Summary of Key Points
Tea Yan Yue Se has expanded extremely slowly over the past 10 years (it took them 7 years to move beyond Hunan). This year, they suddenly accelerated their expansion into Guangzhou and Shenzhen, two of the most competitive markets for tea drinks in China. Behind this decision are internal growth pressures (the saturation of the Hunan market, the failure of their secondary brands to drive growth, and the rapid expansion of competitors like Ba Wang Cha Ji), as well as the attractiveness of the Guangzhou and Shenzhen markets (strong demand and the opportunity to prove the brand's true strength). However, they also face many challenges: differences in consumer habits, intensified direct competition, the loss of a sense of exclusivity, and the high costs associated with their direct-operated model. This “game of experts” is an inevitable step towards Tea Yan’s nationwide expansion; their success or failure will determine whether they can survive beyond their roots in Changsha.
I. Why the Sudden “Acceleration”? – Expansion Forced by Circumstances
Tea Yan’s previous slow pace was a deliberate choice, but now they have no choice but to speed up:
1. No room left in the Hunan market: They have already covered 14 cities in Hunan. Expanding further means either competing with existing stores in Changsha’s core business districts or setting up shops in smaller towns, where customer spending is lower and cannot support the high rent and labor costs of a fully direct-operated model.
2. Secondary brands failing to boost growth: They have launched coffee (Yuanyang), lemon tea (Gude Moning), and low-alcohol drinks (Zhoye Shijiu Cha), but only Gude Moning has more than 100 stores outside of Hunan, failing to contribute to the main brand’s growth.
3. Competitors catching up: Ba Wang Cha Ji was established 4 years after Tea Yan and now has over 7,500 stores globally (including 374 overseas). If Tea Yan continues to slow down, they risk losing market share.
Lu Liang, the founder of Tea Yan, once said, “You either expand and die or don’t expand and die.” They used to choose a “dignified way to die,” but now they must expand; otherwise, they will fall behind.
II. Guangzhou and Shenzhen: A Competitive Market, But with Opportunities
Guangzhou and Shenzhen may seem challenging, but Tea Yan has their strategies:
1. Demand is not stagnant: Beverage sales in Guangzhou grew by 22.8% (faster than overall consumption), and demand in Shenzhen is also strong. These markets are not about dividing a fixed pie; instead, they represent opportunities for mutual growth.
2. A test for the brand: Consumers in these cities are well-informed and quickly tire of new trends. Relying on the exclusivity of being a “Changsha specialty” won’t be enough to stand out. Here, Tea Yan can prove whether their brand and products can truly establish themselves in a mature market.
3. Cost-saving supply chain: Both cities are part of the Greater Bay Area, with short logistics distances. Using Shenzhen’s warehouses and management resources can reduce costs compared to opening new stores in other provinces.
III. The Clever Approach to Entering Guangzhou and Shenzhen: Avoiding Direct Competition
Tea Yan didn’t target the core business districts of Tianhe but chose Bai E Tan Wan Xiang Cheng instead, with a strategic reason:
1. Avoiding competition in established areas: Tianhe is dominated by brands like Xi Cha and Nai Xue, which have high rents and draw away customers. Bai E Tan Wan Xiang Cheng is a new mall with concentrated traffic at opening, allowing Tea Yan to save on customer acquisition costs without competing with established brands.
2. Partnering with China Resources: Their stores in Shenzhen are located in China Resources’ malls like Wan Xiang Cheng and Wan Xiang Tian Di, making coordination and operations easier. Since Bai E Tan Wan Xiang Cheng also belongs to China Resources, they can replicate their previous successful models.
IV. Challenges Ahead: Can Tea Yan Survive Without the Changsha Advantage?
Opening stores may be easy, but long-term survival is uncertain:
1. Mismatch in consumer habits: People in Guangzhou prefer takeout (with a high penetration rate nationwide), while Tea Yan’s focus on in-person experiences (including waiting in lines) might seem inconvenient.
2. Intense direct competition: Competitors like Xi Cha are expanding, and local brands like Qiu Dou Shu Lemon Tea have a strong foothold in Guangzhou, diluting the appeal of Tea Yan’s “Chinese-style milk tea”.
3. Loss of exclusivity: With stores across the country, the exclusivity of being a “Changsha specialty” is diminishing. If this continues, Tea Yan’s popularity may decline.
4. Pressure from the direct-operated model: With all their stores directly operated by the company, they bear the costs of rent and labor. The dispersed nature of Guangzhou’s business districts means they need to open more stores, but higher costs could lead to lower visibility.
V. Conclusion: This “Game of Experts” is Inevitable
Tea Yan has no turning back on their nationwide expansion. Guangzhou is just the first hurdle. The real test lies in whether their products, operations, and brand can attract local customers even without the advantage of being from Changsha. If they succeed, they can truly go national; otherwise, they may be limited to Hunan. This battle is tough, but it must be fought.