The infusion of tea with “bubbles,” typically tapioca pearls, has sparked a cultural phenomenon among Chinese youth, adorned with a plethora of innovations and flavors.
According to data from the China Chain Store and Franchise Association spanning 2017 to 2022, the number of milk tea stores in China doubled to 500,000, establishing a ubiquitous presence across numerous cities and towns. Leveraging economies of scale to foster familiarity, convenience, and innovation, bubble tea chains in China have experienced exponential growth, vying for a larger share of the lucrative ¥145 billion ($20.4 billion) industry.
Despite a tightening consumer purse, the affordability of milk tea, priced relatively lower, has propelled its popularity, fueling a burgeoning market. Notably, consumers exhibit varying willingness to pay, with brands like Mixue flourishing by offering budget-friendly teas, alongside premium chains such as Heytea and Chagee, capitalizing on innovation and catering to health-conscious consumers.
This dichotomy underscores a broader trend across categories: while budget brands thrive, those attuned to consumers’ emotional and functional needs command a premium. Brands caught in between often struggle to find their footing.
In the ever-evolving landscape of Chinese tea, innovation reigns supreme. From cheese-topped teas to a multitude of flavors including green tea, oolong tea, and coffee-based varieties, the beverage continues to evolve. Fruits like mango, passionfruit, peach, and kiwi have found their way into the mix, alongside regional variations catering to diverse tastes.
The evolution of bubble tea extends beyond tapioca pearls, embracing a myriad of toppings—from flavored jellies to pudding, fruit pieces, taro balls, and even Oreo crumbs. These additions not only offer novelty but also enable customization, enhance mouth-feel, and serve as visually appealing sharable content on platforms like RED or Douyin.
However, amidst these innovations, a newfound emphasis on health emerges. Brands tout the freshness of fruits in their teas and offer healthier alternatives like sugar-free, low-sugar, or plant-based options. Chagee, for instance, has embraced Shanghai Authority’s health rating system, with 70% of its sales now comprised of healthier beverage options.
Emotional resonance plays a pivotal role in driving premiumization, with tea chains integrating tea into social gatherings and celebrations, resonating particularly well with a generation predominantly comprised of only children. This cultural alignment appeals to patriotic sentiments among Chinese consumers proud of their tea-drinking heritage.
Collaborations, a hallmark of Chinese market dynamics, abound in the milk tea sector. While some collaborations garner attention, many fall short amidst a saturated market. Brands eyeing international expansion must heed lessons from Chinese counterparts, leveraging insights to navigate diverse markets effectively.
As milk tea emerges as a frontrunner in China’s retail landscape, its exportation underscores the globalization of Chinese retail concepts. With chains eyeing IPOs and expansion into Southeast Asia and beyond, brands must embrace these lessons to enhance their competitiveness in a dynamic global market.
Milk tea serves as a microcosm of broader consumer trends, offering valuable insights for brands across industries. Understanding nuances within seemingly unrelated categories can unlock strategic opportunities for brand growth and relevance in an ever-evolving market landscape.
