Chongqing - With China's tea market booming and store openings surging, brands are slashing prices to gain an edge, marking a dramatic return to the "10 Yuan Era." This price-cutting strategy reshapes the market landscape and intensifies competition among tea retailers.

"Price reduction by new tea brands are not just a result of market competition but also a strategic move to tackle market saturation and boost market penetration," said Gong Xiushuang, associate professor of Marketing at Chongqing University, in a recent interview with Bridging News.

Gong Xiushuang, associate professor of Marketing at Chongqing University. (Photo/Gong Xiushuang)

Gong analyzed the factors behind price reductions, using Mixue Ice Cream & Tea, with over 30,000 stores by July 2024, as an example. Market expansion has increased competition, leading brands to use lower prices to streamline costs and gain market share.

Consumers line up outside Mixue Group's first outlet in Sydney, Australia, on its soft opening day in February 2023. (Photo/China Daily)

"Moreover, economic pressures and rising living costs have markedly increased consumers’ sensitivity to prices. Brands are reducing prices to meet consumers’ demands for better value, encouraging more frequent purchases," Gong noted.

Gong explained that price cuts attract budget-conscious customers and stimulate overall market demand. Promotional offers make consumers more likely to select lower-priced products, leading brands to adjust their pricing strategies to meet this increased demand.

However, Gong views the current emphasis on price-cutting as a short-term strategy. Long-term success for brands will depend on their ability to innovate and differentiate.

As market competition shifts from price wars to a focus on brand building and value creation, brands will need to continuously enhance product quality, introduce new flavors, and deliver exceptional customer experiences to meet future challenges. This approach to differentiation will be key for brands aiming to thrive in an increasingly competitive environment.

Gong compared the strategies of new tea brands with those of Starbucks in China. While Starbucks relies on its premium brand image and stable pricing to maintain market leadership, new tea brands focus on aggressive pricing. Starbucks' success stems from its strategic positioning and ongoing brand development, showing how pricing and value approaches can greatly influence market performance.

Tea brands must adapt locally to boost global recognition

"A significant number of established new tea brands are now expanding overseas," Gong pointed out. "Chinese new tea brands face numerous challenges in expanding internationally, including market adaptation and brand positioning. However, this also presents a significant opportunity to leverage the growth potential of international markets."

Luckin Coffee, the largest coffee brand in China by number of stores, is set for a major expansion in the fourth quarter of this year and the first quarter of 2025. The company plans to enter international markets, with a focus on Southeast Asia and the United States.

Luckin operates over 20,000 stores across China, spanning both online and offline channels. Singapore runs 38 directly operated stores, the first of which opened in April 2023. Unlike its strategy in China, Luckin does not emphasize low pricing in Singapore, according to China Daily.

In September 2023, the Jiangxiang Flavored Latte, jointly launched by Luckin Coffee and Kweichow Moutai, became an instant hit upon release in China. (Photo/Luckin Coffee)

Brands need to focus not only on product globalization but also on promoting the unique charm of Chinese tea culture to attract global consumers. Gong recommended that tea brands make appropriate adjustments and innovations based on local market demands and cultural backgrounds to enhance their global recognition.

"Robust logistical support is also crucial for brands to succeed overseas, aiding in the expansion of international markets and the spread of tea culture," Gong underscored. 

Gong added that using the China-Europe Railway Express and the New International Land-Sea Trade Corridor is crucial for the global expansion of Chinese tea brands. These logistics channels improve transportation efficiency and lower international shipping costs, allowing brands to enter global markets more swiftly and cost-effectively.