Starbucks Challenger Heytea lowers prices, promises less than CNY 30 per drink

In a bid to expand its customer base, the teahouse chain bucked the trend of industry-wide price hikes

Chinese milk tea giant Heytea (Chinese: 喜茶) has completed the price adjustment of its beverages that started a month ago, the company said in a statement. It also pledged not to introduce drinks over CNY 29 ($4.59) or raise the prices of existing products this year.

The tea house had reduced the prices of drinks, including fruit tea, milk tea and coffee, from CNY 1 to CNY 10 as early as January. Following the adjustments, the prices of the products, except for those of certain special or limited editions, fell to less than 30 CNY. Products priced between 15 and 25 CNY accounted for more than 60% of the total supply.

After Heytea’s price changes, domestic rival Nayuki (02150) (Chinese: 奈雪的茶), the first Chinese tea drink brand to be listed, also reduced product prices by up to 9 CNY.

The company traded at 6.28 HKD ($0.804) per share in Friday’s session, with a market capitalization of 10.771 billion HKD. Its shares plunged 68.3% from the issue price of HKD 19.8.

Meanwhile, other tea drink brands in China have hiked prices due to rising costs amid global inflation. Since mid-2021, popular Chinese fruit tea chains have raised drink prices. Chabaidao (Chinese: 茶百道), a second-tier brand in the league of Mixue (Chinese: 蜜雪冰城) and Lelecha (Chinese: 乐乐茶), increased the prices of certain products by 2 CNY.

Other brands such as CoCo (Chinese: 都可), Yi Dian Dian (Chinese: 一点点), and Chayan Yuese (Chinese: 茶颜悦色) also increased their prices. Coffee chains such as Starbucks and Luckin Coffee have followed suit, in part due to soaring prices for coffee beans.

“The price drop was a normal fit for Heytea in its consumer product price range, thanks to its brand value, size and supply-side advantages,” Heytea said, adding that it had never been a premium tea brand.

In reality, however, customers have long viewed its drinks as a status symbol on par with Starbucks or Costa. In an online survey conducted by users of Douban, a Chinese film, book and TV review site, 98% of 3,973 respondents said they perceived Heytea products as “expensive”.

Data from iiMedia Research, a business intelligence firm, showed that Chinese mid to high-end tea drink brands, those priced at CNY 20 per drink, accounted for 14.7% of the tea drink market. .

Looking to a larger market with more price-sensitive consumers, the company, valued at 60 billion yuan after the last founding round in July last year, seemed to be changing its strategy.

Given the changing market landscape, Heytea’s has slowed its store expansion in recent years. According to canyandata.com, a provider of restaurant industry data, the Shenzhen-based startup added stores at a slower pace, rising from a 139% year-over-year increase in 2019. to 78% in 2020, then to 26.3% in 2021.

At the beginning of February 2021, the teahouse had 893 establishments in 70 cities in China and four in Singapore.

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