Tea Coffee's 2026 Narrative: Where Are the Boundaries of the Scale Myth?

Looking back at 2025, the stories of coffee and tea drinks have always been closely tied to the fires and smoke of platform battles.

From nearly insane “trillion-yuan subsidies” on takeout platforms in the second and third quarters, to the红包雨 (red envelope rain) spread by AI platforms at year-end, orders flooded to the counters like a tide, continuously pushing up the industry’s traffic levels.

“Through subsidies, the customer acquisition cost for milk tea is at most 30 to 50 yuan, and it can also conveniently bind payment cards,” an industry insider familiar with internet marketing strategies told XinFeng. “This method is more efficient than traditional customer acquisition, and the key is that it can quickly produce impressive GMV figures.”

While takeout remains a huge variable, it is not the sole determinant of fate.

The reason milk tea repeatedly becomes a marketing and user acquisition tool for platforms is that tea and coffee shops have already penetrated city fabrics like capillaries under industrialized processes.

Ultimately, there are too many shops, and the price per cup is too low.

This extremely high penetration rate has made milk tea shops one of the few offline “outlets” that can still efficiently reach the masses in the era of mobile internet entering the stock saturation phase.

Amid the bustling scale, new strategic shifts are emerging among brands.

The once fierce “9.9 yuan” price war in the coffee sector is gradually fading; Luckin Coffee opened a flagship store covering 420 square meters at its 30,000th store; Mixue Bingcheng even rumors about building theme parks.

Capital battles are also ongoing. Over the past year, Gu Ming, Mixue Bingcheng, Bawang Chaji, and Shanghai Auntie have gone public one after another. But aside from Mixue and Gu Ming, which stabilized through extreme supply chains, others have experienced valuation regressions in the secondary market, falling into the trap of delisting.

Meanwhile, Luckin continues to signal a return to the US stock market, and after the completion of Starbucks China’s equity transaction, has announced an aggressive target of 20,000 stores.

All these indicate that the survival race over cups is far from over.

After scale is squeezed out

Starting from the wave of raw material upgrades led by “real milk, real tea, real fruit,” the so-called “new tea drinks” have been “new” for over a decade. During this period, leading brands continued to expand stores, but the overall industry’s physical ceiling has already become apparent.

“Tea shop scale reached between 400,000 and 500,000 stores two years ago. Based on population density and per capita consumption, this is basically the upper limit for a single category of stores,” said Yang Shun, general manager of Gao Yan Technology, to XinFeng.

Coco, a trainer in China’s coffee industry, also has a similar view: in 2022, the total number of milk tea shops nationwide exceeded 400,000, with chainization rate over 55%. The subsequent “growth” is mostly about replacing and upgrading existing stores.

In 2023, the emergence of Bawang Chaji and the hot trend in the coffee track brought a brief pulse of rebound for the industry. But after 2024, growth narratives gradually gave way to stock competition.

In 2025, as leading brands went public one after another, the expected expansion narrative did not materialize. Instead, an unexpected “lifeline” was provided by the takeout platform wars.

Gao Yan’s data shows that at the end of Q1 2025, tea channel stores decreased by 20,000 compared to the previous quarter, with net closures reaching a peak; subsequently, platform-led subsidies of tens of millions somewhat delayed natural market clearing.

Due to high concurrency orders demanding extreme capacity and supply chain resilience, platform resources tilted toward top brands, helping them stabilize performance through raw material output.

In Q2 2025, Chabaidao’s average daily GMV per store increased by about 15% quarter-over-quarter, turning overall revenue growth positive; Shanghai Auntie’s growth rate also approached 10%.

According to XinFeng’s survey, during the peak of subsidies in summer 2025, most franchisees of tea brands could achieve overall profitability on paper, thanks to order surges.

But this prosperity more resembles a temporary “overdraft” on the stock market.

Gao Yan’s data shows that in Q4 2025, the number of closed tea shops again exceeded new openings, indicating the market entered a phase of deep saturation.

Ultimately, the temporary alliances between platforms, brands, and franchisees are unstable.

Subsidies are essentially a “stimulant” injected by platforms to boost takeout penetration. As consumer habits shift from offline to online, what remains on merchants’ books are the dual challenges of cost restructuring and declining actual receipts.

In Q4 2025, when subsidies peaked, Luckin’s takeout share remained high, with delivery costs up 94.5% year-over-year to 1.6 billion yuan.

Chairman Guo Jinyi admitted at the earnings call: “The ongoing changes in takeout platform subsidy strategies require time for the cup volume structure to revert from delivery to self-pickup.”

“After platform commissions, traffic costs, and packaging expenses, the profit margin per cup is significantly compressed,” Coco told XinFeng. The deeper challenge is that consumer decision-making is gradually being handed over to algorithmic recommendations, diluting the direct connection between brands and consumers.

Same-store decline has become an increasingly painful reality many operators face.

Over the past year, Bawang Chaji, which did not deeply participate in price wars, was hit especially hard. In Q2 and Q3 2025, its Greater China average monthly GMV per store fell by 25% and 28.3%, respectively, with four consecutive quarters of decline.

Under pressure, Bawang Chaji shifted its business model from selling raw materials to franchisees for profit to a revenue-sharing model.

This adjustment may serve as a signal: in the stock competition, brands are beginning to realize that relying solely on raw material supply to franchisees is hitting a bottleneck.

Brands need to shift from scale chasers to co-risk bearers with franchisees to go further in a market squeezed by scale.

Price band collapse

Gao Yan’s data shows that in 2025, the overall revenue of the tea drink industry grew by 4.8% year-over-year, with the number of consumption transactions up 19.8%.

But the average price per transaction dropped by 12.5%. In the worst months, the average order value per cup fell nearly 30% compared to two years ago.

The structural pressure of price competition fundamentally stems from oversupply.

“The industry is just too competitive, upstream and downstream alike,” Yang Shun analyzed to XinFeng. To lower costs, many raw material suppliers expanded production in recent years alongside terminal brands, leading to supply overcapacity at the supply chain level. This underpins the price war.

The entry of platforms as external forces further accelerates the downward shift of price anchors.

“Red envelope subsidies and freight discounts distort the true delivery costs,” Yang Shun pointed out. A cup of milk tea priced at 16 yuan, after red envelopes, can be paid for at less than 10 yuan, directly encroaching on the territory traditionally held by high-end RTD (ready-to-drink) products at 6-8 yuan.

In Yang Shun’s view, this short-term distortion is permanently changing consumer price perceptions and purchasing habits, with freshly made tea drinks beginning to penetrate the bottled water market share.

Similar downward collapses are visible across all price tiers.

“Five years ago, the price tiers in the industry were much clearer,” Coco recalled. Back then, Mixue maintained a low-price base, CoCo and Gu Ming stayed in the 10-15 yuan range, Heytea and Nayuki above 25 yuan, leaving a lucrative mid-tier niche between 15-25 yuan.

Data from Gao Yan confirms the disappearance of this “olive-shaped” structure: among the top 20 chain brands, three have an average ticket below 10 yuan, ten are between 10-15 yuan, and only seven are above 15 yuan.

As the “middle layer” becomes increasingly crowded, brand loyalty further yields to cost performance, making the mid-range segment highly unstable.

In the first half of 2025, Chabaidao closed 418 franchise stores, with a closure rate of 5% and a franchisee loss rate of 8.8%.

Shanghai Auntie’s situation is even more pronounced: in the first half of 2025, 645 stores closed, with a closure rate of 7%, and 531 franchisees lost, accounting for 9.7% of the initial total, further rising from 9% in 2024.

Meanwhile, the “upward M&A” undercurrent is beginning to stir.

At the end of 2025, Luckin and its backer, Dazhun Capital, appeared on the bidding list for Starbucks China, Blue Bottle Coffee, % Arabica, and Costa Coffee.

Divergence paths

Growth demands are persistent, and brands are striving to find the most suitable implementation paths for the current era.

“Capital involvement and shrinking consumer markets are forcing freshly made tea and coffee to show strong industrial attributes,” said an investor who has long followed the tea drink industry. “Scale centralized procurement locks in costs and reduces expenses, while stores achieve high standardization in production and support delivery.”

The actions on the supply chain most vividly reflect this “industrial ambition.”

In 2025, Luckin and Mixue Group secured large coffee bean procurement deals with the Brazilian government, then completed the milestones of 30,000 and 10,000 stores within the year.

This strategy of locking in global resources to push efficiency downward is a typical industrialization narrative, indicating that industry concentration will accelerate toward giants with extreme cost control.

Hidden within is a crisis: when “service” is alienated into “industry,” the differentiated value of consumer brands is also being eroded.

If offline dine-in and delivery experiences are nearly identical, consumers will lose the reason to visit stores.

“Especially in some high-volume stores, when customers pick up orders, staff are busy with food delivery, so there’s hardly any service,” Coco added.

As tea drinks evolve into a high-frequency, standardized daily FMCG, brand anxiety shifts toward compensating for “emotional value.” This explains why the industry continuously invests in IP development and new product R&D.

Another way to counteract industrial monotony is to emphasize spatial experience deliberately.

Luckin opened a 420-square-meter “origin flagship store” with hand-brewed specialty drinks and experienced baristas; Mixue Bingcheng launched a super flagship in Zhengzhou integrating drinks, cultural creations, and amusement parks.

For Luckin, accustomed to high turnover and algorithm-driven capacity, encouraging customers to stay long on the second floor of prime locations contradicts its industrial instinct to maximize value per square meter.

For example, Luckin’s flagship in Lujiazui, Shanghai, located in the former Starbucks site, features stylish decor and even a study room on the second floor.

However, many customers found that the store lacked power outlets and even free Wi-Fi.

This contradiction reflects the brand’s struggle between “brand brilliance” and “per-store efficiency,” and reveals that for Luckin and Mixue, the core brand value is not built on large scened flagship stores but on low-cost traffic acquisition.

Some believe that large stores in lower-tier markets still hold potential. In areas with lower rent and higher labor redundancy, big stores can still tell different stories from “industrial assembly lines.”

“That’s quite normal,” Coco said. “China is too big, and different development stages will coexist.”

Difficult convergence

In the fog, coffee is still seen as “the hope of the village.”

According to Gao Yan’s data, the number of coffee stores in China has maintained strong growth since Q3 2024, with a compound annual growth rate of 36.5% over the past two years.

But amid the rapid store opening wave, the “value” of this growth may be somewhat diluted.

Coco told XinFeng: China’s per capita coffee consumption in 2023 was 17 cups, in 2024 22.4 cups, and in 2025 around 25 cups. “2025 might be the slowest year for per capita growth in the past decade.”

This means that each coffee drinker in the country only added less than 3 cups per year. And this increase includes some instant and drip products that are not freshly ground.

Theoretically, the “golden point” of coffee will continue to expand with addictive habits, and the boundary between coffee and tea drinks will gradually dissolve in the competition.

For coffee brands, crossing into tea territory is no easy feat.

As one of the core categories of milk tea, fruit tea poses a significant challenge for coffee shops pursuing extreme standardization and minimal operation counters. Fresh-cut fruit not only challenges labor efficiency but is also limited by store licensing thresholds.

When Luckin entered the milk tea track, its first choice was light milk tea with simple ingredients, mature supply chain, and higher margins. “But with Luckin’s digital and marketing capabilities, expanding beyond light milk tea categories could also explode,” Yang Shun believes.

Recently, Luckin collaborated with “Mo Dao Zu Shi,” launching snow sorbet black tea and a large strawberry tea, stepping beyond non-coffee new products.

In contrast, brands that venture into coffee from tea drinks find the path simpler and the team larger.

In June 2025, Gu Ming announced Zhou Yanzuo as a partner and launched an “all-store coffee at 8.9 yuan” campaign, expanding freshly brewed coffee to over 7,600 stores; by October, they even introduced an “all-store 2.9 yuan” extreme price.

Leveraging its scaled cold chain supply, Gu Ming reused transportation costs for fresh milk and coffee beans to penetrate downward.

“With advantages in fresh milk supply and store density, Luckin and Kudi find it hard to compete head-on with Gu Ming in lower-tier markets,” Yang Shun told XinFeng. Some Gu Ming stores already see coffee sales accounting for 20%.

Coco sees most tea brands crossing into coffee following a “traffic funnel” logic: tea shops occupy key locations in malls, office buildings, and communities, covering fixed costs like rent and labor, while selling coffee is essentially a low-cost way to attract passing traffic. “If 10,000 people pass by, someone will need a cup of coffee.”

As subsidies fade and the industry returns to normal levels, the pressure to increase per-store revenue becomes more urgent than ever.

Thus, beyond coffee, breakfast, lunch, ice cream, and sweet soups are being pushed to the forefront. Stores try to use all-day consumption and multiple product categories to offset declining average spending, squeezing every square meter for maximum efficiency.

In this all-category war, “Snow King” is a special case. It has established an independent layout through “Lucky Coffee” and announced 10,000 stores by the end of 2025. Industry insiders reveal that Mixue is consciously guiding main franchisees to shift focus from the main brand to Lucky Coffee.

With the main brand surpassing 40,000 stores, whether this is a strategic move or a track shift after reaching a ceiling remains uncertain.

Coffee or milk tea, ultimately, cannot resist the temptation of expansion. But how high the industry’s ceiling will be pushed remains an unresolved mystery.

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