The 2026 Narrative of Tea-Coffee: Where are the Boundaries of the Scale Myth

Looking back at 2025, the stories of coffee and tea drinks have always been tightly intertwined with the fierce battles of the platforms. From the almost frenzied "hundred-billion yuan subsidies" on delivery platforms in the second and third quarters, to the rain of red envelopes handed out by AI platforms at the end of the year, orders flooded the counters like waves, continuously raising the industry’s traffic levels. "With subsidies, the cost of acquiring new milk tea users is at most thirty to fifty yuan, and you can also bind payment cards," an expert familiar with internet marketing strategies analyzed to Xinfeng, "This is much more efficient than traditional methods, and the key is it can quickly generate impressive GMV numbers." Delivery is certainly a huge variable, but not the only factor deciding fate. Milk tea repeatedly becomes a tool for platform marketing and user acquisition because tea and coffee shops, operating on industrial processes, have already penetrated cities like capillaries. Ultimately, there are simply too many shops, and the price per cup is too low. This extremely high penetration rate makes milk tea shops one of the few efficient offline “network points” the mobile internet can still reach in the era of stock competition. Behind the lively activity generated by this huge scale, strategies between brands are changing. The once bloody “9.9 yuan” price battle is disappearing from coffee; Luckin opened its 30,000th store as a flagship covering 420 square meters, and there were even rumors that Mixue Bingcheng was building a theme park. There is also a battle on the capital side. In the past year, Gu Ming, Mixue Bingcheng, Bawang Chaji, and Aunt Shanghai all went public. However, except for Mixue and Gu Ming stabilizing with extreme supply chain efficiency, the rest saw both volume and price revert in the secondary markets, deeply trapped in “break issue” dilemmas. On the other hand, Luckin kept signaling a return to the US stock market, and after Starbucks China's equity transaction was settled, it loudly set an aggressive target of twenty thousand stores. All of this signals that the battle for survival involving drinks in cups is far from over. --- **After the squeeze in scale** If we count from the wave of ingredient upgrades led by “real milk, real tea, real fruit,” the so-called “new tea drink” has been “new” for over a decade. During this period, expansion from leading brands hasn’t slowed, but the industry’s physical ceiling has already appeared. "Tea drink shop numbers reached the range of 400,000 to 500,000 two years ago; based on population density and per capita consumption, that's basically the upper limit for a single category," said Yang Shun, general manager of GaoYan Technology, to Xinfeng. Coco, a trainer for the China coffee training system, observed similarly: In 2022, the total number of milk tea shops nationwide exceeded 400,000, with a chain rate over 55%. Subsequent “growth” has been more about flipping and replacing stock stores. In 2023, the sudden rise of Bawang Chaji and the coffee boom brought a short-lived rebound. But entering 2024, growth narratives gave way to competition for stock. **In 2025, as leading brands successively IPO, the anticipated expansion narrative reversal didn't happen; instead, an unexpected “life extension” came from platform wars and subsidies.** GaoYan Restaurant View data shows that at the end of Q1 2025, tea drink channel stores decreased by 20,000 quarter-on-quarter, with net closures reaching a peak; then, tens of millions in platform subsidies temporarily slowed natural clearance. Due to high concurrent orders demanding extremely high capacity and supply chain requirements, platform resources favored leading brands, helping them stabilize performance through raw material output. In Q2 2025, Cha Ba Dao’s daily GMV per store increased by about 15% quarter-on-quarter; Aunt Shanghai saw nearly 10% growth. According to Xinfeng’s survey, during the peak of summer subsidies in 2025, most brand tea drink franchisees could achieve overall profit on paper due to the pulse effect of overflowing orders. But this prosperity is more like a periodic “overdraft” in the stock market. GaoYan Restaurant View data shows that in Q4 2025, tea drink channel closures again exceeded new openings, entering deep saturation. Ultimately, the temporary alliance between platforms, brands, and franchisees is not stable. The essence of subsidy is a “stimulant” invested by platforms to boost delivery penetration. As consumption habits shift from offline to online, merchants are left facing both a reshaped cost structure and falling real revenue. In the post-subsidy peak Q4 2025, Luckin’s delivery ratio remained high, and delivery expenses grew by 94.5% year-on-year to 1.6 billion yuan. Chairman Guo Jinyi confessed at the financial meeting: "Constant changes in platform subsidies mean reverting cup structure from delivery to pick-up will take time." "Delivery orders, after adding platform commissions, traffic costs, and packaging expenses, squeezed per cup profit margins significantly," Coco told Xinfeng. The deeper challenge is that consumer decisions are increasingly ceded to algorithm recommendations, thinning the brand-consumer connection. Same-store decline is a hidden pain more and more in the industry must face. Over the past year, Bawang Chaji, which didn’t deeply participate in price wars, was especially impacted. In Q2 and Q3 2025, its average monthly GMV per store in Greater China fell by 25% and 28.3% year-on-year, in a continuous four quarter slide. Under the pressure, Bawang Chaji chose to adjust its business model, moving from earning a margin by selling raw materials to franchisees to revenue-based commission. This adjustment may be a signpost: In the context of stock competition, brands have realized that relying purely on expansion through raw material supply is hitting a bottleneck. Brands need to become risk-sharing symbionts with franchisees, rather than just scale-chasers, to go further in the post-scale-squeeze market. --- **Collapse of price brackets** Data from GaoYan Technology provided to Xinfeng shows: In 2025, tea drink industry revenue grew 4.8% year-on-year, and transaction volume rose 19.8%. But contrasting this, the average spending per transaction fell by 12.5%. In the months with the biggest gaps, the average tea drink order value dropped by nearly 30% compared to two years ago. **Structural pressure from price competition fundamentally comes from supply surplus.** “The industry is just too competitive, up and down," analyzed Yang Shun for Xinfeng. Many suppliers expanded production as terminal stores grew in recent years; the supply chain also faces excess supply. This forms the foundation for price war. And the entry of platforms as external forces speeds up the descent of price anchors. “Red envelope subsidies and delivery fee waivers distort true delivery costs," Yang Shun pointed out. A milk tea originally priced at 16 yuan could cost less than 10 after subsidies, directly invading the space previously guarded by the 6-8 yuan RTD (ready-to-drink) high-end bottle segment. In his view, this short-term distortion is permanently changing consumer price perceptions and buying habits, with fresh tea drinks beginning to encroach on bottled water's market share. **Similar downward collapses are occurring across all price tiers.** “Five years ago, the industry’s price ladder was much clearer," Coco recalled for Xinfeng. At that time, Mixue held the low-end, CoCo and Gu Ming were steady in the 10-15 yuan range, HeyTea and Nayuki were above 25 yuan, and 15-25 yuan middle-range brands had a rich niche. GaoYan Technology’s data confirms the disappearance of this “olive-shaped” structure: Among the top 20 tea drink chains, 3 brands have an average ticket price below 10 yuan, 10 brands are between 10-15 yuan, and only 7 are above 15 yuan. As the “middle layer” stays crowded, consumer brand loyalty further gives way to value-for-money, ensuring turbulence in the mid-tier track. Cha Ba Dao closed 418 franchise stores in the first half of 2025, a closure rate of 5%, and franchisee churn of 8.8%. Aunt Shanghai’s situation is even more pronounced: 645 closures in H1 2025, a closure rate of 7%, franchisee churn of 531, 9.7% of starting total, up from 9% for all of 2024. Meanwhile, an undercurrent of "upward mergers" started to appear. At the end of 2025, Luckin and its capital sponsor, Centurium Capital, appeared among rumored bidders for Starbucks China, Blue Bottle Coffee, % Arabica and Costa Coffee. --- **Diverging paths** **The demand for growth is ever-present, and brands are trying hard to find the most suitable path for this era.** “The intervention of capital and contraction of consumer environment is forcing made-to-order tea and coffee to show strong industrial characteristics,” commented an investor who has long followed the tea drink industry to Xinfeng: Large-scale procurement locks in costs and boosts efficiency, while stores use highly standardized processes to complete production and support delivery fulfillment. Supply chain moves best reflect this “industrial ambition.” In 2025, Luckin and Mixue Group locked in major coffee bean procurement deals with the Brazilian government, and then completed the coffee milestone of 30,000 and 10,000 stores within the year. This strategy, of lock down global resources to squeeze efficiency downward, is typical industrial narrative and signals industry concentration will tilt faster to giants capable of extreme cost control. **Crisis lurks here too: When "service industry" is mutated into "industry," consumer brand differentiation value is eroded.** If store and delivery experience is almost indistinguishable, consumers lose any reason to visit in person. "Especially in some stores with explosive order volumes, when consumers pick up, staff are so busy preparing orders there's no service at all," added Coco. When tea drinks evolve into a high-frequency, standardized FMCG, brands begin to stress "emotional value" as compensation. This explains the industry's constant investment in IP and new product R&D. **Another attempt to counter industrial dullness is an emphasis on space experience.** Luckin opened a 420-square-meter "origin flagship," with hand-brewed specialties and veteran baristas; Mixue Bingcheng set up a super flagship store in Zhengzhou integrating drinks, cultural creation, and theme park. For Luckin, used to fast turnover driven by algorithms, having customers linger on the second floor of a prime-location shop runs counter to their industrial instinct of maximizing value per square meter. For example, Luckin’s "old money style" flagship store in Shanghai Lujiazui, situated at a former Starbucks, decorated with style, even has study cubicles on the second floor. But many customers found there were no power outlets, not even free Wi-Fi. This contradiction reflects brands struggling between “brand spotlight” and “store efficiency,” and signals: for Luckin and Mixue, core brand value isn’t built on specific scene flagship stores; they view flagships more as cheap traffic tools. Some believe, though, that the big store model remains viable in lower-tier markets. In areas with lower rents and more flexible labor, big stores can still tell a different story than the “industrial assembly line.” “This is normal," Coco says, "China’s market is so big, different stages and developmental nodes are destined to coexist." --- **Difficult convergence** **In the fog, coffee is still regarded as 'the hope of the whole village'.** According to GaoYan Technology data given to Xinfeng: China’s coffee channel store counts have been growing strongly since Q3 2024, with a two-year compound growth rate of 36.5%. But under the dense wave of new shops, the “gold content” of the growth may be diluted. Coco told Xinfeng that average Chinese coffee consumption was 17 cups in 2023, 22.4 in 2024, and 25 in 2025. "2025’s per capita cup growth may be the slowest in the last decade." That means, nationwide, coffee drinkers only drank fewer than 3 more cups a year; and even that includes some instant and drip bag products. **In theory, coffee’s 'golden nodes' will expand as addictive habits form, and boundaries between coffee and tea are gradually blurring in the competition.** **For coffee brands, counter-attacking the tea drink stronghold is far from easy.** Fruit tea, a core category for milk tea, poses challenges for coffee shops seeking extreme standardization and simple preparation. Using fresh-cut fruits not only tests labor efficiency, but faces qualification barriers for fresh prep. When Luckin entered the milk tea track, it chose lightly milked tea with simple ingredients and mature supply chain, and better margins. "But with Luckin’s digitalization and marketing skills, it could explode other categories as well," said Yang Shun. Recently, Luckin collaborated with 'Mo Dao Zu Shi', launching sorbet black tea and strawberry tea, moving beyond just lightly milked tea. **By contrast, tea brands entering coffee is easier and has a much larger queue.** June 2025, Gu Ming announced Daniel Wu as partner and started “All coffee 8.9 yuan” campaign, extending fresh coffee to over 7,600 stores; by October it pushed “all coffee 2.9 yuan” extreme pricing. With its cold chain supply chain, Gu Ming reused fresh milk and coffee bean transport costs to penetrate downward. “In advantages of fresh milk supply and network density, Luckin and Cudi struggle to match Gu Ming in lower-tier markets.” Yang Shun said, and some Gu Ming shops had coffee at 20% of cup sales. Coco sees most tea brands crossover to coffee using a “traffic funnel” logic: milk tea shops occupy malls, offices, and communities; with rent and wages covered by the main business, selling coffee is essentially a low-cost new product to filter passing traffic. “Out of ten thousand people passing by, someone needs a coffee.” As subsidies fade and the industry returns to normal, single shop dilution pressure makes boosting income especially urgent. So, besides coffee, breakfast, lunch, ice cream, and sweet soup are promoted. Stores try to use full-day, multi-category sales to counter declining ticket price, squeezing maximum value per square meter. In this all-category war, “Snow King” is a special case; through “Lucky Coffee” it built a distinct formation, and declared ten thousand shops by end-2025. Insiders say Mixue is intentionally guiding main brand franchise applicants to open Lucky Coffee instead. With the main brand surpassing “40,000 shops” scale, whether this is strategic control or switching tracks after hitting the ceiling is still unclear. Whether coffee or milk tea, expansion’s temptation cannot be resisted. But as of now, where the industry ceiling can go is still a mystery. --- Risk Warning and Disclaimer The market has risks, investments should be made cautiously. This article does not constitute personal investment advice, nor does it consider the special investment goals, financial situations, or needs of individual users. Users should consider whether any views, opinions or conclusions in this article are suitable for their particular circumstances. Invest accordingly, at your own risk.