Gaga Café creates a third place for tea and snacks lovers and scores US$26.3M Series A

In recent years, tea business has been hyped up, with new brands emerging one after another.

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Casual-dining restaurant chain “Gaga Café” has recently completed Round A funding of 180 million RMB (US$26.3M). The funding was led by Legend Capital and invested by a few investors in related industries. WeiZhen Capital serves as the financial adviser.

Gaga Café was established in Shenzhen in 2010. It sells mainly tea, snacks and provides a third place (first being home, second being workplace) to customers. At present, Gaga has opened 20 stores in Shenzhen. Early this year, Gaga also launched its first brand store at Raffles City, Shang Hai. The average annual turnover of its shopping center stores is 10 million RMB. A cup of tea is between 30 and 40 yuan and the snacks are about 60 yuan which targets the middle-class group.

Founder Feng Min told our parent 36Kr that Gaga Café came about when the first batch of 80’s babies returned to China and demanded high-quality space and leisure drinks. She wanted to make tea into China’s café, and then merged with Spain’s sangria fruit wine to create a new version of fruit tea, a new innovation of fresh fruit tea. There were actually keen investors in 2013, but Gaga’s Café still took eight years to perfect their CRM system, ERP system, management system and to standardize their operation. After making these preparations, they decided to have tea and snacks as their main products, and duplicate this concept in other places.

In recent years, selling of tea has been hyped up, with new brands emerging one after another. Traditional milk tea shops on the streets and old teahouses continue to upgrade themselves and beginning to emphasize on customer experience and ambience. They have been warmly welcomed by consumers and investors, among which there are many internet celebrity brands such as “Xi” tea, “Nai Xue” tea, and “Yin Wei” tea. These brands compete to enter shopping centers and strive to become offline hangout spots for teenagers other than Starbucks.

However, there was a hot topic recently when Starbucks started a delivery service. Some questioned whether it is still relevant to have social hotspots.

Gaga Café’s unique selling point has been its ambience and environment since its inception. With regards to this, Feng Min believes that consumers’ demand for high-quality space always exists no matter what happens to the coffee industry. This group has not shrunk and might become even bigger with changes in working lifestyle and spending power.

As a result, Gage Café created a full-time boutique store with an average investment cost of more than 4 million yuan for a single store. They have gotten an international design team. Their store at ShenZhen Huang Ting even won German’s Red Dot Design Award. The food and beverage concept can be easily imitated, and the internet has further shortened product cycle. Hence, these F&B companies can only increase customer loyalty through their store ambience and marketing campaigns.

A typical café can be found in shopping centres around CBDs. In addition, there are also large theme stores (one example is the store at King Glory has a theme of “city living room” ), community stores, small booths, etc. Among them, the small booths are located in office buildings, airports, schools and other places, while the community store or the form with the largest base in the future can meet the needs of leisure food and beverage within neighbourhoods and become the “backyard” of the community.

After looking at store types, let’s look at the core products. Gaga Café mainly sells fruit tea and snacks, the ratio is approximately 7:3, and the daily table turnover rate exceeds 7 times.

The main dishes are salad and pasta. At present, Gaga Café has set up a central factory in Shenzhen, realizing standardized mix and rapid distribution of all food products to ensure a stable taste. At the same time, an internal research and development system has been established to keep up with the new demand. Gaga Chef is their new brand. It is a high-end restaurant and also an internal research and development center. All research and development is done by Gaga Chef before the final products are distributed at a large scale.

On the beverage side, it is mainly sells fresh fruit tea. Among them, the classic series features large pieces of fresh-cut fruits. the representative product is ” Gaga fresh fruit tea” and also provides ” chrysanthemum and black wolfberry” and other products for people who do not drink coffee. However, when different fruits are crushed, the ” on demand” series that blends famous tea appeals to the younger crowd. Examples include peach oolong and mango flavor.

Feng Min told 36Kr that Gaga makes SKU updates every month. In addition, Gaga pays special attention to product innovation. For example, fruit tea, sea salt cheese and other are Gaga’s new innovation. Now, Gaga is also trying to make light alcoholic drinks. Feng Min said Gaga cafe caters to all-time dining, while Gao Feng focuses on business lunchtime, afternoon tea and dinner. Their main customers are aged 25 – 35 and are happy to try ” light drinking” during their leisure time after dinner. At present, some alcoholic beverages introduced in Gaga chef are quite popular and will be replicated in more stores.

In product innovation, she summed up two experiences:

Big data and industry analysis. Based on the internet and data research, as well as industry research, Gaga analyze new consumer trends among their 25,000 customers.

Global vision and cross-border innovation. We need to constantly upgrade ourselves with new information, at the same time fuse ideas of different cultures. For example, the fruit tea introduced in 2010 is a blend of Spanish sangria fruit wine and Chinese tea elements.

Before this, Gaga Café was all in Shenzhen. Shanghai Changning Raffles City was the first attempt to operate in other places. Feng Min said that key regional planning will be carried out in future. They will be targeting cities like BeiJing and Cheng Du.

It is worth mentioning that in addition to its own brand, Gaga Café has also coorperated with Focus Brands, an American restaurant chain, which has more than 5,000 stores worldwide. It has jointly introduced the American national snack ” AuntieAnne’s butterfly cake” and opened its first flagship store in China. This is also Gaga’s successful attempt to manage its brand and replicate its experience to more brands.

After this round of financing, Gaga has three main agendas. Firstly, Gaga will give priority to first-tier cities and expand the national market. Secondly, is to integrate the upstream supply chain. Lastly, Gaga wants to improve its IT systems, including mobile payments and distribution.

Talking about investmens, Kang Yi, director of Legend Capital, told 36Kr that with the increasingly optimistic trends and standardization of restaurant procedures, the future capitalization rate of catering enterprises will gradually increase, there may be more investment opportunities for the F&B industries. Under the general up trend of consumer spending, the catering industry will have a good growth trend in the next few years. Among which, standardized products and differentiated restaurants will have a better edge. The future of tea drinking is a billion dollar market. Successful brands will need to continuously grasp the preferences of teenagers. Under the new brand multiplication and rapid iteration of the tea market, Gaga has maintained a fast growth and healthy profit growth rate in the past eight years and is optimistic about Gaga Café’s product innovation and operations.