Milk Tea Industry Booms Amid Food Delivery Wars: Sweet Profits and Bitter Challenges

This summer, China’s milk tea industry experienced an unprecedented surge in sales, fueled by aggressive food delivery platform subsidies and changing consumer habits. As major tech giants battled for market dominance through deep discounts and promotional campaigns, milk tea emerged as one of the biggest beneficiaries. However, beneath the sweet surface of rising revenues lie bitter challenges of market saturation, profitability pressures, and the urgent need for sustainable growth strategies beyond temporary subsidies. The milk tea industry stands at a critical juncture, balancing short-term gains with long-term strategic positioning in an increasingly competitive landscape. Performance Divergence Among Major Players The milk tea market in China has reached unprecedented density, with major urban centers seeing multiple brands competing within the same blocks and shopping districts. Despite slowing expansion rates in saturated metropolitan markets, leading milk tea brands continue to demonstrate remarkable revenue generation capabilities. Market Leaders and Their Financial Performance Mixue Group, affectionately known as ‘Snow King’ among consumers, maintains its dominant position with impressive financial results. During the first half of the year, the company achieved revenues of 14.875 billion yuan, representing a 39.3% year-over-year increase. More notably, their net profit attributable to shareholders reached 2.693 billion yuan, growing by 42.9% compared to the same period last year. Following Mixue in revenue scale is Chagee, which has maintained strong market momentum in recent years. The company made headlines in April by successfully listing on NASDAQ, becoming the first Chinese milk tea brand to go public in the U.S. market. However, despite recording 6.725 billion yuan in revenue for the first six months (a 21.6% increase), Chagee saw its net profit attributable to shareholders drop significantly by 38.5% to 748 million yuan, making it the only major publicly traded milk tea brand to experience declining profits. The fastest growth came from Guming, which reported revenues of 5.663 billion yuan (up 41.2% year-over-year) and astonishing profit growth of 121.5%, reaching 1.625 billion yuan in net profit attributable to shareholders. Steady Performers and Struggling Brands Chabaidao and Auntie Shanghai delivered moderate performances, with revenue growth of 4.3% and 9.7% respectively. Through improved operational efficiency and cost control measures, both companies managed to achieve significant profit growth of 37.5% and 20.9% in net profit attributable to shareholders. Nayuki Tea, the first milk tea brand to complete capital market listing, continues to face substantial performance pressures. Impacted by store closures and other factors, the company’s revenue declined by 14.4% to 2.178 billion yuan, making it the only publicly traded milk tea company to report decreasing revenue. Despite aggressive restructuring efforts, Nayuki still reported a loss of 117 million yuan for the period. Food Delivery Wars: Short-Term Stimulus and Long-Term Implications The intense competition among food delivery platforms created an artificial boom in milk tea consumption during the summer months. Deep discounts and promotional campaigns led many consumers to exceed their typical milk tea consumption patterns, driving unprecedented order volumes across all major brands. Operational Impact on Milk Tea Chains The subsidy-driven surge significantly improved key operational metrics for milk tea brands. Guming’s financial reports revealed substantial improvements across all major performance indicators. Average daily GMV per store increased from 6,200 yuan to 7,600 yuan, while daily cup output grew from 374 to 439 cups per store. Nayuki Tea showed similar positive trends, with average daily sales per direct-operated store rising from 7,200 yuan to 7,600 yuan, and daily order volume increasing from 265.9 to 296.3 orders per store. Industry leaders recognize both the benefits and drawbacks of these subsidy-driven consumption patterns. While the short-term revenue boost is welcome, brands understand that such artificial stimulation is unsustainable and creates challenging comparisons once subsidies normalize. Store Expansion Strategies and Market Penetration Mixue’s dominance stems from its massive store network, which reached 53,000 locations globally by the end of June, adding nearly 10,000 stores year-over-year. The company continues to attract strong interest from franchisees, with the number of partners growing from 19,310 to 23,404 during this period. However, beneath the expansion numbers lies a more complex reality. The absolute number of franchise closures increased significantly, from 799 stores in the first half of 2023 to 1,187 stores during the same period in 2024, indicating growing challenges for individual operators despite corporate success. The Race to Ten Thousand Stores Guming emerged as the second milk tea brand to surpass the 10,000-store milestone, maintaining its unique high-density regional expansion model. The company added 1,570 new stores while closing 305, resulting in a net increase of 1,265 locations and reaching a total of 11,179 stores. Both Chabaidao and Auntie Shanghai are approaching the 10,000-store threshold but showing signs of slowing expansion. Chabaidao’s growth nearly stalled, with only a net increase of 48 franchise stores, reaching a total of 8,430 locations—just 54 more than the previous year. Auntie Shanghai added 905 new franchise stores while closing 645, achieving a net increase of 260 stores to reach 9,412 locations. Nayuki Tea remains the only major milk tea company primarily operating through direct-owned stores. This model has resulted in slower expansion and continued financial pressure, forcing the company to reduce its store count by 132 locations to 1,321 direct-operated stores. Seeking Sustainable Growth Beyond Urban Centers With intense competition in major cities and prime locations largely occupied, the milk tea industry must find new avenues for sustainable growth. The consensus strategy has emerged: focus on lower-tier cities, penetrate township markets, and下沉 (sink) deeper into underserved areas. The下沉 Market Opportunity Compared to major metropolitan areas, consumers in lower-tier cities have far less access to milk tea options, representing substantial untapped market potential. These markets offer franchisees lower operating costs and controlled daily expenses, potentially leading to better profit margins. Mixue continues to deepen its presence in下沉 markets. Among its 48,300 domestic stores, 57.6% (27,800 locations) are in third-tier cities and below, representing a 0.4 percentage point increase from the previous year. Guming maintains 81% of its stores in second-tier cities and below, with continued emphasis on lower-tier market development. Stores in fourth-tier cities and below now account for 25% of their total, up 2 percentage points year-over-year. Chabaidao has seen contraction in first and second-tier cities, with growth only occurring in third-tier cities and below. Stores in fourth-tier cities and below now represent 26.1% of their total, up from 24.2% a year earlier. Diversification Strategies: Coffee and Global Expansion Beyond geographic expansion, major milk tea brands are pursuing growth through product diversification and internationalization. Coffee as a Complementary Category Mixue operates Lucky Cup Coffee, which follows the same playbook as its milk tea business: low prices and focus on下沉 markets. With over 7,000 stores already, Lucky Cup has become Mixue’s second growth engine and is rapidly approaching the 10,000-store milestone. Guming has chosen to add coffee offerings to existing tea shops. By the end of June, over 8,000 locations were equipped with coffee machines, and the company launched 16 new coffee beverages during the first half of the year. Global Expansion as Long-Term Strategy Overseas expansion represents the most ambitious long-term growth strategy for milk tea brands. While most major players have established experimental presence in international markets, only Mixue has achieved substantial overseas deployment with over 4,700 stores outside China by the end of June. The global expansion strategy requires significant adaptation to local tastes, regulatory environments, and supply chain challenges, but offers the potential for sustained growth beyond China’s increasingly competitive domestic market. Future Outlook and Strategic Imperatives The milk tea industry faces a critical transition from subsidy-driven growth to sustainable business models. The temporary boost from food delivery wars has provided financial breathing room but also highlighted the industry’s vulnerability to external market forces. Successful brands will need to balance several competing priorities: maintaining quality while expanding rapidly, developing new products while preserving core identities, and pursuing global growth while strengthening domestic operations. The most adaptable players will likely thrive, while those relying on outdated models or temporary market conditions may struggle. The milk tea industry’s future will be determined by its ability to innovate beyond the current bubble tea concept, develop more efficient operational models, and create genuine consumer loyalty that transcends promotional pricing. Brands that can achieve these objectives while maintaining financial discipline will likely emerge as long-term winners in this increasingly competitive space. The summer of heightened milk tea consumption may have been sweet for balance sheets, but the industry’s lasting success will depend on building fundamental strengths that endure beyond temporary market conditions. Brands must now focus on creating authentic value for consumers, franchisees, and shareholders alike to ensure the current sweetness doesn’t turn sour when market realities inevitably shift.