Nearly 5 months ago, HeyTea issued an internal letter to its stakeholders, rejecting price wars and calling for differentiation from competitors. It was viewed as a rejection of “involution” (内卷), a term that means fruitless effort of competition for competition’s sake. On 10 February, HeyTea doubled down on its anti-involution stance with a new internal letter to all its employees and stakeholders. This time, HeyTea pushed the pause button on franchising.
Titled “No more numbers game, back to users and brand”, the email states that the “numbers game” in the “new-style” tea sector has become unsustainable. Brands and products have become highly homogeneous, and offline branches exceed the demand, causing a drop in profitability. Price wars and unnecessary expansion, HeyTea points out, are the main causes for the issues and users’ needs being neglected. This problem is now threatening the entire “new-style” tea market.
For this reason, HeyTea declared that it will further continue its differentiation strategy and reiterated its pledge to reject low-priced involution and the “numbers game”. With this in mind, it will stop accepting new partnership applications, i.e. prospect franchisees. In the meantime, the brand is also encouraging existing franchisees to scale back and close some locations.
On Weibo, China’s Twitter equivalent, the topic “HeyTea is pausing franchising” (#喜茶将暂停加盟#) reached number 4 on the Hot Search list with 32.38 million views. Many netizens shared concerns that HeyTea branches are too close to each other and that quality control has been a bit loose. They hope the chain can correct this issue with the new strategy. Others feel that the price is already high and rejecting low prices might mean further price hikes. With the “slimming bottles” continuing to enjoy high popularity while differentiating HeyTea, how the tea chain implements its new strategy is worth monitoring.
