Chinese bubble tea chain Naixue (formerly known as Nayuki) has acquired a 43.64% stake in rival Lelecha for RMB 525 million ($75 million), becoming the largest shareholder in the company, Shenzhen-based Naixue announced on Monday.

Why it matters: Together with HeyTea, Lelecha is one of Naixue’s direct competitors with similar brand positioning – and the move is a sign of consolidation in the new-style tea industry against the backdrop of a macroeconomic slowdown and consumers tightening their spending. 

Details: Naixue’s acquisition of a 43.64% stake in Lelecha will make it the company’s largest shareholder, though a statement from Naixue made it clear that Lelecha will continue to operate independently. Naixue’s equity acquisition price values Lelecha at around RMB 1.2 billion ($171.5 million), a 30% cut from the RMB 1.71 billion valuations reached by the company during its latest financing round in July 2020.

  • The consolidation comes after both companies have been affected by Covid resurgence and related control measures this year in China. Naixue posted revenue of RMB 2.05 billion in January to June period, down 3.8% from the last year, while it saw operating profit plunge 49.2% to RMB 196 million during the same period. The firm’s share value has fallen more than 55% since its debut last June.
  • Chinese media 36Kr reported that Lelecha was breaking even before the Covid-19 outbreak, but Naixue’s announcement on Monday showed that during the pandemic, Lelecha losses after tax totaled RMB 20.6 million and RMB 18.2 million in 2020 and 2021, respectively.
  • The acquisition announcement also disclosed that Lelecha has separate plans to list in the US or Hong Kong in the next five years.
  • Naixue recently changed its name from the Japanese-sounding Nayuki to its Chinese pinyin, joining a trend of mainland Chinese companies who once imitated Japanese counterparts in “de-Japanifying” its brand. 
  • To find new growth points, Naixue made an unexpected move this July by introducing Naixue coin and virtual stock linked to its actual stock price, allowing consumers to enjoy bubble tea while making investments. The company also launched ready-to-drink products earlier this year, following a similar move by rival HeyTea.

Context: China’s new-style tea market has boomed in recent years, with the overall market size expected to reach RMB 200 billion by 2030, up from RMB 77.29 billion in 2020, according to iiMedia Research.

  • Chinese tech media outlet Linexian Insight cited data from consulting firm CIC and ranked HeyTea as the country’s most popular high-end new-style tea brand in 2020, comprising 27.7% of the market, followed by Naixue with a market share of 18.9%.
  • The major competitors in the market continue to eye expansion as a path to growth. Naixue operates a total of 973 stores nationwide, a number that will rise to more than 1,000 by the end of the year. HeyTea, which previously adhered to a direct sales model, recently announced it would begin to welcome franchises. Meanwhile, Lelecha is expected to expand its current 140 stores to 158 before the Spring Festival in late January.
  • HeyTea and Naixue, which position themselves as high-end brands, reduced 16% to 23% of their average beverage prices at the beginning of 2022 as they looked to attract a broader consumer group.

Cheyenne Dong is a tech reporter now based in Shanghai. She covers e-commerce and retail, blockchain, and Web3. Connect with her via e-mail: cheyenne.dong[a]