Summary of Key Points
Gongcha, once hailed as the "grandfather of milk tea," gradually faded from the domestic market due to trademark issues and flaws in its franchise model, eventually withdrawing from the Chinese mainland. However, overseas (especially in Europe and America), it achieved a comeback through localized operations and capital support, with over 2,200 stores worldwide and annual core profits exceeding 70 million US dollars. Recently, it was acquired by Bain Capital for over 4.29 billion yuan. Its story is a classic example of a brand that failed domestically but thrived internationally, reflecting the complexities of market dynamics, branding strategies, and capital management.
I. Domestic Failure: The Double Blow of Unprotected Trademarks and Franchise Problems
Gongcha's downfall in China was mainly due to two critical flaws:
1. Unprotected Trademarks: The term "Gongcha" is a generic name for tribute tea, making it impossible to register as a trademark under Chinese law. As the brand gained popularity, numerous counterfeit stores emerged—more than 750 official Gongcha stores compared to thousands of counterfeit ones. These counterfeit shops used inferior ingredients and provided poor service, severely damaging the brand's reputation and leaving consumers unable to distinguish between genuine and fake products.
2. Franchise Problems: To expand quickly, Gongcha adopted a regional licensing system, dividing the country into areas and granting exclusive rights to different agents (similar to feudal lords). This approach was initially effective but led to serious consequences:
- Quality Control Chaos: The same panda milk tea varied significantly in taste across different stores.
- Price Disparities: The same product was sold at vastly differing prices in different cities, losing consumer trust.
- Lack of Innovation: When new tea brands like Xicha and Snow King began to innovate and upgrade their products, Gongcha's regional agents operated independently, preventing the headquarters from making unified adjustments, leaving the brand behind.
By 2024, the domestic operations of Gongcha were officially shut down.
II. Overseas Success: From Korea to Europe and America
Gongcha's overseas journey was akin to a "planetary migration." The company moved its headquarters from Kaohsiung, Taiwan, to Seoul, South Korea, and then to London, UK, each step carefully timed:
1. Korean Launch: A couple introduced Gongcha to South Korea in 2012, adjusting the sweetness to suit local tastes and opening stores in popular areas like Hongda and Myeongdong. They also launched local marketing campaigns, turning pearl milk tea into a trendy beverage. At that time, there was a gap in the Korean market for freshly made tea drinks, and Gongcha quickly became a phenomenon, earning it one of the most popular food brands in the country.
2. Capital Boost: The company received investment from South Korean private equity firms before being acquired by an American firm in 2019. This move helped accelerate globalization, with the headquarters moved to London and professional managers hired from companies like McDonald's. By 2024, Gongcha had expanded to 2,200 stores in 32 countries, with 90% of its revenue coming from overseas markets. The price of a cup of tea there is significantly higher than in China.
III. Why Bain Capital Invested 4.2 Billion Yuan in Gongcha?
Bain Capital's decision to invest was based on the belief that the European and American milk tea market was still growing:
1. Large Market Potential: The US milk tea market is expected to reach $2.6 billion by 2025, with a growth rate of 18.2%, while North America shows steady growth rates of 7.7%-12.3%. Compared to China's tens of thousands of stores, the density of stores in Europe and America is lower, indicating potential for further expansion.
2. Gongcha's Scalability: The company has already established a proven franchise model overseas, with expertise in franchise management, centralized supply chain operations, and digitalization. Its goal of opening 10,000 stores globally by 2032, with Europe and America as key markets, suggests that Bain believes in its ability to expand rapidly.
3. Reasonable Valuation: Although TA Associates initially offered $2 billion (about 14.5 billion yuan), the final transaction price was 9 times its core profit, reflecting a 120% increase from Bain's initial offer in 2019.
IV. Future Challenges: Competition from Domestic Competitors
Gongcha faces competition from domestic brands that are also expanding overseas:
- Mixue Bingcheng: Has opened thousands of stores in Southeast Asia and is exploring Europe and America.
- Xicha, Ba Wang Cha Ji, Cha Bai Dao: Are also making inroads in various countries.
These domestic brands have developed strong strategies (e.g., Mixue's low-price approach and Xicha's branding efforts), which could pose a threat to Gongcha's market share. Although Gongcha has an advantage in its local franchise network and supply chain, it will need to continuously innovate and adapt to price competition to maintain its position in Europe and America.
Conclusion
Gongcha's story highlights how the same brand can achieve vastly different outcomes in different markets. By adapting its strategies and capitalizing on opportunities overseas, it has overcome domestic challenges. However, it will still have to compete with established rivals on a global stage.