When Chagee (a tea brand) expands to Hong Kong, there are not many good locations left for them.

Written by Zhong Yixuan

Edited by Qiao Qian

Amanda living in Hong Kong discovered that a Chawang Shop has opened in K11, right next to Heytea and Nayuki. Tsim Sha Tsui is a prime location where every inch of land is precious, not to mention the K11 Art Mall in the core area. It faces Central, adjacent to Victoria Harbour. Its luxury, avant-garde and sophistication are enough to make ordinary people hesitate to approach.

Perhaps the act of settling in a high-end shopping mall inherently implies showing off and comparing one's status. The Hong Kong media, not afraid to stir up trouble, commented on these three milk tea shops, saying that "the competition is intense".

The day after Chawang Shop landed, CHABAIDAO opened its first store in Hong Kong. Unlike the former in a high-end shopping center, CHABAIDAO chose a street shop near Mong Kok MTR Station. At the same time, the announcement that Luckin Coffee is recruiting store managers in Yau Tsim Mong, Central and other areas in Hong Kong is also circulating on the Internet. A Hong Kong catering industry insider confirmed to 36Kr that Luckin Coffee will open stores in Hong Kong, "It is expected to officially open at the end of December."

A large number of mainland tea drink brands are competing to enter Hong Kong.

Looking back, since last year, Manner, Cotti Coffee, Mixue Bingcheng and Shuyi Shaoxiancao and other tea and coffee brands have all landed in Hong Kong. Currently, the mainland tea drink brand with the largest number of stores in Hong Kong is Heytea. Since entering Hong Kong in 2018, after experiencing store closures and re-expansion, Heytea currently has 6 stores in Hong Kong. But in terms of growth rate, Mixue Bingcheng, which entered Hong Kong in December 2023, has now opened 5 stores, which is indeed the fastest.

Compared to the mainland, this speed is not commendable. "In fact, in Hong Kong, the store opening speed of mainland tea drink brands is very restrained." Jade, who has long served mainland catering brands entering Hong Kong, said that location selection is the most core factor considered by mainland tea drink brands when expanding stores in Hong Kong.

McDonald's once summarized an experience in "Thousand-Point Location Selection": After a store opens, if it makes money now, it will make more money in the future. If it doesn't make money today, then this store has no future. From the perspective of location selection, all current mainland tea drink brands are not stingy with money. The monthly rent of K11 where Chawang Shop is located is 200,000 Hong Kong dollars. Even Mixue Bingcheng, which takes affordability to the extreme, after arriving in Hong Kong, the monthly rent of its first store in Mong Kok Centre is as high as 200,000 Hong Kong dollars - converted to a 9 Hong Kong dollar lemonade, Mixue Bingcheng has to sell more than 20,000 cups just to break even on the rent.

But Jade also revealed a real situation. In Hong Kong, having money does not necessarily mean being able to rent a good shop. Compared to the mainland, the exclusivity agreement in the core business districts of Hong Kong is particularly serious. Jade said that in any prime location, every bit of competition will be magnified. A brand that takes the lead will inform the shopping mall in advance that it does not want peers to come and take away its business. In this regard, mainland milk tea shops tend to "cluster into streets" to form a scale effect and reduce marketing costs.

In terms of location selection, among the mainland tea drink brands that have entered Hong Kong currently, Chawang Shop may be the most "demanding". This mainland avant-garde tea drink brand has continued its high-profile strategy in Hong Kong. A location selection professional told 36Kr that Chawang Shop has extremely high location requirements in Hong Kong, "Only the best business districts, and it can only be an experiential store with dine-in service. Community stores are not considered. In Chawang Shop's first store in Hong Kong, in addition to the 80-square-meter store, Chawang Shop even rented the space in front of the store as an exhibition hall, which is unprecedented and costly."

However, Jade added that currently, the best locations in Hong Kong shopping centers are basically in the hands of Starbucks. This also means that if Chawang Shop insists on its location conditions, sooner or later, it will stage a battle to seize business from Starbucks.

In addition, because mainland brands are not familiar with the Hong Kong commercial real estate and consumption habits, and often lack the experience of operating in Hong Kong, location selection often falls into misjudgment. Lu Zhanhao, Executive Director of Midland IC&I Properties, said in an interview with the media, "Although some high-end shops rented by mainland brands have a large flow of people, this is not an ideal choice for business. They will find that a high flow of people often cannot be converted into customers and income."

While mainland tea drink brands are still competing for shopping center stores in high-end business districts, the vacancy rate of street shops in the core streets of Hong Kong remains high. On September 25, the "Survey Report on Street Shop Vacancy and Merchant Distribution in Major Shopping Districts in Hong Kong" released by Midland IC&I Properties showed that as of the third quarter of this year, the vacancy rate of street shops in the four core areas of Causeway Bay, Central, Tsim Sha Tsui and Mong Kok reached 11.7%, hitting a new high in three and a half years.

Since last year, with the emergence of the reverse consumption trend, reports of Hong Kong people going to Shenzhen Sam's Club to stock up are no longer rare. Some mainland brands have begun to enter the sights of Hong Kong citizens, also bringing challenges to the local retail industry in Hong Kong. Since then, the vacancy rate of local shops in Hong Kong has remained high. The sharp-tongued Hong Kong media will naturally not be absent, and the captions at that time were also rather spicy, describing Times Square in Causeway Bay as tragically turning into a "ruin". But behind the mockery, a hint of helplessness can also be sensed.

But a Hong Kong commercial real estate agent told 36Kr that for these tea drink brands, the vacancy rate of shops in Hong Kong does not mean a future benefit. "For some landlords, even if their shops are vacant, they are not willing to rent them at a lower price because a rent reduction will affect the bank's valuation, and selling them will result in even greater losses."

When Chawang Shop and other brands roll into Hong Kong, there may not be many good shops left for them.

(Jade in the article is a pseudonym)