Summary of Key Points
Gongcha has become a victim of its own shortcomings in the domestic market—imitations are widespread, and its business model is outdated. As a result, it has been overshadowed by newer bubble tea brands. However, overseas (in countries like Japan, South Korea, and the United States, among more than 30 others), Gongcha has managed to establish itself as a globally renowned brand favored by investors. Bain Capital acquired it for approximately 4.285 billion yuan, representing a 2.6-fold increase in its valuation over seven years. Domestic bubble tea brands such as Xicha and Ba Wang Cha Ji face both the advantages of Gongcha’s early entry into these markets and the unique challenges of operating in foreign contexts.
I. Failure in the Domestic Market: Imitations and Outdated Business Models
The fundamental reasons for Gongcha’s decline in China are as follows:
1. Trademark Issues: “Gongcha” is a generic term that cannot be registered as a trademark, leading to widespread imitations (with 36 different Gongcha brands in the country), making it difficult for consumers to distinguish between genuine and fake products. In 2016, Xicha (formerly known as Huang Cha) changed its name to avoid this problem, while Gongcha simply added the prefix “Si Yun Nai Gai” to its brand, which has made it even harder to protect its intellectual property rights.
2. Poor Management: The company used a regional agency model, leaving the headquarters unable to control the quality, pricing, and service standards of its stores across different regions. Some agents cut corners, and prices fluctuated wildly, damaging the brand’s reputation.
3. Lagging Behind Domestic Trends: While domestic bubble tea brands have moved towards using fresh milk, fresh fruits, and low-calorie ingredients, Gongcha remained stuck with plant-based milk substitutes and traditional flavors, failing to appeal to more discerning consumers. In 2024, Gongcha’s Shanghai-based company was even dissolved.
II. Success Overseas: Early Entry and Localization
Gongcha’s success overseas can be attributed to several factors:
1. Early Market Presence: The brand entered South Korea in 2012 and the United States in 2014, when there were very few bubble tea shops available, allowing it to fill a market niche. In the US, with limited prime locations and long-term lease agreements (often 10-15 years), Gongcha secured advantageous positions that later entrants found difficult to compete for.
2. Localized Marketing: In Japan, the brand positioned itself as the “bubble tea version of Starbucks,” targeting the local consumer market. In South Korea, it leveraged K-pop stars like Felix for promotion, and in the US, it collaborated with popular influencers to create demand. It also offered limited-edition merchandise (such as Felix-themed keychains), similar to how fans would flock to buy limited-time Starbucks products.
3. Meeting Local Preferences: Overseas consumers are less concerned with the source of milk or ingredients; they are more interested in the “exotic flavor” that bubble tea offers. For example, black sugar and pearl milk tea is popular in Japan, while Chinese consumers may find Gongcha’s flavors nostalgic despite differences from those at home.
III. Investor Interest: A 2.6-Fold Valuation Increase Over Seven Years
Bain Capital’s investment in Gongcha was not a mistake:
1. Valuation Growth: The brand’s valuation nearly doubled from around 1.656 billion yuan at the time of acquisition to its current level, indicating that investors recognized its potential in overseas markets.
2. Japan as a Driver of Growth: Gongcha’s global revenue for the 2025 fiscal year was $217 million, with Japan contributing 552 million yuan in sales and a net profit of 41 million yuan—making this market a key driver of growth. Many potential buyers were interested solely in the Japanese business.
3. International Expansion: With 2,200 stores in more than 30 countries (second only to Mixue Bingcheng with over 4,000 stores), Gongcha has demonstrated a strong international presence. The increasing proportion of non-Asian customers is seen as a significant opportunity for further expansion.
IV. Challenges for Domestic Brands Entering Overseas Markets
Domestic bubble tea brands like Xicha and Ba Wang Cha Ji face several challenges when trying to replicate Gongcha’s success:
1. Overcoming Early Advantages: Gongcha has already established a large network of stores, making it difficult for new entrants to compete.
2. Localization Issues: Brands like Xicha had to change their names due to logo copyright issues, and they struggled with cultural differences in pricing and consumer preferences (for example, the high price of its products in South Korea).
3. Consumer Education: Overseas consumers are still accustomed to traditional bubble tea ingredients, and it takes time to convince them to try fresh milk and fruit-based options.
V. Differences in Consumer Perceptions of Bubble Tea
The demand for bubble tea varies significantly between China and other countries:
- In China: Consumers focus on ingredients, calories, and taste, seeking a balance between health and flavor.
- Overseas: The appeal of bubble tea lies in its cultural significance; it is seen as an exotic experience. Ingredients like fresh milk and fruits are less important, and consumers are more interested in unique flavors.
Conclusion
Gongcha’s overseas success stems from its early entry into foreign markets and effective localization strategies. Domestic brands looking to replicate this success need to be patient and adapt their approaches to local consumer preferences. It will take time for overseas consumers to embrace newer ingredients and higher quality standards, but for now, it’s clear that Gongcha has carved out a unique niche for itself.