Is HEYTEA’s premium bubble tea model sustainable?

Would someone queue for 7 hours to buy a cup of bubble tea? Well, HeyTea is one of the few brands that garnered this reaction. There’s always a queue at HeyTea, but of course 7 hour queues (which mean a lot of lost sales), is no more. 

HEYTEA, which started in Jiangmen, Guangdong Province of China, is focused on the premium segment and has a limited selection of products. It focuses on cheezo, flavoured tea, fruit, ice cream and such. Investors were excited about its product innovation and popularity amongst the affluent urban consumers in China – HEYTEA’s valuation has reached a whopping $9 billion.

Initially started as RoyalTea, they rebranded to HEYTEA to distinguish themselves from copycats. HEYTEA built their brand value by leveraging influencers and KOL marketing on social media like Instagram and Xiaohongshu (which is also gaining popularity outside China). They also launched flagship stores and bakery stores to build their brand. 

HEYTEA explored new growth engines through regional expansion and online channels and in 2020, they launched a new brand, Xixiaotea to target mass market (price is half of HEYTEA’s). 

Is a premium model sustainable in the long run?

Market size and headroom for growth in premium / tier 1  markets are limited. As growth reaches saturation point and competition heats up, extending beyond the premium segment is a natural extension, through price cut / launching mass market brands. 

However, premium players are faced with a few challenges: 

• Future moves to increase prices will risk facing consumers resistance
• Much of the efforts to move into the mass market have not been successful, with players like Mixue occupying a considerable market in these segments

Ultimately, the question depends on economic prospect and spending power i.e.: what is the price per drink consumer wallets can reasonably sustain (¥30?), as well as how players can build a moat to sustain their differentiation against other players. 

You can read more about HeyTea and other bubble tea brands in our Bubble Tea report. You can get a complimentary copy here.