On March 29, the Chinese bubble tea brand, Nayuki, announced its first financial report since it was listed on the Hong Kong Stock Exchange. The report shows that Nayuki’s profits have shrunk significantly in 2021. By the end of last year, Nayuki’s revenue reached 4.296 billion yuan (~USD 675 million), up 40.5% year on year with an adjusted net profit of 145 million yuan (~USD 23 million). The report also revealed problems such as poor performance of Nayuki’s PRO stores, decreased per capita consumption, and an ambiguous future of the “third place” business model due to the high cost of raw materials (‘The third place’ refers to coffee shops, gyms, beauty salons, and community centers, where people get together).
Faced with difficulties posed by the pandemic, bubble tea brands, including Nayuki, are forced to cut prices. Nayuki reduced the prices range of its drinks from 9 yuan (USD 1.42) to 19 yuan (USD 2.98). In addition, the company promised to introduce at least one new product cheaper than 20 yuan (USD 3.14) every month. Currently, none of Nayuki’s drinks are priced higher than 29 yuan (USD 4.55), and most of them range between 14 to 25 yuan (USD 2.20 – USD3.92). When asked for comments, Nayuki responded that the adjustment was to provide consumers with more options and lower prices.
On February 24th, HeyTea, another leading bubble tea brand in China, announced that the price of any new product would not exceed 29 yuan (USD 4.55) during 2022 and promised not to raise the prices of all existing products this year.
Like many other businesses in the food and drink industry, bubble tea brands are also among those which were hit hard by the pandemic, leading to declined revenue and increased cost of raw materials.
Big brands’ ability to weather those external impacts lies in their strong brand awareness in the market, continuous upgrading of the supply chain, and scale of their advantages. With the high-end market approaching a certain ceiling, leading bubble tea enterprises are seeking growth in the low-end market. As leading brands, such as Nayuki and Heytea, start reducing prices, competition should become intense, and the space for small and medium-sized brands will narrow down quickly.