Quick Summary of the Key Points
Recently, Ba Wang Cha Ji quietly introduced tea eggs cooked with their own Dahongpao tea soup at seven of their stores in Shanghai. These tea eggs are sold for 5 yuan each on a standalone basis, or for only 2.5 yuan when purchased with a regular drink. Customers can get an additional 20% discount when buying a set during the morning rush hour. This initiative quickly made it onto the hot search lists. On the surface, it seems like a gimmick for the tea shop to venture into the snack business, but there’s a deeper industry logic behind it: Ba Wang Cha Ji’s stock price has dropped by 70% in the year and a half since its listing, and with 8,000 stores already operating, the company is approaching market saturation. The traditional approach of growing through opening new stores is no longer viable. The newly appointed management decided to test the tea egg concept, which has almost zero cost, in order to enter the lucrative Chinese breakfast market, valued at 2.57 trillion yuan. The goal is to make better use of the empty morning hours and idle production capacity in their stores, marking a shift from the previous era of rapid expansion to one of focusing on optimizing existing resources.
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Detailed Analysis
Why would a successful tea shop start selling tea eggs? Ba Wang Cha Ji’s fortunes are not as good as they used to be
In the past few years, Ba Wang Cha Ji expanded rapidly with its “Oriental New Tea” brand, leading to high growth and a corresponding valuation. However, the company has now hit a ceiling in the industry:
- Most potential locations for new stores have already been occupied, and opening more would likely result in competition for the same customer base, reducing profits.
- Since its listing, the company’s performance has slowed down significantly, with revenue growth dropping to single digits in the first half of the year. The average daily sales per store have decreased by 16%, and the stock price has plummeted by 70%, representing a 70% reduction in market value.
- Just a week ago, the founder stepped down as the chairman of the domestic company, and the new CEO took over with the task of presenting a new growth strategy to investors. The company can no longer rely on spending money to open new stores; instead, they need to find ways to increase profits within the existing 8,000 stores.
Why tea eggs as the first product for testing? Ba Wang Cha Ji’s strategy is more sophisticated than that of ordinary breakfast shops
Instead of choosing traditional breakfast items like buns, soy milk, or sandwiches, they chose tea eggs, minimizing the risk of failure:
- Tea eggs are well-known to everyone in China, so there’s no need to spend money on educating customers about their taste or popularity.
- The company already uses Dahongpao tea soup for making the eggs, so the supply chain requires little modification. The cost of producing an extra egg is minimal.
- This initiative can generate additional revenue during several time periods: previously, there were few customers in tea shops before 10 a.m., but now the eggs can be sold during the morning rush hour. In the afternoon, customers buying milk tea may also purchase an egg, increasing the average order value. Even late-night snack buyers can get an egg with their drink.
- The price of 5 yuan per egg, which is twice as much as at convenience stores, is deliberately set to encourage sharing on social media and generate traffic, saving on marketing costs.
Ba Wang Cha Ji is not the first to think of this strategy; the entire new tea industry has already jumped onto the breakfast bandwagon
The Chinese breakfast market is worth 2.57 trillion yuan, and more than half of the population consumes breakfast at various times of the day. This means that the business hours for tea shops can be extended from 7 a.m. to 12 a.m., creating several profitable periods.
- Leading tea brands like Xi Cha have already launched breakfast products. Nai Xue’s breakfast sets saw a 620% increase in sales in the first half of 2023. Mie Xue Bing Cheng and Gu Ming have also tested breakfast options in their lower-tier markets, with combined coffee and sandwich sets generating additional profits. Even convenience stores are competing in this area, offering their own coffee and tea drinks, taking away some of the tea shop’s customer base.
- Although the tea egg business seems clever, Ba Wang Cha Ji faces significant challenges: consumers are accustomed to tea eggs costing 2-3 yuan, and they are more likely to consider it a trendy item to post about on social media rather than a regular breakfast option. Their competitors, such as Xi Cha, have already established successful breakfast businesses. Additionally, Ba Wang Cha Ji is late to entering the breakfast market, and consumers have not yet developed the habit of buying breakfast at their stores.
The symbolic significance of these tea eggs is much greater than their financial value
Ba Wang Cha Ji’s goal is not solely to make money from the tea eggs. By selling them, the company aims to send a signal to the market and to the industry:
- It demonstrates that the new management is focusing on sustainable growth rather than reckless expansion.
- It marks a turning point for the new tea industry, as the era of simply opening new stores to generate profits is over. Customers can now buy breakfast, snacks, and late-night snacks at any tea shop, and the competition will focus on maximizing customer spending and utilizing every minute of production capacity.