This is an English adaptation of a FoodBud historical article originally published on November 29, 2023.
In Chengdu, Ms. Wang has operated a franchised 1 Diandian tea store for seven years. She says the economics have become much harder.
“There used to be only three or four milk-tea shops on this street. Now there are nine, all fighting for the same customers,” she said.
Delivery has added pressure. After platform commissions and coupons, she said a RMB 15 drink may leave only RMB 7-8 in revenue. With around 20% going to delivery platforms, 40% to ingredients and 17% to labor, she said even monthly revenue of RMB 150,000 may not generate profit.
Recent online discussion claimed that 1 Diandian was “leaving the milk-tea industry.” The company denied it was shutting down. Its legal director Weng Jiexia told media that 1 Diandian still aimed to reach 5,000 stores.
But the contraction is real. The brand had more than 4,000 stores in February 2021; by September 2023, that had fallen to just over 3,000. Over roughly two and a half years, nearly 1,000 stores closed.
The wider Chinese fresh-tea market was still expanding. According to a China Chain Store & Franchise Association report, there were about 515,000 operating new-style tea drink stores as of August 31, 2023, up more than 36% from the end of 2020. Several newer brands had already surpassed 1 Diandian in store count and were pushing toward 10,000-store ambitions.
1 Diandian is not alone. Older chains such as Black Whale, CoCo Fresh Tea & Juice and Happy Lemon have also shown signs of stagnation or decline. Happy Lemon’s parent company Yummy Town recently announced it had sold 70% of its mainland China business.
1 Diandian, originally Taiwan’s 50 Lan, was founded in 1994 as a roadside drink stand in Tainan before developing into a store-based chain. Its first mainland China store opened in Shanghai in December 2012 and drew queues.
After 2015, the brand became known for customizable toppings and popular products such as Four Seasons Milk Green Tea, Black Tea Macchiato and Lemon Yakult. Media reports from 2017-2018 described long queues in Shanghai, Beijing and Qingdao, with typical waits of 10-15 minutes. At its peak, 1 Diandian drinks were frequently resold through milk-tea purchasing groups.
The chain expanded quickly from 2015 onward. In 2019, its busiest expansion year, it opened 886 new stores; in 2020, it opened 764.
Then the pace slowed sharply:
For prospective franchisees, the value proposition has weakened. A post-1990s entrepreneur surnamed Chen inspected 1 Diandian in 2021 while planning to open a tea franchise in Huizhou, Guangdong. He initially liked the brand’s price positioning and local fit, but changed his mind after speaking with headquarters.
For a small store of just over 10 square meters, he said decoration and equipment alone were quoted at nearly RMB 300,000. His intended location was 42 square meters, so he expected the cost to be higher.
One franchisee said the upfront cost for 1 Diandian was around RMB 400,000. Public information cited in the article put Mixue’s starting upfront franchise cost at RMB 210,000, Guming’s at RMB 230,000, Auntea Jenny’s at about RMB 170,000 and Heytea’s at about RMB 400,000, excluding rent and transfer fees. On that basis, 1 Diandian was not a low-entry-cost franchise.
The profit gap also mattered. Chen said that after costs, a 1 Diandian drink may leave only RMB 3-4. He ultimately chose a smaller Guangzhou lemon-tea brand. Decoration, equipment and first-batch materials cost him RMB 200,000. With drinks priced around RMB 20 and profit of more than RMB 10 per cup, he said he recovered his investment within six months.
Mr. Zhang closed his 1 Diandian franchise near a university in Changsha in November 2022 after operating for two years.
He had chosen the brand for its product standards. He said the company required franchisees to have at least a bachelor’s degree and RMB 1 million in assets, and that franchisees had to serve as store managers. Store managers and staff had to pass written and practical exams before working. Prepared toppings had to be discarded if unused within two hours.
But he said the brand had become difficult to operate in the current market: rigid in sales, reluctant to run promotions and slow to innovate. As nearby tea stores attracted traffic through aggressive campaigns, he felt he had little control as a franchisee and eventually shut the store.
Compared with its menu five years earlier, 1 Diandian’s product lineup had not changed much.
Media statistics cited in the article said the brand launched no new products in 2018, one in 2019, three in 2020, four in 2021 and seven in 2022.
By contrast, the 2022 China Beverage Industry Product Report said 50 monitored brands launched more than 1,677 new products in the first three quarters of 2022, averaging 11 new items per brand per quarter. 1 Diandian’s launch rate was far below that benchmark.
As younger consumers posted signature drinks from other brands online, from sauce-flavored latte to grape fruit teas and strawberry products, 1 Diandian’s classic Four Seasons Milk Green Tea and Black Tea Macchiato became less visible.
The article frames China’s tea-drink market in three stages: a 1.0 “powder era” using non-dairy creamer and tea powder or tea residue; a 2.0 “street era” with fresh milk; and a 3.0 “new-style tea” stage built around original-leaf tea bases, fresh milk and fresh fruit.
High-end brands such as Heytea and Nayuki are positioned as examples of the 3.0 stage. 1 Diandian, by contrast, still used non-dairy creamer in popular milk-tea products such as Four Seasons Milk Green Tea. Mixue also uses non-dairy creamer, but its main products are concentrated around RMB 6-8, where consumers are less sensitive to ingredient quality. 1 Diandian’s best-known products are mostly RMB 10-15, making the value proposition less compelling as Heytea and Nayuki lowered prices.
Franchise management consultant Mao Xiangyu said there are too many brands in the tea-drink category. As brands cut prices, even Heytea has launched products priced in the RMB 10-plus range, diverting mid-market demand. In that environment, brands stronger in media and large marketing events are better positioned to win traffic.
Co-branding became a major traffic tactic in the sector. In May 2023, Heytea partnered with Italian luxury brand FENDI and sold more than 1.5 million cups in three days. Nayuki’s collaboration with FANTASY sold more than 1.46 million cups on the first day, while 100,000 co-branded thermos cups were sold.
Media statistics covering 12 new-style tea brands including Nayuki, Heytea and Guming, but excluding 1 Diandian, found that from the beginning of 2023 to September 15, those brands averaged more than seven collaborations each. Nayuki had the most, with 24.
1 Diandian had four collaborations from the start of 2023 to November 15, involving a pet-products brand, a mobile game and student exercise books, among others. None became a major traffic event. Its official Weibo account had only about 90,000 followers, far below many peers.
Black Whale, founded in 2008, had 737 stores in July 2023, falling to 520 by late November. CoCo Fresh Tea & Juice reached 4,000 global stores in 2019, but in the first half of 2023 it opened 250 stores and closed 304, resulting in negative net growth.
Happy Lemon, founded in 2006, took a more drastic step. Parent company Yummy Town announced the sale of 70% of its mainland China business. In its report, Yummy Town said excessive competition in China’s mainland restaurant market, changes in the consumption environment and worsening industry competition had pushed operating costs up sharply and severely eroded profitability. The group said it would focus mainly on the United States and other overseas markets. Happy Lemon’s mainland store count had fallen from about 690 in 2022 to 246.
Data from Canyan Data also showed declining new-store openings for several of these older brands.
iiMedia Research consultant Zhang Yi said store contraction among some tea brands mainly reflected two issues: declining competitiveness in brand management, products and services, which caused franchisees or partners to switch sides; and gradual takeover of some brands by leading players through acquisitions.
Zhang Yi argued that older tea chains still have advantages despite shrinking store counts. Their accumulated store bases can support new business expansion. Some older brands are exploring pastries, lunch and other product lines.
They may also retain supply-chain advantages. More efficient supply-chain layouts can theoretically reduce costs and raise profits.
Mixue is cited as a successful supply-chain case. Over the past decade-plus, founder Zhang Hongchao invested heavily in supply-chain construction. Its supply-chain company Daka International operates multiple production lines for tea-drink ingredients, supplies Mixue’s 25,000 stores and can sell capacity to other tea-drink companies. That control helps Mixue keep product prices low while preserving profit room for franchisees and the company.
1 Diandian has also tried to catch up. In 2022, it added an option to pay RMB 3 extra to switch to milk. It also began adding small amounts of fresh fruit to some products and upgraded classics such as mango pomelo sago.
Since 2023, the brand has moved toward near-monthly product launches, including items such as white fungus milk tea and rose milk oolong. On Douyin, it introduced RMB 9.9 group-buying coupons.
A staff member surnamed Yu, who had worked for two years at a 1 Diandian franchise in Zhengzhou, Henan, said the brand had increased promotions in recent months. Previously, new members received a RMB 3 coupon and daily points could be redeemed at 100 points for RMB 1. More recently, the ordering mini-program often issued coupons, and there were prize draws. Store-level product launch frequency had also increased, with new products almost every month.
On November 15, 1 Diandian posted a Weibo campaign with the game Peacekeeper Elite, offering bundles named “Good Luck” and “Make It to Year-End.” Customers buying designated bundles could receive a shaker toy or co-branded potted plant. The Weibo post drew only 51 comments and 139 likes.
With nearly 3,000 stores, 1 Diandian has not disappeared from the milk-tea market. Its scale remains ahead of most tea-drink brands, even as closures have increased.
Yu said her store, located in a commercial district near CoCo, Chabaidao and other tea shops, had stable revenue after three years of operation and sold about 200 cups per day. She did not believe the brand had lost its market.
When the topic of “1 Diandian disappearing” trended online, many consumers posted nostalgic comments. One user wrote that from middle school to work, 1 Diandian had been the milk-tea brand that accompanied their student years.
That nostalgia can still push the brand onto trending lists. But it does not solve the underlying issues: weaker franchise economics, slower product renewal, less effective marketing and a more crowded price ladder. 1 Diandian has not yet shown how it will turn those pressures into a new story for the current market.
Note: forward targets, store counts, equity-sale details and operating figures are historical as reported in November 2023.