A “Packing Density” Angle

Author: Danny, SLA China

During the lock down and quarantine time in China, “Drinking bubble tea” was ranked #2 on “the first thing to do after the epidemic” by 133,000 Weibo voters – the discussion attracted 250 million Chinese people…

Bubble tea (1), and its other modern tea cousins, are called “the Social Currency” in contemporary Chinese culture.

Originating from the small street stands fulfilling functional demands, bubble tea shops have gradually evolved with powerful social and leisure functions over the past years in China. They are different from coffee shops, which may be better at creating an elegant business atmosphere; bubble tea shops are more “down-to-earth”, with a more relaxed environment, attracting more chic young girls taking selfies and posting on “wechat moments”, girls gathering, and young couples dating… It’s no exaggeration to say, that bubble tea shops are already a standard setting in modern urban life in China now.

To some extent, bubble tea shops in China are similar to coffee shops in the US. According to Allegra World Coffee Portal, there are more than 35,500 coffee shops in the states, serving a population of 330 million (ratio being 1:9296). In comparison, according to Meituan, one of the largest delivery platforms in China – As of Q3 2018, there were 410,000 tea-making shops in China, an increase of 74% y-o-y! It is estimated there are more than 450,000 tea-making shops in China, serving a population of 1.4 billion (ratio being 1:3111)!

Has the market of bubble tea shops reached saturation in China? Is there still potential demand to tap? What is the current store packing density of the leading brands so far?

Let’s first look at the case of No. 1 retail hub in South China

• In total, there are over 65 bubble tea shops in Tianhe Road-Sports Center retail hub. This does not include any coffee shops, dessert shops, bakeries, juice bars, convenience stores or restaurants which also serve bubble tea.
• Within 500m of Apple Flagship Store, there are 55 bubble tea shops. Literally this is 5~10-minute walk! In particular, Heytea has two stores within one venue, although under different fascia: “Heytea Lab” on F1/F2, and “Hey Pink” at B2.
• Only 1/3 bubble tea shops in the trade zone are with avg. per cup price above 20 RMB. Compared to the huge passenger traffic – 1.5mn person time daily, you can see good potential still remains in the mid/high-end tea drinking market.

Some further analysis on three leading brands: Heytea, Nayuki, and Lelecha

• The reason for choosing them for analysis is because they don’t operate franchise and the store operation is relatively consistent. Meanwhile, they are positioned relatively high-price level, offering good social spaces as well as quality tea.
• Rankings of the Tier-1 cities based on store numbers of the three brands: Shenzhen (155), Shanghai (114), Guangzhou (76), Beijing (73). Comparing that to Starbucks: more than 700 in Shanghai, over 300 in Beijing, and nearly 200 each in Guangzhou and Shenzhen… These three brands are NOT having a crazy network- although coffee market is much less fragment than bubble tea, and difference exists in the target groups of coffee and bubble tea.
• Looking at the retail hub coverage among the Tier-1 cities, Shenzhen Citizen Center has clustered with most stores of the three (a total of 10 stores – Lele Tea not yet entered). Densest retail places in Guangzhou are Tianhe Road Sports Center (9 stores ) And Zhujiang New Town (8 stores). Shanghai Nanjing East Road and Nanjing West Road retail hub each has 7 stores; Beijing SOHO is the densest retail hub in the city with 5 stores. Even though, there are still market gaps in some retail places in Guangzhou and Shanghai, and this is more obvious in Beijing.
• The most intensive competition of the three is happening in Xinjiekou of Nanjing, with 7 stores clustered in 500 meters!
• A closer look at the “Store Packing Density” of Heytea and Nayuki shows some interesting findings: Strong and promising potential exists in “Emerging Tier-1” cities, and even more so in lower-tier cities.

Are the store networks too dense or not enough? No standard answer for all

• Takeaway, and “online order -store pick-up” are both playing important roles in store sales. Sometimes the store network might seem too crowded, but they may be serving different consumer groups through different formats.
• In addition to sales potential, other factors worth taking into account include: brand image, consumer experience (such as queuing time), scaling advantages, supply and delivery chain, etc.
• Obviously competition does not exist only among bubble tea shops. coffee shops, juice bars, and dessert shops can all share the market. Furthermore, the boundaries of catering and retailing are also becoming blurred: Heytea sells coffee, Nayuki sells spirits, Starbucks sells milk tea and spirits. Heytea even sold L’Oreal gift boxes, and Nayuki launched Estee Lauder gift sets … So, the algorithm involved in the real world can be much more complicated. Nevertheless, the basic logic is about the same.
• After all, store packing density needs to be determined case by case. A data driven approach is important in opportunity scan, in combination with retail experience.

In summary, under the surface of sharp competition, good opportunity still exists for the EMERGING SOCIAL SPACE – bubble tea shops.

Nevertheless, it is still worth noting that in China bubble tea shops really sprint to grow fast, especially with the fuel of investment from capital market. A status quo review and analysis is vital whenever you want to start up, or invest this kind of business.

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1. Bubble Tea refers to “milk tea” in China.

Data Source: Brand Official Websites by April 2020

2. Definition of City Tier: Refers to Baidu