Summary of Key Points
Chinese new tea drink brands (Mixue Ice City, NaiXieDeCha, and Xicha) have encountered consecutive setbacks in their expansion efforts in the Japanese market: Mixue’s plan to open 1,000 stores by 2028 has been reduced to just 4; both NaiXieDeCha and Xicha have also closed many of their stores quickly. The main reason is that the domestic business model of “low prices + franchise system + rapid expansion” does not suit the Japanese market. The low-price strategy fails due to higher costs and strong local competition, while differences in consumer habits result in low repeat purchases. High costs limit the ability to scale. In contrast, Taiwanese brands (GongCha and Coco) have managed to establish a foothold by focusing on local adaptation and a more gradual approach, providing insights for Chinese brands.
Why Doesn’t the Low-Price Strategy Work in Japan?
Mixue Ice City’s success in China relied on ice cream priced at 2 yuan and lemon water at 4 yuan, but this strategy failed in Japan:
- Strong Local Competition: Japanese convenience stores (such as MINISTOP) offer freshly made soft ice cream, which is popular among Chinese tourists. Bottled lemon water is easily available from vending machines, reducing the demand for freshly squeezed lemon water. Mixue lacked a unique and appealing product.
- Unsuitable Cup Sizes:日本人 prefer small cup sizes, but most of Mixue’s drinks come in 505ml volumes, which are difficult to finish and handle. In Japan, there are fewer trash bins and stricter waste management rules, making it inconvenient to carry leftover drinks and requiring additional costs for disposal.
- Loss of Price Advantage: The low prices that worked in China (2 yuan for ice cream, 4 yuan for lemon water) are much higher in Japan (180/280 yen, respectively), making them less competitive compared to other options like McDonald’s.
The Gap in Consumption Patterns Between China and Japan
The rapid iteration of new products in the Chinese market does not resonate with Japanese consumers:
- China is a Market for Innovation: Over the past decade, Chinese consumers have tried various new drinks, from milk tea with plant-based ingredients to cheese-flavored ones. Brands rely on new products and limited editions to attract customers.
- Japan is a Market for Stability: After the popularity of pearl milk tea in 2019, there has been little innovation in freshly made tea drinks. Consumers prefer reliable products, such as those from convenience stores and vending machines, with low repeat purchase rates.
High Expansion Costs in Japan Deter Brands
The domestic franchise model is unfeasible in Japan due to significantly higher costs:
- High Franchise Fees: The investment per store in Japan is about 30 million yen (1.5 million yuan), four times the cost in China. Rent and related fees account for a large portion of the budget, along with a six-month rent deposit and a two-to-three-month “gratitude fee” for the landlord.
- High Supply Chain Costs: Shipping ingredients from China incurs additional logistics and tariffs, and local materials are more expensive. Higher labor and renovation costs also make the low-price strategy unviable.
Why Can Taiwanese Brands Succeed in Japan?
Taiwanese brands like GongCha and Coco have avoided rapid expansion and focused on localization:
- Quality Improvement: They started with direct operations, adjusted product flavors to suit Japanese tastes, and introduced smaller cup sizes (starting from 290ml). Their stores offer both quick-service options and “third-space” areas similar to Starbucks for socializing and learning.
- Slow Growth: They are willing to accept slower growth and take 3–5 years to build consumer recognition. In Japan, it typically takes 3–5 years for a brand to become profitable, which may seem slow to Chinese brands, but this approach ensures a longer lifespan for the business.
What Should Chinese Brands Do to Enter the Japanese Market?
It’s not impossible, but they need to change their strategy:
- Deep Localization: Products must be adapted to Japanese tastes, cup sizes, and usage habits (e.g., smaller, more portable cups).
- Abandon Rapid Expansion: Without a population boom like in China, Chinese brands cannot rely on rapid expansion; instead, they should focus on improving products and services.
- Focus on Stability: Reduce the use of limited editions and new categories, and offer reliable, consistent products that meet Japanese consumer preferences.
In short, for Chinese new tea drink brands to succeed in Japan, they need to shift from a focus on speed to adapting to local customs, establishing a solid foundation before pursuing growth.