From Shenzhen: Nayuki, a mobile-first freshly-made tea company that recently IPO’d in Hong Kong.

Do you know that the Chinese tea beverage market is twice as big as the Chinese coffee market? And yet, store penetration is much lower: there are only 3.4k new style freshly-made teahouses but 5k Starbucks’ stores.

What’s freshly-made tea? Who are the top players and how are they performing? What are the tailwinds? What are the implications and learnings for incumbent beverage brands like @Starbucks @Pepsi @Cocacola? Read on…

With the growing popularity of the tea-drinking lifestyle, freshly-made tea drinks such as cheese-foamed milk tea and fresh fruit tea have replaced the traditional low-cost creamer brewing tea drinks. Heya and Nayuki are the 2 biggest players with 28% and 19% market share respectively.

Nayuki recently IPO’d in HK. While it remains unprofitable with a $31m loss in 2020, the company tripled its revenue from $140m in 2018 to $442 in 2020. This is mainly driven by its aggressive expansion — the company grew from 44 stores in 2018 to 491 stores in 2020.

Despite being a brand with a strong physical store presence, the company received only 30% of its order revenue from the in-store cashiers. The rest are digital orders from WeChat and Alipay mini programs and Nayuki app (41%) and delivery platforms (28%). Starbucks? Mobile orders account for 24% in Q4 2020.

Last week, I visited Nayuki Fantasy Factory in Shenzhen Coastal City. The 10k sq feet space contains five areas with a selection of Nayuki products such as freshly-made tea drinks, baked goods, alcohol drinks, meals, RTDs and snacks, gift shops, doll machines, and other gaming devices.

Nayuki continuously refines its core menu, with approximately one new drink launched every week. At Nayuki Fantasy Factory, the company tests new products and ideas and collects real-time consumer feedback. Popular items may then be rolled out at regular teahouses.

Did I forget to mention that this teahouse has a bar called Bla Bla Bar, featuring cocktails with ingredients like tropical fruit and floral tea? There are currently ~20 of them in major Chinese cities such as Beijing Shanghai, Shenzhen and Hangzhou.

Different from other freshly-made premium teahouses, Nayuki was the first to promote the concept of pairing freshly-made tea drinks with handcrafted freshly baked goods — embedding the cross-selling in the brand style.

Nayuki’s stores are on average 2k sq feet, bigger than that of most players, and also driving its costs. The company is opening Nayuki Pro, a compact version in high-traffic locations. In the future, Nayuki plans to use a “central kitchen” network to increase operational efficiency.

For an industry that focuses on fresh ingredients, supply chain stability is important. The premium tea beverage place a strong demand for high-quality raw materials. To ensure a stable supply of some seasonal ingredients such as strawberry, Nayuki built its own fruit and tea farms in Yunnan and Guizhou province.

Takeaways? Mobile commerce > In-store cashier, leading to more seamless O2O experiences. Product innovation can be done in fun ways. Compact stores and ghost kitchens help with efficiency. What else am I missing? Comment and let’s discuss!

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