This is an English adaptation of a FoodBud historical article originally published on December 22, 2021.
For Mixue Bingcheng, 2021 should have been a harvest year. Yet market chatter also suggested that a high proportion of its franchised stores were loss-making. After the early-year COVID-19 disruption, summer demand for cold drinks looked close to non-discretionary, helped by brand awareness and the viral “sweet honey” jingle. But Mixue’s core battlefield in Henan also faced floods and renewed pandemic pressure.
China has many companies that are highly disciplined in lean management and cost optimization. Fewer have built brands with meaningful product premiums, such as Heytea. Mixue Bingcheng and Wallace are closer to archetypes of supply-chain management and efficiency optimization. Both were said to have capital-market valuations of RMB60-70 billion and to be approaching listings; Mixue had already entered IPO tutoring with GF Securities.
Mixue’s origin was not linear. Its first store sold Chinese food, the second shaved ice, and the third was a street-side shop. When candied hawthorn sold well in summer, five franchised stores sold candied hawthorn. When fried dough twists sold well in winter, they sold those. The company followed whatever made money, and some franchisees also struggled operationally, though that did not derail the core team.
The difficulties were mainly product-line issues and early regional expansion, when Mixue was not yet well known and sometimes could not attract franchisees. In response, Mixue openly positioned itself as not being a high-end brand. It relied on strong store economics, low prices, and acceptable quality. Its core strength was product power, including both quality and pricing.
Counterfeit brands were another problem. In China this is hard to eliminate completely, but Mixue diluted the impact by opening at scale: once franchisee store density became high enough, copycats mattered less.
According to Mixue’s official information at the time, its main store formats included standard stores, light-meal stores, dine-in stores, and flagship stores. The core model was a 30-50 square meter small store built around immediate purchase and takeaway consumption.
Mixue’s stores were concentrated mainly in lower-tier markets, where rent costs were relatively low. Store gross margin was described as 45%-65%. Top daily sales could reach about RMB18,000-19,000, with some standout stores exceeding RMB20,000. Overall daily sales were around RMB4,500-6,000, with payback typically in six months to one and a half years, and as fast as five months.
Henan was the primary market. Stores were said to appear on almost every street, roughly every 400-500 meters. Mixue later narrowed its spacing restrictions: if locations were especially strong, a new store might be allowed only about 100 meters away, as long as customer flow was not yet mature.
In 2021, Mixue cancelled its regional protection system, mainly to change franchisee behavior. Previously, a street might have one Mixue at each end; after the reform, it could have four. This did not necessarily mean four owners. The same operator might control all four stores in a block, occupying the area and making it difficult for other brands to enter.
Mixue’s consistent focus was to hold lower-tier markets while maintaining the commitment of its first and second waves of franchisees. Its core franchisees were in Henan. Many treated Mixue as a career rather than a financial investment, spending most of their time and energy running stores like hands-on operators.
Mixue also benefited from timing. Before 2010, opening a milk-tea franchise could cost about RMB400,000-500,000. Mixue’s lower-investment, faster-payback model was rare in earlier years and attracted many franchisees looking to build wealth through milk-tea stores.
Later, Mixue’s franchise screening became strict, leaving many prospective franchisees unable to join. Brands with similar positioning, such as Anhui-based Tianlala, then had room to acquire demand. Tianlala’s store count had already exceeded 5,000 and its supply chain was relatively solid.
In the post-pandemic period, China’s tea-drink market had become intensely competitive across low-price, mid-price, and premium segments. The players most likely to remain were those with real core advantages.
The industry’s site logic was also shifting from shopping malls, mixed-use complexes, and campuses toward residential communities. Mixue had been developing community stores more actively in the previous two years. The reason was delivery: consumers may rely more on delivery post-pandemic, but many mid- to high-end communities restrict delivery access, making stores inside or at the entrance of communities more attractive.
Mixue had previously prioritized schools. Going forward, it was looking more to communities and other high-traffic sites. Commercial districts were less profitable because rents in office and business areas were higher than campuses, consumption frequency was lower, and consumers had more alternatives within the same frequency.
For regional expansion, Mixue sent its veteran Henan team to develop markets outside the province. From Zhengzhou as the core, Henan, Shandong, Shanxi, and Hebei were among the earliest provinces opened to franchising. Chengdu served as the base for the Southwest region, with some reach into Central China, South China, and coastal regions. Guangzhou had previously been given an independent sub-warehouse.
National operations were broadly split into two regions: headquarters and the Southwest region. The Southwest region covered Yunnan, Guizhou, Sichuan, Lhasa, and Southeast Asia. Mixue had already entered three Southeast Asian countries. Lhasa was also a key expansion market: overall prices there were high, but Mixue did not raise prices, giving it strong price appeal.
Mixue’s best-selling markets were Chongqing, Shandong, and Henan. Southern China was harder than northern China because milk-tea competition was more intense. Mixue’s pricing advantage was also easier to apply in the north. In northern markets, operators still needed to educate consumers, and in third- and fourth-tier cities it was hard to build a grid-style layout.
For a southern brand without a northern base, expansion usually starts province by province before connecting to other provinces. In northern markets, competition is often city-based and point-like rather than province-wide.
To expand in the south, Mixue had already invested in Huicha, which used Guangdong and Hainan as its main bases.
Except for milk sources, Mixue produced all raw materials through its own supply chain. When monthly or quarterly reviews showed that certain products were selling well, Mixue might reduce their production costs, so margins could change at any time. Overall, fresh fruit tea had relatively high margins, milk tea had lower margins, and ice cream had the lowest margins.
Technically, the supply-chain capabilities were already mature. The advantage was not only technology but also cost. In the same price band, front-end sales volume and demand determine back-end cost. The cost difference between printing 1,000 units and 10,000 units illustrates the point.
For milk-tea chains, scale advantages usually become fully visible above 3,000 stores. For Mixue, they were already released at around 1,000 stores because its early production base, logistics, production, and sales were concentrated in Henan. Subsequent store growth could be viewed as expanding that advantage.
In 2020, Mixue’s national shipment value, effectively the supply of raw-material costs, reached RMB2 billion. In 2020, Mixue also achieved RMB6.5 billion in sales and RMB800 million in profit.
Mixue had internally considered whether to build something like a film company, similar to Xiaoguan Tea’s approach, and produce animation or related content. Execution was difficult. Beyond milk tea, it had already launched a coffee brand, Lucky Cup, and an ice-cream brand, Gelato.
For the core milk-tea business, reaching 20,000 franchised stores in China meant the ceiling was nearly in sight. Wallace was also at roughly the same scale. That explains Mixue’s push into Southwest China and Hainan: one path was the southern market, and the other was Southeast Asia and eventually global markets.
Coffee and ice cream were still early-stage categories. The coffee business was being led directly by the founder. The ice-cream business was a controlled investment by Mixue, closer to internal incubation, and was still refining its store model and direction. Coffee had advanced faster than ice cream, with more than 300 stores already.
Mixue had also discussed investing in or building a packaging-materials company. Packaging costs were becoming a larger share of total cost. Another adjacent path was to extend from fresh tea drinks into retail products. Since store prices were already very low and competing with convenience-store retail, putting Mixue retail products into convenience stores and similar channels looked like a natural growth route.
Note: IPO, valuation, profit, store-count, and forward-looking expansion figures are historical as of the article’s original publication on December 22, 2021.