits originating in China, such as wampee and Phyllanthus emblica, rose in popularity and stimulated upstream cultivation.
For dairy supply, large domestic dairy companies still required high minimum order quantities for customized products and had not fully started supplying the new-style tea segment.
New-style tea delivery order volume was increasing by 50% per year. GMV for new-style tea on delivery platforms was about RMB 16 billion in 2019 and about RMB 24 billion in 2020, and was expected to reach RMB 32 billion in 2021.
For some brands in first-tier cities, delivery-platform orders accounted for more than 70% of orders.
The report defines digitalization in new-style tea as full-chain digital construction centered on digital management: digital channels, digital products, digital supply chain, digital operations, and digital marketing.
Over the past year, rapid digital buildout had helped solve business pain points and build brand moats.
Digital systems support the “people, product, place” model by helping with raw material management in the supply chain, customer acquisition, integrated online-offline operations, product R&D and launches, product quality control, inventory management, efficiency improvement, and customer experience.
Membership systems are another highlight. New-style tea brands had invested in extended products and services for private-domain traffic and members, using mini-programs, apps, Tmall, communities, and other traffic entrances to build brand traffic.
Whether brands expand nationally or deepen regional coverage, new-style tea growth is positively correlated with regional economic development. The result is uneven regional development.
Some cities and areas in the Pearl River Delta had already entered overcompetition. Several major urban clusters, including the Yangtze River Delta, the Greater Bay Area, Chengdu-Chongqing, and areas near Changsha, were also developing quickly.
In Northeast and Northwest China, some regional dark-horse brands were rising and represented a new wave of growth in the category.
The report expected the overall growth rate of new-style tea to adjust to 10-15% over the following 2-3 years.
Company-owned brands were expected to continue opening stores steadily. Franchise-led brands were expected to diverge and enter a consolidation period, with the ability to help franchisees make money becoming a key factor in brand development.
From the company side, intensified competition, high rent, limited talent reserves, the need to strengthen food safety management, and high delivery share with low profit all created pressure. If companies continued rapid growth in that environment, management risk would be high; the report viewed 10-15% as a relatively prudent medium-speed growth rate.
From the competitive environment, lower-tier markets were expected to go through a consolidation period, and brand survival would need to be validated by the market.
From the consumer side, the report stated that nearly 800 million people in China had not yet tried new-style tea, suggesting significant development potential.
The report described slower growth as a phased adjustment. If companies solved key issues such as branding, operating capability, and food safety management over the following 2-3 years, it expected the category’s compound growth rate to return quickly to above 15%.
Note: Store-count, GMV, growth, delivery, and company financial figures are historical estimates or guidance from the 2021 source period.