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inWE Tea: Building a New Chinese Brand

Volume 3, 2017

By Sun Jiong

Despite last year’s “venture capital winter”, China’s tea sector seems to be attracting many new entrepreneurs, particularly those with experience working for established international food and beverage brands. TEASURE founder Liu Fang worked at Starbucks before launching his own tea brand, and Miao Qin (EMBA 2009) was the first Chinese Vice President in the history of McDonald’s before co-founding the tea start-up inWE. The sector has also attracted venture capital, for example institutional investors IDG Capital and Tiantu Capital recently invested in start-ups such as HEYTEA and NESNO. Miao got RMB500 million in Series A funding for inWE from his CEIBS classmate, JD.com CEO Richard Liu.

Curious to find out why so much talent and money was jumping into tea in China, I recently sat down with Miao Qin. I wanted to know what attracted him to the industry, why he wanted to create a local brand himself, and why he chose to develop a more traditional, ‘heavy’ retail business rather than a ‘lighter’ online one. 

Replicating Starbucks’ Success

Miao grew up in the Wuyi Mountains, where most people work for tea factories, and tea is a common household item. After joining McDonald’s as a sales clerk in 1993, he saw soda and coffee as being fancier than tea, and a hamburger as more special than rice. Western food represented advanced productivity.

Over the next two decades, Miao’s career at McDonald’s flourished; he worked his way up from local staff to Vice President of McDonald’s China. He began to ponder what the next McDonald’s could be and he wanted to try to start his own business.

While working for McDonald’s Miao had frequent opportunities to go abroad, and he became more familiar with many international retail brands. While doing his EMBA at CEIBS he began to analyse the reasons for Starbucks’ success. He thought it could not simply be attributed to the greatness of its founder, Howard Schultz. He wondered whether Starbucks would have become such a strong, aspirational global brand if Schultz had started it somewhere like Mexico or India instead of in the US. Before World War II, Americans saw European brands as superior to home-grown ones. But after the war, American economic and cultural power grew, along with its self-confidence. American brands such as McDonald’s and Walmart emerged to cater to consumers’ daily needs, and the large US market allowed them to grow rapidly and efficiently.

Brands like Starbucks, Apple and Microsoft emerged to cater to the post-war generation of baby boomers as it became the main driver of consumption in the US. Those brands took off as the baby boomers were entering their thirties and were attracted to brands that promoted innovation and new lifestyles.

“Though Schultz certainly had a lot to do with its success, a more important factor in Starbucks becoming an aspirational brand was that particular era in America,” says Miao. He underscores his point by comparing the local Chinese noodle brand Shaxian with Italian spaghetti. Both are simply-made noodles, but in China a serving of the local brand costs only RMB8, while Italian spaghetti is RMB80. The spaghetti represents a lifestyle everyone longs to have, he explains, which is the reason for the price difference.

Miao says that Chinese born after 1985 are now similar to the American baby boomers of thirty years ago. China’s post-’80s generation became the main driver of consumption in the country in about 2015, and they are growing increasingly self-confident. This indicates that the time is ripe for strong aspirational Chinese consumer brands to emerge, he says, especially for frequently used everyday goods.

Miao left McDonald’s in 2013 to join the local buffet restaurant chain Golden Jaguar. He was 39-years-old at the time and describes the experience as a year-and-a-half of “buffering” before launching his own company. At Golden Jaguar, he was responsible for many details and it required quick decision-making. His time with the company also left him with a clear understanding of the operational differences between a local food chain and an MNC. He came to the conclusion, for example, that the local company was not as visionary as a multinational like McDonald’s. “Foreign companies place an emphasis on planning and high efficiency,” he says, listing other differences. “When united, the whole company can be a big machine. Once a target is set, everything moves in one direction with great force. However, there is a lack of flexibility in communication.”

During his time at Golden Jaguar, Miao met with over 40 private entrepreneurs to exchange ideas. He had also kept in touch with his CEIBS classmate Richard Liu. “It seemed that I descended from a high altitude, while Liu ascended from the ground,” Miao says. The two shared many of the same views and characteristics. Both are tenacious, once they set their mind to something they will do what it takes to reach that goal.

Liu encouraged Miao to start his own business, and even offered to be an investor, but Miao didn’t take the entrepreneurial leap until 2014. Liu invested RMB500 million in Miao’s inWE tea brand, with 10% of that including some investment from other CEIBS classmates. Liu’s wife Zhang Ze’tian is the investor representative.

Traditional retail DNA

With RMB500 million in hand, Miao could have simply acquired an established European tea brand to launch in China, leveraging Chinese people’s desire for foreign products. He did some research and found that such a deal could be done for about£1 million. But he ultimately decided not to pursue that strategy. He wanted to build a tea brand that was clearly from the East, along with being convenient and fashionable. “Our aim is to build a strong cultural brand in the East and it must be rooted in the East,” he explained.

He also considered setting up an online brand. “A few years ago, those of us working in traditional retail all feared unemployment because it seemed everything could be solved online,” Miao says. However since the latter half of 2016, online platforms have begun seeking out experts in traditional retail like Miao to help them bring their brands offline. “People who have managed several thousands of offline stores and know about their systems suddenly became popular, because online traffic was slowing, and one needed to hunt for customers offline,” he explains.

Offline retail is in Miao’s DNA, he would be a fish out of water if he began as an online business. However, with JD.com’s founder Richard Liu as an investor, inWE could incorporate some online features. “Using the internet+ approach we set up offline service platforms, water bars and experience platforms, and pushed forward with some online product distribution,” Miao explains.

Since launching his company in 2014, Miao has registered the trademark “可见可售” (If you can see it, it can be sold) and inWE has developed synergy between its online and offline operations. For example one can scan a code in a retail store to purchase all of inWE’s products online, including tea, tea sets and even tables and chairs. Currently such product sales account for about 20 percent of inWE’s total revenue. This is a bit like the “New Retail” business model popularised by Jack Ma and internet marketing expert Wu Sheng. Miao believes that in the coming decade, the most important aspect of New Retail will be “if you can see it, it can be sold”.

Testing the waters

After establishing its business plan, inWE had to figure out how to optimise the offline customer experience. “From zero to one, we are not the best; from one to 10, we are similar to everyone else; but from 10 to 100 to 1,000, no one can be better than us,” Miao says. He knows it will take inWE a long time to become popular. “This is a brand aimed at long-term success and I don’t expect it will be popular overnight,” he says. He likens his brand’s development to Liu’s building of JD.com’s logistics base, which became its core competitiveness.

As of this writing, inWE has opened 30 stores in Shanghai, Beijing, and Suzhou. Miao’s team controls the pace of expansion; the stores are located in business districts, office buildings, universities and residential areas. The company is learning through trial and error, testing customers’ reactions in the different environments. According to Miao, before accelerating expansion, one needs to jump into different ponds and test different temperatures, in order to get more feedback and data from customers. Just as with his job at Golden Jaguar, data has gradually become an important management tool for his start-up.

The importance of flexibility was another thing Miao learned from his time at Golden Jaguar. He tries to allow inWE’s frontline staff to practice “standardised customisation”. Here “standardised” means everyone uses the same statements, communication approaches and testing systems in order to ensure customers enjoy a consistent experience. However staff on the frontline can use their intuition and have some flexibility in the ways they interact with customers, depending on the individual and the environment.

While on a research trip to Chengdu and Chongqing, Miao discovered a local tea shop – Nenlv Tea – in the two cities. Its stores are well-designed and located next to outlets of the popular foreign brands Starbucks and Costa Coffee. After five years of operations, Nenlv’s sales volume was less than Starbucks’ but greater than Costa. The brand was founded by Liao Weijia and his wife, an American designer he met while studying abroad in Seattle. Miao decided to acquire Nenlv Tea and use its founders’ design know-how to improve the look and feel of inWE’s retail shops. 

The right timing

Tea has become a bright spot in the food and beverage sector this year. “All of the top 20 Chinese institutional investors have talked to us,” says Miao. But he advised them they should have either come in two years earlier, or should wait another two years to invest. He recalls that after the overnight success of Chaoshan hotpot many similar brands sprang up, but only a few survived. 

In fact, inWE doesn’t have a financing plan. It may use a small amount of its investment funds to test a new market, or make a strategic investment together with a strong partner who has resources in the tea sector or other related business channels.

Miao became the first Chinese Vice President in the history of McDonald’s when he was 35, and was also the youngest senior executive at McDonald’s China. He set a record in terms of the speed at which he was promoted from sales clerk to Vice President. Now, he believes that speed is neither the key nor barrier to success. He believes that only when a brand has a strong foundation can speed become an advantage in competition.