(Yicai) Aug. 27 — Chinese tea brands are expanding across Southeast Asia, owing to a larger and younger population, lower operating costs compared to China and rising consumer purchasing power, but gaining a foothold in the market is not without challenges.
Earlier this year, 23-year-old Ke Lui and some friends opened a 160-square-metre Mixue Bingcheng franchise in Thailand's capital, Bangkok, at a cost of 3 million baht (US$88,200).
“Although we have not yet fully recovered our start-up costs, our monthly sales have been stable at nearly 1 million baht, with gross profit margins of 25-33 percent,” Ko told Yicai, adding that he should be able to recoup his initial investment within the year.
Another Mixue franchisee from China's Jiangxi province told Yicai that it is nearly impossible to recoup start-up costs within a year because China's tea industry is not as profitable as it was in the early stages.
“It would be great if you could recoup your start-up costs in two years, but after two or three years, you'll have to incur additional costs, such as replacing equipment,” he said.
Mixue is a specialty tea shop that was founded in 1997 and offers freshly brewed tea at low prices. As of September last year, the company has expanded to over 36,000 stores, with around 4,000 outlets in 11 countries and regions overseas, including Singapore and Japan.
In Southeast Asia, consumer purchasing power is increasing as the economy grows, and the region has a population of approximately 670 million, roughly half the size of the Chinese market, with more than half of the population being under the age of 30, making it a major attraction for other Chinese tea beverage brands, including Binxi Time, Chagee, China Mengniu Dairy, Ganten, Genki Forest, Nayuki Holdings, Walovi, Want Want China Holdings and Yili Industrial Group.
Genki Forest, a seller of unsweetened carbonated water and tea products, is aggressively expanding its business in Southeast Asia, with Indonesia being one of its key markets. The company has partnered with local convenience store chains such as Indomet and Alfamart, as well as major supermarket chains such as Lion Super India and Jogja Group.
“We will enter Indonesia in 2022 and currently have more than 30,000 retail stores in the country,” Genki Forest's head of international business, Tang Tang, told Yicai, adding that the company now has comprehensive coverage of the Indonesian market.
Challenges to overcome
However, there are many hurdles to overcome in launching a tea beverage business in the Southeast Asian market, such as adapting to different consumer tastes.
Feng Hu, founder of UhooGlobal, a solutions provider for the beverage market, said while Malaysia and Singapore have a relatively high proportion of ethnic Chinese residents and their descendants who have strong ties to tea culture, Indonesians have a weaker attachment to tea and prefer newer, sweeter tea drinks.
Thais also like sweet and icy products, a Nayuki representative told Yicai.
Chinese companies in Southeast Asia are also facing business challenges, according to Maria Yang, head of the overseas food, beverage and health products business at Alibaba Group Holding Ltd.'s local e-commerce platform Lazada.
“Some employees quit after just a few days,” Ke said. “Some left for personal reasons, while others said they didn't like the management style of the Chinese team. Thai people tend to separate work and life more easily.”
Supply chain is another obstacle to overcome. Vincytime founder Jiang Hua Bei said countries in the region have different supply chain requirements. Some have very strict rules regarding halal certification, while others have complicated licensing procedures with cumbersome procedures, long durations and high costs, he added. Thailand, for example, mandates that all food ingredients must be produced domestically.
Editors: Xu Wei, Futura Costaglione
