On June 30, 2021, Nayuki Holdings Ltd., which operates Chinese bubble tea chain Nayuki, listed on the Hong Kong Exchange (HKEX). It is the first tea drink chain to be listed on the stock exchange. The initial price on the first day of listing was HK $18.86, and its closing price was HK $17.12, with a market capitalization of HK $29.363 billion (about $3.78 billion). Nayuki was established in Shenzhen, China in 2015, the company made a tidy net profit of RMB ¥62.17 million (USD $9.6 million) in 2020.

HEYTEA, another high-profile Chinese tea drink chain, has also raised new funding, and according to a June 29, 2021 report, the company reached RMB 60 billion (about USD $9.25 billion) in their latest round, setting a new record for China’s tea and coffee beverage industry. HEYTEA was founded in 2012 by Neo Nie, who invented the 奶蓋茶, or milk cheese foam topping that is currently popular in bubble tea culture. The chain currently has over 800 stores and can be found in 60 cities around the world.

Another emerging coffee brand is Manner Coffee, a quality coffee brand that many consider the Starbucks of China. As of June 2021, the company has raised funds four times in just six months, counting amongst its shareholders top-tier VCs and major corporations such as Dragon Ball Capital and TikTok operator, ByteDance.

Founded in 2015, Manner Coffee currently has 136 brick-and-mortar stores, with most of the shops primarily concentrated in Shanghai. Dividing its current valuation of RMB ¥8 billion by the number of storefronts, the investment side value equates to about RMB ¥58.82 million per store, or about three times the amount of a Starbucks store.

Younger generations are becoming the largest consumer base

There is a Chinese buzzword, “90后（post-‘90s),” which refers to Chinese citizens born in the 1990s. As of 2020, the “post-‘90s” crowd, which number around 300 million, has come of age, making them the majority consumer mainstream. Data released by Chinese e-commerce giant JD.com in September 2020 showed that the largest number of users of its website were between the ages of 20 and 29, AKA people born between 1991 and 2000.

Looking back on China’s IT history, most post-‘90s consumers have been using cell phones since grade school, and were the first to ride the wave of QQ, Baidu, etc., when those services became popular around the early aughts. In other words, they are a generation that was weaned on the internet.

According to a survey conducted by JD.com, 90 percent of the post-‘90s are working adults, and 60 percent of them are still single. Therefore, they are an age group that is financially comfortable with strong purchasing power. In fact, the average income of the post-‘90s crowd have an average monthly income of RMB ¥8,000 and over 90 percent of them have positive income through investments.

Looking at their consumption traits, it’s evident that the post-‘90s value high-quality products, are sensitive to product reviews, and also care more about cost performance. It is also important to note that many post-‘90s are willing to try new brands, unlike many pre-‘90s consumers. Even if they are unfamiliar with a brand, they will buy it if the product matches their own values. This creates an environment that favors emerging brands.

A conducive network infrastructure

With the well-developed network infrastructure, such as WeChat’s all-in-one e-wallet and social media platform, buying and selling in China has become very convenient for both businesses and consumers. As a company, targeting consumers has never been easier or more accurate. Brands are selling out of what used to be a year’s worth of products or even several years’ worth of products in the span of one live broadcast.

This is also thanks in part to 小程序, or “Mini-Program,” a no-download app that can be used within apps such as WeChat and Alipay. Due to its low development cost and high user convenience, the number of users has grown exponentially since its development in 2017, reaching 550 million DAUs by 2020. Even more surprisingly, the amount of money spent (GMV) in 2019 on Mini-Programs within WeChat alone exceeded RMB ¥800 billion (about USD $123.4 billion).

Shopping can be done on almost every social media platform in China with a record number of shopping channels and easy access to product information. A report published by CNNIC China in February 2021 indicated that the number of people who shop online in China was 782 million as of December 2020, 781 million of which were smartphone shoppers.

A concentrated effort on improving capital support

With the internet infrastructure in place, the money that has been poured into the TMT sector (technology, media, and telecommunications) is now flowing into D2C and retail. HEYTEA, Nayuki, Manner Coffee, and other emerging brands all have their own information systems and use the results of data analysis to decide where to open offline stores.

They also have a system that allows them to connect with users online while selling offline. This allows these drink brands to expand faster and more efficiently than traditional offline milk tea stores, making it easier for them to get investment from VCs and PEs. According to a report by QCC.com, the number of times tea drink chains raised funds and disclosed amounts from 2011 to June 2021 has jumped exponentially from 2019 to 2021.

An advantageous domestic supply chain

China has one of the richest product supply chains in the world, making it the perfect environment for new brands to expand quickly. From the tea leaves used to make milk tea to the range of secondary ingredients needed to complete the beverage — all are supported by China’s domestic supply chain.

According to the Food and Agriculture Organization of the United Nations, China is by far the largest producer of tea worldwide, followed by India in second, and Kenya as a distant third. This creates a fertile environment for growth for the tea drink industry.

With a unique internet infrastructure and a large youth population, China is experiencing a tremendous wave of change, and with the rise of the tea drink industry in 2021, it will be interesting to see how the rest of the retail and D2C sectors will change in the coming years.

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