Tea Baidao goes overseas in South Korea: reshaping the supply chain

Economic Observer reporter Zheng Shuxin Young Koreans who rely on coffee to survive have begun to fall in love with Chinese-style milk tea. In the Hongdae business district, a gathering place for young people in Seoul, South Korea, young people are waiting in line for more than two hours to buy a cup of tea.

In 2024, Chabaidao will only open three stores in the Korean market. However, South Korea's National Business Daily still said that "Tea Baidao is the most valuable milk tea brand in China". Chabaidao is becoming a "new social currency" among local young people.

At the entrance of the Chabaidao store, take a group photo with the "Chacha" puppet (referring to the puppet wearing the brand image of Chabaidao), take photos and post them on social media, these actions have become a "one-stop" operation after consumers get the first cup of Chabaidao drink. Wang Huan, the head of Tea Baidao Korea, said that drinking tea Baidao in South Korea represents a fashion trend and a sense of luxury, just like when Starbucks first entered China, consumers held a cup of Starbucks in their hands, representing a lifestyle.

At present, China's ready-made tea enterprises have found a broader market overseas. Mixue Bingcheng has become the brand with the largest number of ready-made tea chain stores in Southeast Asia. Nai Xue's tea and Bawang tea have also been deployed overseas. Compared with the fierce competition in China, the overseas market is relatively blank, and consumers have a stronger ability to pay for good products.

Tea Baidao also regards 2024 as the "first year of going to sea". Gu Jilin, co-founder of Tea Baidao, told the Economic Observer that Tea Baidao is establishing a global supply chain system, hoping to let global consumers drink freshly made tea, with the goal of becoming a new representative of oriental tea culture and enterprises.

First stop in South Korea

Judging from the actions of other ready-made tea companies, China's beverage industry usually prefers the Southeast Asian market when expanding overseas. The first stop of Chabaidao's overseas journey was in South Korea, and then entered Thailand and Australia respectively.

Gu Jilin said that South Korea is a representative country of developed economies in the East Asian cultural circle, Thailand is a representative country of emerging economies in Southeast Asia, and Australia is a representative country of developed economies in the European and American cultural circles. Chabaidao takes these three places as the first stop to go overseas, aiming to verify the overseas store model in different types of economies, hoping to run their own best practice models in different cultural circles and different levels of markets, and lay the foundation for subsequent expansion in similar markets.

In overseas markets, Chabaidao chooses to build a local operation team. Taking South Korea as an example, Wang Huan, the head of the Korean market of Chabaidao, has lived in South Korea for more than ten years, and has been engaged in the cultural tourism industry before joining Chabaidao, and has an in-depth understanding of local culture and consumption habits.

On January 26, 2024, Chabaidao opened its first overseas store in the core business district of Gangnam, Seoul, South Korea. Wang Huan said that when the store first opened, 80 percent of the store's consumers were Chinese, and three months later, 80 percent of consumers became Korean locals.

How to realize the transformation from Chinese consumers to Korean consumers? Wang Huan said that the most important thing is that the products are delicious, which is the essence of business.

In the past, Korean bubble tea shops had a more homogeneous product form, more like Taiwanese milk tea blended with pearls and non-dairy creamer in China, where there were no products made with fresh fruit and milk. Chamomodo captured this gap in the market and decided to sell "freshness" when entering the Korean market. Wang Huan said that in media reports, store displays and social media, Chabaidao emphasizes the freshness and health of raw materials.

Rebuild supply chains

Although more than 90% of the products on the menus of Chabaido Korean stores are consistent with those in China, many products have been localized after entering the Korean market.

The core ingredients of milk tea include tea, milk and water. Although the tea leaves in the Korean store are from China, the water quality in Korea is different from China, which results in a different taste of the tea brewed. In order to adapt to the local market, the R&D team conducted a 10-day market research in South Korea to readjust the product formula and operating procedures according to local raw materials.

For example, the hot-selling product of Tea Baidao, Yangzhi Manna, sells nearly 100 million cups in the domestic market every year. However, in the Korean market, Chabaidao has encountered a challenge - Tainong mango, the core ingredient of Yangzhi manna, is difficult to ensure a stable supply in the Korean market due to import policies and other reasons.

At one point, Wang Huan considered removing the product from the menu of her Korean store. But during a survey of the Korean fruit market, Wang Huan found an apple mango from South America. Although the cost of this mango is higher, its taste and quality are similar to that of Tainong mango, which ensures the launch of this popular product in South Korea.

In addition, the taste preferences of Korean consumers are different from those in China. For example, they prefer ice drinks, so Chabaido Korea has adjusted the amount of ice in ice drinks. At the same time, Chamomodo has also developed some drinks that are not available in Japan based on local characteristics, such as fruit tea made from Hallabong, a unique fruit in Korea, which has been well received by local consumers since its launch.

In the process of expanding the Korean market, Chabaidao also encountered some challenges in the import of raw materials. For example, a product called soy milk rice mochi in Chabaidao's domestic store uses black glutinous rice. Due to the high tariff policy imposed by the South Korean government on agricultural products, including black glutinous rice, to protect the interests of its own farmers, the tariff on black glutinous rice was set at eight times the original level, and the import cost was too high, which made it impossible for Cha Baidao to produce this product at a reasonable cost in the Korean market.

But such a situation is not common, Wang said, and by rebuilding the local supply chain in South Korea, Chabaido is adapting its products to the local market. Chamomodo's Korean stores will adjust the product line according to the availability of seasonal fruits and introduce seasonal fruit teas. At present, its Korean store has maintained a new rhythm for two to three weeks.

Chabaidao also disclosed in the prospectus that it plans to use 5% of the IPO proceeds to support the supply chain capacity of overseas markets. Specifically, Chabaidao plans to establish a supply chain system covering Southeast Asian markets such as Thailand, Vietnam and Malaysia in 2024, and a distribution center in 2025 to support expansion in the Southeast Asian market.

Pricing & Location

In South Korea, the price of tea Baidao products can be compared to Starbucks. According to the information in the prospectus of Tea Baidao, the average selling price of its domestic products is only about 15 yuan.

In terms of the pricing strategy in the Korean market, Chabaidao refers to the acceptance of local consumers, and the price of the product is about 30 to 35 yuan. "Local consumers are highly receptive to this price point, with a repurchase rate of 40% in the Korean market. Wang Huan said that in addition to the product itself, consumers are willing to pay a similar price to Starbucks to buy tea Baidao products, which comes more from a comprehensive experience.

In order to strengthen interaction and connection with Korean consumers, Chabaido utilizes local social media and messaging software for user operations. For example, Chabaidao encourages users to join the KakaoTalk community (a local social network similar to the WeChat community), attract users' attention by setting up official accounts, interact with users, distribute coupons, and hold events on White Day in March, such as inviting fans to watch movies.

In terms of site selection, Chabaidao has selected its stores in the local high-end business district. For example, its second store is located in the Gloria department store. The mall's status in South Korea is the equivalent of Beijing's SKP. Wang Huan said that shopping malls in South Korea adopt an invitation-only entry model, and there is a trial period for new brands to settle in. But Gloria has signed a long-term contract with Chamomoto precisely because Chamomoto has become an internet celebrity product in South Korea. Local young consumers are also keen to take photos at the Chabaidao stores in these high-end shopping malls, and Chabaidao is becoming a new "social currency".

In the three months of going overseas, the overseas monthly sales of Chabaidao have increased by 40%. This year, Chamodo plans to open another 30 stores in South Korea. Gu Jilin revealed that while the first batch of overseas areas will be distributed on a large scale, Tea Baidao will also promote the expansion of the second batch of overseas markets, such as Vietnam, Malaysia, Indonesia and other places, "Tea Baidao is not the earliest person to set off, but we have taken a more solid step at every step."