Attract Hong Kongers: Lemon tea shops in mainland China want to wet your whistles this summer and beyond

Jo’s Cha, a Guangzhou-based brand with 500 stores on the mainland, launched its first Hong Kong store in Mong Kok last year. The signature bitter gourd lemon tea is known as a “national first”. Other popular brands that have recently expanded into Hong Kong include Linlee, The One Lemon Tea and LMM (Ling Meng Meng).

These newcomers are clearly sensing a growing appetite for their spicy drinks among Hong Kongers, and long queues have become common, even in neighborhoods like Causeway Bay, where several new shops compete for passersby. However, Hong Kong also presents a different kind of business challenge than operators in the Chinese market are used to, analysts said.

According to a joint report by the China Chain Store and Franchise Association, the market value of Chinese new-style tea drinks is likely to surpass 200 billion yuan ($27.6 billion) in 2025, a third more than the estimated 150 billion yuan in 2023. and e commerce platform Meituan last year.

“We believe demand for takeaway drinks will increase in the coming months as summer approaches,” said Andy Kong, senior district sales and strategic director of Midland Shops, part of real estate advisor Midland IC&I.

Longer-term survival in Hong Kong may be a juicier test, but not impossible, as Chinese brands like Heytea and Nayuki have proven.

“The cost of rent, utilities and labor in Hong Kong is generally high, which poses a significant challenge for brands accustomed to the mainland’s low-cost operations,” said Nicole Sun, M&A advisory partner at PwC China.

To maintain competitiveness, mainland brands must reduce costs as much as possible while ensuring product quality and service levels, she said.

“On average, the current market monthly rent of a liquor store is around HK$100,000 (US$12,800), and the retail price of a cup in these liquor stores is on average around HK$20 to HK$30,” said Parco Tsang, research analyst at Midland IC&I research.

This means that such stores must sell about 3,300 to 5,000 cups per month just to cover their rent.

However, this is a reasonable goal because rent is the largest expense these businesses face as it only takes two or three employees to run a store, Tsang and Kong said.

Locating in popular areas is important for visibility, branding and customer convenience, even if relatively higher rents eat into profit margins, says Oliver Tong, head of retail at JLL in Hong Kong.

“Franchisees look at their portfolio as a whole,” says Tong. “For example, suppose they have ten stores in Hong Kong. (The owner) is looking at the profitability of those ten stores as a whole and not that of a single store.”

PwC’s Sun is optimistic about the continued lemon tea trend in Hong Kong. The city has strong cultural ties with tea and the offerings of modern tea brands align well with local consumers’ expectations for high quality and a pleasant customer experience, she said.

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Alcohol-spiced latte is becoming a new drinking sensation in China

Alcohol-spiced latte is becoming a new drinking sensation in China

In addition, high street rents at the end of the first quarter were close to levels last seen in 2004 and 70 percent below the historic peak in the third quarter of 2014, JLL data shows.

Rents also remain 40 percent below the level of the last quarter of 2019, before the Covid-19 pandemic.

Meanwhile, continuous improvements in the cross-border supply chain have facilitated the development of mainland brands in Hong Kong, Sun said.

“By optimizing key links such as logistics, distribution and warehouse management, mainland brands can better control costs while guaranteeing the quality and freshness of products,” she says.

New entrants can sustain their growth by adapting to higher consumer demands, says Midland’s Kong. For example, they can adapt their menus to new trends and offer many flexible options to keep customers coming back.