Ready-to-drink tea products differ from traditional brewed milk tea as they are healthier, more diverse, and innovative beverages. In China's ready-to-drink tea market, there has been a surge in popularity with brands like Teacup Joy and Mochi Ice City, with thousands of stores opened. The trendy limited-edition products of Xicha have also sold out on the first day of launch, and there have been over 10,000 orders for single stores' takeout at Tea Hundred Tang. With capital investment, the Chinese ready-to-drink tea market is developing towards greater standardization and scale.
As the impact of the pandemic gradually subsides, consumer demand will slowly recover. 2021 can be seen as a transformational point for the development of the ready-to-drink tea industry, as well as an explosive period for the market, with overall operating models and revenue scales improving.
Since 2020, the pandemic has led to many small-scale ready-to-drink tea brands exiting the market, increasing industry concentration. The product structure is developing towards mid- to high-end, with major brands continuously seeking innovation through technology, quality, brand concept, and collaborations in a competitive environment. The transformation of leading brands has gradually begun to yield results, and with the entry of new players, a new era of the ready-to-drink tea market has arrived.
Development History of Chinese Ready-to-Drink Tea
To understand a market, one must look at its industry origins through history. The Chinese ready-to-drink tea market has a development history of about 30 years, during which it has undergone multiple innovations and changes.
From around 1990 to 1995, the Chinese ready-to-drink tea market was in an exploratory stage, with more milk tea beverages made from industrial milk tea powder and lacking a strong brand awareness, and prices were relatively cheap. With the development of China's economy and the increasing per capita disposable income, consumer demand in the market also changed. Consumers were no longer satisfied with just milk tea beverages made from milk tea powder and had higher demands for hygiene and quality of beverages, leading to the transformation of the ready-to-drink tea industry at that time.
From 1996 to 2015, after some Taiwanese brands like Yipian Yipian and CoCo Koko entered the market, a new chapter in the ready-to-drink tea market began. At that time, both brands brought significant changes to the market and conveyed the concept of a ready-to-drink tea brand to consumers. They began using tea leaves or ordinary tea as raw materials and targeting customers with higher consumption levels who pursued healthy beverages, conveying the product concept of "authentic materials." This put pressure on other ready-to-drink tea brands in the market, thus promoting the later development of the Chinese ready-to-drink tea market.
Since 2016, the earlier emerging brand Xicha has changed the industry pattern. Xicha uses natural raw materials, including high-quality tea extracts, fresh milk, fresh fruits, etc., and makes beverages on-site with hands, truly forming the market of "ready-to-drink tea." Unlike traditional milk tea shops, ready-to-drink tea brands emphasize the freshness of raw materials and the brand concept conveyed by the brand. Since then, the ready-to-drink tea market has developed rapidly, and more new brands have emerged.
Source: Frost & Sullivan compilation
Current Development Status and Scale of Ready-to-Drink Tea in the New Era
Currently, China has more than 2,000 ready-to-drink tea brands and about 50,000 ready-to-drink tea stores, welcoming a new era of ready-to-drink tea. From 2016 to 2020, the market scale of ready-to-drink tea in China increased from about 42 billion to 81 billion. During this period, the ready-to-drink tea market industry began to form market barriers, the brand echelon gradually stabilized in these years, and the market pattern also began to take shape. High-end ready-to-drink tea is mainly represented by Xicha, while the main participants in the mid-range market include more brands that are sinking into second- and third-tier cities such as Tea Hundred Tang, Yipian Yipian, CoCo, and Ancient Tea.
Source: Frost & Sullivan compilation
Industrial Chain of the Chinese Ready-to-Drink Tea Market
To ensure that every chain ready-to-drink tea store can provide high-quality beverages, ready-to-drink tea brands need to put in effort at every link of the industrial chain. The industrial chain of the Chinese ready-to-drink tea market mainly includes: raw material supply, product research and development, tea preparation on-site, and end consumers in the market.
The upstream of the ready-to-drink tea market is the raw material supplier, mainly purchasing natural raw materials such as tea leaves, fruits, dairy products, coconuts, and cassava powder. Using high-quality, pollution-free, and natural healthy raw materials is one of the important factors in ensuring product quality.
The midstream mainly involves product research and development and on-site production. Under the changing consumer demand, major ready-to-drink tea brands need to have innovative R&D capabilities and continuously launch new products to maintain high customer traffic. Ready-to-drink tea brands usually need to have their own unique brand formula, and then continuously improve the taste and formula of products to enhance their competitiveness in the market.
Secondly, the on-site production link in the ready-to-drink tea market is also an essential part of the midstream. With the development of the consumer market, the cultural concept of ready-to-drink tea brands plays an increasingly important role in products, and the stores they operate become the main product experience venues and extensive social scenes. The decoration style of the store permeates the brand culture that the brand wants to represent, and brands like Xicha and Tea Hundred Tang, which use trendy brand trademarks, can also allow consumers to promote the brand anytime and anywhere while holding their beverages.
The downstream of the market is the end consumers. Consumers usually place orders and consume through physical stores, brand-operated mini-programs, and third-party delivery platforms. With the increasingly developed takeaway business, ready-to-drink tea brands that lead in takeaway business usually appear more competitive in the market.
Source: Frost & Sullivan compilation
Analysis of Direct and Franchise Models in the Market
In today's ready-to-drink tea market, there are two mainstream business models: direct and franchise.
In the early days, ready-to-drink tea brands mainly operated under franchise models. Some leading brands with a focus on franchising had more than 3,000 to 4,000 stores, and their expansion efforts were still ongoing, with Mochi Ice City having over 10,000 stores in China. These brands usually have a relatively low average order price, and by rapidly expanding, they increase their market coverage in China to enhance their brand communication influence and capture a larger consumer group in the market.
In the highly competitive ready-to-drink tea market, brands that gain capital favor and investment usually develop faster. In addition to high-end ready-to-drink tea brands, brands like Ancient Tea, Mochi Ice City, and Shanghai Auntie have also received financing rounds, opening the door to the capital market. Moreover, leading brands are seeking differentiated competition to stand out in the market.
Source: Frost & Sullivan compilation
Innovation and Future of the Ready-to-Drink Tea Market
With the increase in per capita disposable income, the consumption ability of Chinese consumers has gradually improved, and the young population is becoming the main force in today's consumer market. Therefore, many ready-to-drink tea brands are trying to gain social media traffic by collaborating with other brands loved by young people to expand their customer base.
The "Brainwashing Song" created by Mochi Ice City completely opened up the Chinese market for its "Ice King" and "Mochi Ice City" IPs, with songs from Mochi Ice City playing in streets and alleys to promote its brand; Tea Hundred Tang and Luzhou Laojiao collaborated to launch "Drunk Steps," breaking down the barriers between different ready-to-drink tea categories, and their integration with alcoholic beverages added a new type of consumer willing to try ready-to-drink tea products; the well-known White Rabbit candy and Happy Lemon's collaboration flash store also quickly attracted a large wave of consumers in a short period; Xicha's "Black TEA" Cool Blackberry Santorita this year further combined ready-to-drink tea with street fashion elements, igniting consumer enthusiasm once again.
Major brands have launched a dual marketing model of "cross-border collaborations" and "IP peripheral products," expanding the consumption scenarios of ready-to-drink tea brands. Consumers are not only buying ready-to-drink tea but also peripheral products such as cups, clothes, hats, and accessories, which have become the "walking marketing advertisements" for brands.
Of course, collaborations with various brands can only bring short-term market heat and unsustainable high turnover. To survive and gain a foothold in the Chinese ready-to-drink tea market for a long time, it still depends on the taste of the product itself and the brand's own popularity and reliability.
In market competition, ready-to-drink tea brands first need to have high-quality beverages enter the market, reasonably combine the concepts of "experience and social interaction" and "product and brand," to quickly promote products, and then continuously innovate and upgrade their popular items to successfully penetrate the Chinese ready-to-drink tea market and occupy a certain market position.
