HeyTea Raises 400 Million, Starting Tea Delivery and Opening Stores Worldwide
The popular tea brand HeyTea, founded in 2012, announced their completion of a 400 million yuan ($63 million) Series B funding round. One of the investors was Longzhu Capital, an industry fund under Meituan-Dianping. In August 2016, HeyTea obtained over 100 million yuan ($16 million) from IDG Capital and a well-known investor named He Boquan.
SEE ALSO: 3-Hour-Line To Get Chinese Tea: Insanely Popular, or Marketing Stunt?
HeyTea also revealed two new growth strategies this year: food delivery and global expansion.
Creating barriers in the supply chain
Around the same time last year, HeyTea created a small whirlwind in WeChat Moments. “Two hour lines created business opportunities for scalpers.” HeyTea became the “star” of all tea brands, obtaining fame along with controversy.
The skepticism is not only surrounding the long queues outside their stores, but also the long term sustainability of their profits. Part of the doubt stems from the ever-changing taste of consumers, and part from the barrier that exist to protect their products
HeyTea founder Nie Yunchen once said that she spent a year changing formulas and developing new product (the cheese froth) before she created the HeyTea brand. However, imitating taste has never been difficult. Industry insiders previously expressed their concerns that even with enough capital, if there is no underlying value in HeyTea, imitations will arise and take over.
However, Nie said on April 26th that what makes HeyTea unique is not only its exclusive formula but also its superior raw materials and self-controlled supply chain.
Apparently HeyTea does not only have its own tea garden, but it also has collaborations with upstream tea suppliers. It invests in improving the tea planting environment and obtains custom raw materials from tea plantations based on product needs. Control of the upstream tea supply constitutes the core competitiveness for most tea brands. However, while most tea brands now emphasize their control of raw materials, their real capabilities still need to be tested.
The new delivery service
HeyTea has finally decided to take online orders to better accommodate consumer needs. Nie says, “I personally like to order food delivery, I do it almost on a daily basis. The food delivery business greatly improved the convenience for eating. On one hand, we need to accelerate the expansion of stores and increase production; on the other hand, we are also trying to explore food delivery, especially in cities with many physical stores. We are trying our best to provide customers with these services.”
With Meituan-Dianping as one of its investors, HeyTea offering delivery through Meituan, of the most popular food delivery apps in China, is only natural. Currently on the Meituan app, the HeyTea stores in Shenzhen and Guangzhou areas have already accumulated many orders and customer reviewz. According to China Business Daily, there are over 80 stores in 12 Chinese cities except for Beijing that have made food delivery services available. Some stores can receive as many as 5,000 orders in a month.
Officially statistics show that HeyTea currently has 90 stores in 13 cities across China. It has entered Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou, Suzhou, Nanjing, Zhongshan, Foshan, Jiangmen, Dongguan, Huizhou and Nanning. It has deeply penetrated the Pearl River Delta and Yangtze River Delta areas. All the stores are under the direct management of HeyTea. This year, HeyTea plans to add another 100 stores. The company also stated that it will start going overseas at the same time, “It is not just about opening one or two stores overseas. We hope to deeply penetrate the overseas market.”
Hot targets for investment
Guoxing Wei, managing director of the investment department of Tiantu Capital, expressed his optimism for the new tea brand: “The upgrading of tea consumption can have different stages. With the rise of Chinese culture brought by the growing economy, it won’t be long until tea, like coffee, prevails globally. It is highly possible to produce multiple Starbucks-level brands in the process.” Just a month ago, investors in the food and beverage industry invested in another tea brand called Nai Xue Tea (奈雪的茶). Nai Xue Tea is said to have a valuation of six billion yuan ($1B), which makes it the first unicorn in the tea industry with the current publicly available information.
Over the past year, tea chains have become hot targets for investment.
- Teasoon, a business tea and beverage chain brand established in June 2016, completed Series A financing of eight million yuan ($1.3M) in December 2017. The investment was from V Star Capital and Oriental Fortune Capital. The company has an overall valuation of nearly 100 million yuan ($16M).
- Kraftea, a tea brand established in August 2016 specializing in freshly brewed milk tea, received a 10 million yuan ($1.6M) investment in March 2018 from Land Peace Capital.
- On April 12, Teasure, another tea chain, announced that it received tens of millions of yuan in Pre-A round with investment from Fortune Venture Capital.
With the injection of capital into this one hundred billion yuan battlefield will undoubtedly fuel new battles. China has a longstanding tea culture, so we can expect the emergence of a top tea brand, but let us wait and see whether that brand will be one of the above mentioned.
Here is the HEYTEA Q&A Time between HeyTea and one of their investors, IDG Capital:
Q: I heard that HeyTea recently made delivery services available. Why?
A: Delivery service provides customers with more convenient options. Customers can not only enjoy the drinks at the shop, but also in the office or at home.
Even if we don’t offer delivery services, there will still be scalpers and purchasing agents. We cannot control the services and product qualities during those transactions. Furthermore, we already have more than 20 stores in Guangzhou and Shenzhen, which are enough to support the delivery business.
The number of monthly delivery orders of a single store in Guangzhou and Shenzhen might reach 3,000 to 5,000. In Shanghai, due to the low number of stores, takeout service is sometimes only available for half an hour each day. Delivery is not yet available in Beijing.
We are constantly improving our delivery services at HeyTea, such as using a separate cheese bowl for cheese froth and limit the delivery radius to within two kilometers (1.2 miles). We recently collaborated with Meituan to delivery through unmanned vehicles which helped us both in brand marketing.
Q: What’s the store-opening plan for HeyTea this year?
A: We will open another 100 new stores this year.
We will not only open stores in cities such as Beijing and Shanghai where HeyTea has already entered, but we also plan to explore new markets in China’s southwest, central and northern regions, head to cities such as Chongqing, Chengdu, Changsha, Wuhan, Tianjin, and more. We aim to create a national tea brand and make HeyTea a part of people’s every day living.
At the same time, we also have the plan to expand globally. We are not talking about just opening one or two stores but to really explore the local markets.
Q: HeyTea will still not open up franchise stores right?
A: That’s right. HeyTea stores are all under our direct management and we don’t do franchising. Any franchise advertisement you see are fake.
