Editor’s note: This personal essay showcases the remarkable journey of a Chinese consumer brand from a small 3rd tier city onto the global stage. These days, international chains are entering Chinese lower-tier cities in droves, how are they going to compete with the local businesses that are entrenched in the fabric of their communities since day 1?
About the author: As a political analyst, Yuhao Roger Yang offers risk advisory to tech companies and strategic policy recommendations to governments. He utilizes natural language processing techniques to dissect political information. [LinkedIn]
Forget Silicon Valley. The next billion-dollar idea might be brewing in a forgotten alleyway, far from the tech giants.
Enter HeyTea, a Chinese milk tea brand that is now a global phenomenon with over 3,000 stores. In Dec. 2023, HeyTea quietly opened its first New York City store on Broadway in midtown Manhattan. As with their every new city debut, hour-long lines formed — a scene familiar from London to Singapore.
Despite its recent financing struggle, as one of the earliest VC-backed, high-end milk tea brand with a national presence, it has been seen as the role model by a generation of beverage chains, including its latest challengers Naixue (HK:2150), Chagee, Mixue Ice Cream & Tea (applied for HK IPO in Jan.) and Chabaidao (HK:2555); and it started in a small town you've probably never heard of.
I was an early supporter of HeyTea in its birthplace Jiangmen, Guangdong province, which is also my hometown. When I had my first sip 12 years ago, as they just opened, I had ‘no idea, no dream, no fantasies’ about their meteoric rise later in life, similar to how the first DJ in Pennsylvania who gave Taylor Swift a chance on the radio must have felt. Witnessing HeyTea's journey from a local favorite to a celebrated success fills me with immense pride.
How it won my heart
The first HeyTea shop was opened in 2012 in Jiangbianli Alley in the old part of the city by "Neo" Nie Yunchen, then a 20-year old failed phone repair shop owner.
Jiangbianli Alley was our own teenage rom-com set: we'd go there for first dates with our high school sweethearts, boba in hand, the sweet milky smell of drinks mingling with the thrills of new crushes and nervous energy of young love.
Before HeyTea opened doors, it was already the go-to place for trendy Taiwanese-style boba shops like Gong Cha and Sadou. But everyone was tight on money in a small town (where the average disposable income is 1/2 of nearby tier-1 cities like Shenzhen), so HeyTea had to be, and was, extraordinary for us to pay a premium. And it was.
Almost all the media coverage I read missed the key to HeyTea's rise in its early days: high schoolers. We were their fuel — spreading the word, organizing group orders, turning classes and dorms into HeyTea hubs — we were hooked on those sugary bombs and we were their super fans.
Soon, HeyTea wasn't just the weekend date spot; it invaded our weekday classrooms. This demand led them to start delivery — probably the first boba shop in Jiangmen to do so, before Meituan was a thing.
I attended a typical Chinese public boarding high school, where afternoon classes were long and sleep-inducing. We were always in desperate need for a pick-me-up around mid-afternoon.
The British afternoon tea culture evolved into the "3:15 culture" during the colonial era in neighboring Hong Kong. Around 3:15 PM, workers would enjoy refreshments like sweets, breads, pastries, and milk tea. This habit spread to Guangdong in the 1980s.
Our school cafeteria didn't offer afternoon tea or desserts. Spotting a market opportunity, the tea shops like HeyTea began delivering to schools to cater to student demands.
But soon, HeyTea got so popular that they stopped deliveries to individuals, demanding a 20-cup minimum. With 40-50 students crammed into a typical Chinese high school classroom, we were the ideal bulk-order crowd.
Lectures turned into tea-order ops. In a typical operation, the HeyTea menu would travel from desk to desk during lectures, right under the teacher's nose. I'd collect orders on scraps of paper, then sneak off for "bathroom breaks" to furiously phone it all in.
Acting as the representative for my classroom, I would consolidate everyone’s tea orders and distribute them once they arrived. This not only provided a much-needed afternoon refreshment but also made me quite popular among my peers.
My grades suffered. Instead of listening to lessons, I was the mastermind behind the first "group buying" craze – long before Pinduoduo or Temu – becoming my class's unofficial HeyTea king.
Thanks to students like me, HeyTea conquered every class in my school, then every school in our city.
How it won China’s heart
Nie's idea was simple yet revolutionary: ditch the artificial milk tea powders that were the norm pre-2010 and use real, high-quality ingredients, which gave consumers an upgrade of experience. For example, the now-iconic “Cheese-Capped Tea” was created by HeyTea around 2012.
In the early 2010s, at HeyTea's Jiangbianli founding store, I tasted my first-ever milk tea made with Japanese probiotic drink Yakult (which is worthy of its own story) and fresh mangoes.
Sure, the drinks tasted amazing, but their success wasn't just about the product. They understood us – young, social media-savvy, and hungry for something different.
It's a little cringey to think about it now, but the only reason we bought HeyTea was to post a photo on Sina Weibo for likes. We thought we were the coolest kids with their latest iteration of drinks.
Fast forward a few years, as students from Jiangmen went to college in other cities in Guangdong, they brought HeyTea with them. This helped HeyTea to establish a reputation outside of Jiangmen for the first time.
Then in 2016, investors, including He Boquan (a beverage tycoon), IDG Capital, and funds under Meituan, saw HeyTea's potential and invested in the company. This allowed HeyTea to expand rapidly and open stores in major cities across China, reshaping China's entire food and beverage industry. It has gone through five rounds of investment so far, with a reported 60 billion RMB valuation.
By now, Nie amassed an estimated net worth of US$1.24 billion, making him the youngest self-made billionaire, according to Hurun.
However, HeyTea's growth in China's big cities has plateaued in recent years, and the record-breaking valuation may have become a burden for IPO.
To maintain control over product quality, Nie once insisted on operating all stores directly, rejecting the franchise model, even at the risk of slow growth or failure.
But now, he started to allow franchising for overseas expansion and (lower-tier) market penetration. Still, franchisees must have substantial self-made funds of at least 700,000 RMB and work at HeyTea for at least three months. Before global chains like KFC and Starbucks started doing so, the brand opened stores in smaller cities and offered near 50% price drop across all stores.
Earlier this year, I made a pilgrimage to HeyTea's original site in Jiangbianli Alley, which remains a breeding ground for innovative beverage startups. Just a few yards away, Shao Ning began with its roasted lemon tea and now boasts around 200 stores after founding in 2019. Opposite, Sooogood entices with teas packed with fruit. More recently, nearby Double Cup's cocoa boba has gained traction and opened several new locations in town. The alley also hosts unique independent coffee shops.
HeyTea's story is not just about milk tea. It is a testament to the power of small-town dreams, savvy marketing, and a relentless pursuit of quality. It's a reminder that the next game-changing idea in China might be brewing just around the corner, waiting to be discovered.
Also, my hometown’s story does not end with HeyTea or the wider tea category; it is now a testing ground for coffee.
Jiangmen has a unique coffee history dating back to the 1860s, thanks to its emigrant population. This led to early adoption among traditionally tea-drinking residents in late 19th century. A surge of diasporic investment in the 1980s propelled production, and as a result, Jiangmen now exports 20% of China's roasted beans, supplying major cities like Shanghai and Hong Kong.
The city's coffee scene is booming, with nearly 1,800 cafes (496 opened in 2023 alone), will the next coffee giant come from here? Moreover, if Jiangmen can reinvent itself from a manufacturing hub to a beverage trendsetter, what other hidden gems lie waiting in China's smaller cities? 🔚
Mr Yuhao: HeyTea owes you a commission with interest.
As an ancient tea drinker from my youth I found your story about the evolution of tea in China fascinating. Looking forward to your next post Yaling Jiang.