Consumer Insights | Bawang Chaji: Doing It Differently Again

In the tea beverage industry, the unconventional BaWang ChaJi has taken another unique step in the capital market. While other brands are choosing to go public in Hong Kong, BaWang ChaJi has passed the regulatory approval from the China Securities Regulatory Commission and opted to head to the US stock market—

“This is the first time in four years that a Chinese new consumption company has chosen a US IPO, and it could become a milestone for global capital to refocus on Chinese consumer enterprises.”

Source: China Securities Regulatory Commission official website

The Story of Chinese Tea

BaWang ChaJi has chosen an unconventional approach in the tea beverage market, with strategies for product development, expansion, and operations that are distinctly different from its peers.

According to iiMedia Research, the market size of China's new-style tea beverages is expected to exceed 350 billion yuan in 2024, with a growth rate of 6%. By 2028, it is anticipated to surpass 400 billion yuan, but the growth rate will drop to 1.5% by then. Market competition is fierce, with price wars, store wars, and product wars emerging one after another. However, BaWang has provided a new logic.

Source: iiMedia Research

1) Unconventional Product Strategy.

As market growth becomes increasingly challenging, copying competitors' strategies has become commonplace.

Since 2024, brands including HEYTEA, GuMing, CHABAIDAO, and even MiXue Bingcheng have launched new light milk tea products, with neighboring brands like Luckin Coffee, Starbucks, and Kudi also following suit.

Product iteration and innovation have always been core issues for tea beverage companies. However, unlike its peers that are aggressively expanding their SKUs, BaWang ChaJi's product strategy is very restrained. For example, in 2024, it launched new products 10 times and upgraded products 3 times throughout the year. The entire mini-program's SKU is controlled at 24 items, with no food or small ingredients. In simple comparison, Luckin launched 119 new SKUs in 2024, Starbucks China launched 27 new SKUs, and the entire tea beverage industry introduced 2,681 new SKUs.

Yet, BaWang ChaJi still stands out, accumulating sales of over 600 million cups.

Source: HuAn Securities

Zhang Junjie has publicly emphasized:

“BaWang ChaJi ultimately aims to become a global Chinese tea enterprise. Therefore, I will not engage in unrelated matters like making coffee or cross-industry ventures.”

The specific decision-making logic behind BaWang ChaJi's product line is as follows:

First, it covers a large audience, especially considering the taste preferences of people aged 30 and above, where “not too sweet” is very important; Second is the "quality-price ratio," which neither pursues extreme low prices nor positions itself as a high-end milk tea brand. The price range is stable at 15 to 20 yuan, ensuring healthy profits while forming a price advantage compared to the benchmark Starbucks;

Third, to improve repurchase rates, the taste "cannot be too greasy," making the milk tea refreshing, not overly sweet, low in calories, and somewhat addictive.

Through the underlying logic of product strategy and the filtering of big data, a super single product like Boya's exceptional string was ultimately created.

Zhang Junjie has also publicly discussed the effectiveness of the single product strategy multiple times, such as the sales of the first four best-selling products of Bawang Tea Princess accounting for 70% of total sales.

The benefits brought by a streamlined product SKU allow Bawang to focus most of its efforts on the supply chain: concentrating on the three raw materials of tea leaves, milk, and packaging materials.

In the upstream segment, Bawang owns 2,700 acres of self-operated tea gardens; in the midstream segment, Bawang Tea Princess has its own tea processing plant; in the packaging segment, it has chosen to establish a supply chain company in partnership with CHABAIDAO.

The underlying theme of all this is the company's extremely simplified product strategy.

Source: Huashan Securities

2) Alternative Expansion Strategy.

While most tea brands choose to expand into lower-tier markets and small stores with low-cost strategies, Bawang Tea Princess once again goes against the trend, opting for an alternative combination of shopping malls and high-potential expansion, with a high investment and high return operating logic that is closer to the "Starbucks model."

Source: Huashan Securities

A notable feature is that Bawang Tea Princess locations are often chosen near Starbucks.

According to Narrow Door Restaurant Eye data, Bawang Tea Princess's mall store proportion reaches 26.18%, with nearly 80% located on the first floor of malls. The proportion of Bawang Tea Princess stores located within 500 meters of Starbucks is high, directly benchmarking Starbucks stores to enhance brand tone.

When consumption downgrade becomes the "main theme" in the industry, Bawang's expansion model is very alternative.

Source: Narrow Door Restaurant Eye

3) Alternative Operation Strategy.

In addition to products and stores, Bawang Tea Princess's operational logic is also completely opposite to that of its peers.

Starting in 2023, Bawang emphasizes store space design and concept creation, with a standard large store area of 60 square meters, which is more similar to Starbucks. The larger store area also brings higher investment barriers and greater single-store profits, elevating the brand image.

Source: Huashan Securities Another piece of data can verify the operational success of Bawang. Bawang has the lowest store closure rate in the industry, even as consumption began to decline in 2023. This indicates a good profitability and operational performance between franchisees and the brand.

Source: Huazheng Securities

As for the fashionable elements of packaging and the "big brand face," these are the results of Bawang's focused efforts in operational strategy. The dissemination on social media platforms like Xiaohongshu has further driven user affection and reflects the overall aesthetic level and emotional value of the company. This is rarely seen in other brands.

Alternative, this should be the most distinctive business color that capital sees in Bawang.

There are many milk tea companies, but the one that really resembles Starbucks seems to be just this one.

Alternative IPO

Bawang Chaji has chosen an alternative story track in the capital market, and its choice of the US stock market hints at Zhang Junjie’s ambition to dominate globally. From a street-side milk tea shop in the southwest corner to a leading tea beverage company with over 6,000 stores, Bawang Chaji ultimately chose to stand on the world stage, demonstrating Bawang's determination to go global.

Source: Public Data

Four years ago, when Bawang had only a hundred stores, people did not believe that Bawang would become the "Eastern Starbucks." But today, Bawang has quietly filled the area around Starbucks with its stores.

The wheels of fate began to turn at the end of 2020.

At that time, Bawang Chaji's GMV exceeded 200 million, with a net profit of over ten million, but disagreements began to arise among the management team.

Some shareholders believed that Bawang only needed to expand for another year before selling shares or recruiting professional managers to achieve freedom. However, Zhang Junjie insisted on reinvesting profits to continue expanding.

At that time, the financing war for new tea drinks was already in the mid-to-late stages: HEYTEA was valued at over 16 billion, Chayan Yuesheng was being frantically sought after by dollar funds, and the faster NAYUKI was even about to IPO in Hong Kong. Meanwhile, Bawang had only over 200 stores, mainly concentrated in the Yunnan-Guizhou-Sichuan region, with a monthly sales of less than 200,000 per store.

The emergence of an investment institution turned the situation around—XVC, an early-stage VC established in 2016, brought crucial funding to Zhang Junjie.

During its research, XVC found that while the density of Bawang stores increased, same-store sales not only did not decline but continued to grow at a double-digit rate—this meant that Bawang's business could be replicated. They quickly convened an "investment decision meeting" to decide to help Zhang Junjie buy back shares held by others and completely replace the original management team.

Ultimately, XVC decided to invest over 100 million. They later added another round of investment. Today, they hold nearly 20% of Bawang, making them the biggest winner of this IPO After securing over 300 million in financing, Bawang Chaji quickly began to expand. However, the pandemic soon swept through the entire consumer industry. During that time, Zhang Junjie was known as "the person who dares to spend the most." Bawang Chaji moved its headquarters from Kunming to Chengdu, and the management team grew to 200 people, also paying a million in annual rent in the prime location of Chunxi Road.

All of this stems from Zhang Junjie's strategic thinking:

“We must open 1,000 stores no matter what. Without scale, we can't get to the table.”

Bawang Chaji's 招商手册 (recruitment manual) shows that the company requires not to open street-side stores that could affect the brand, nor to open stores in corners of shopping malls, basements, or on the third floor and above. This strategic intent has been consistently implemented to this day.

Bawang's aggressive expansion strategy quickly captured the light milk tea market that Chayan Yuesheng had cultivated for eight years.

There is a saying in the tea beverage industry that "there is only a three-year glory period," but Bawang seems to have broken this curse, with the sales volume of Boya Juexian exceeding 600 million cups and continuing to sell well. Zhang Junjie's understanding is—

“We are not making exotic dishes; we are making rice and noodles in the milk tea industry.”

In the first year of establishment, the proportion of Bawang Original Leaf Fresh Milk Tea was only 30%; in the second year, it rose to 60%; until 2020, the proportion of Original Leaf Fresh Milk Tea exceeded 90%. Even so, among the 20 new products launched in 2020, more than half were still fruit teas. After repeated trials, struggles, and research on the fruit supply chain, Zhang Junjie ultimately decided to drop fruit tea. The company's slogan changed from "Tea fragrance, fruit sweetness, fresh in every sip" to "Original Leaf Fresh Milk Tea, taste the real tea flavor," and finally confirmed the core strategy of "Eastern Tea." After Zhang Junjie reduced fruit tea to only seasonal fruits like lemon and coconut, the single-store sales of Bawang Chaji nearly quadrupled.

This is an important dividing line, and Zhang Junjie's methodology has evolved through exploration.

Zhang Junjie mentioned in an interview in 2021: “The only supply chain Bawang Chaji will focus on is tea leaves.”

Character determines destiny. Many investors interpret Zhang Junjie as someone who, perhaps because he once had nothing, desires success more, "wants to make things bigger," and cares more about whether he can "sell Boya Juexian to 100 countries."

"Targeting Starbucks, surpassing Starbucks, replacing Starbucks," since Zhang Junjie's gaze is set on global giants rather than domestic peers, it has become inevitable to venture into the U.S. stock market, the home of Starbucks.

Bawang chose to make an alternative decision in the capital market; if they were not fully prepared, it would be impossible. Bawang's localization team in the U.S. has gradually mastered the needs of American youth through research, preparing before taking action. Using the least amount of money to achieve the biggest goals and betting on the highest odds is what Zhang Junjie has always been doing and is the core weapon for Bawang's rapid progress.

Countless tea beverage companies want to "go out" and occupy the global market, telling the story of "the next decade" in the capital market. However, in the choice of capital markets, they still opt for the Hong Kong stock market, which is convenient for communication, easy to understand, and controllable in risk. Bawang, on the other hand, shows greater determination; choosing the U.S. stock market means potentially telling a more exciting story or facing stronger skepticism. No one knows whether the future is heaven or hell. _**

New Consumption in China

The tea queens are performing a new Chinese story in the consumer market.

By 2025, new consumption in China is rising at an astonishing speed, completing a supply-side revolution.

From the "King of Trends" Pop Mart to the "Hermès of Gold" Laopu Gold, from "National Beauty Makeup" Mao Geping to "Snow King" Mixue Ice City, the capital market is depicting a new map of Chinese consumption—different from traditional consumer goods like liquor and luxury items, the younger generation is spending money in areas that many do not understand.

A typical label of new consumption is its ability to provide excessive emotional value to the younger generation, thereby bringing a premium on products and services. The current consumer market in China is similar to the "Third Consumption Era" described by Japanese author Miura Noboru—

When basic consumer goods like cars, mobile phones, and home appliances have completed their penetration, people's consumption trend will shift from necessities to emotional goods—products or services that make them happy. This stage is a transition from mass consumption to personalization, a consumption structure update of "from needs to wants."

The logic of basic consumer goods is "demand determines supply," "cost determines victory"—whoever masters low prices and controls channels can capture the market;

Whereas the logic of emotional consumer goods is completely opposite, "supply determines demand."

As Steve Jobs said, before Apple presented the iPhone to consumers, they did not know what kind of phone they wanted. The value of emotional consumer goods lies in their ability to create new demand.

This is precisely the core of the industry that we have truly overlooked in the years of discussing consumption upgrades and downgrades—

Perhaps the insufficient innovation on the supply side of consumption is the core reason for the sluggish consumer demand.

When identical houses, mobile phones, and televisions engage in fierce price wars in shopping malls, young people would rather queue up for blind box draws.

Demand can measure market size, but desire is difficult to calculate for success or failure.

The new consumption in China, which is increasingly gaining capital recognition in the Hong Kong stock market, represents a new revolution on the supply side of Chinese consumption.

Will Pop Mart receive the same enthusiasm and pursuit in the U.S. stock market, thereby attracting global capital's new attention to Chinese consumption?

We look forward to such an alternative.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk