"Current beverage industry Pinduoduo" Mixue Ice Cream & Tea: Where does the "Snow King" confidence come from?

In the past couple of years, amidst an overall sluggish consumption environment, a tea beverage brand that emerged from a small town in Henan has been rapidly expanding against the trend at an average rate of nearly 10,000 stores per year. As of the disclosure of its prospectus, this tea beverage brand has surpassed 45,000 stores, officially overtaking Starbucks to become the chain beverage brand with the most stores globally. Just before its IPO, it created the highest financing subscription amount in the history of the Hong Kong stock market. After going public, it surged by 50% in just one week, receiving high recognition from the market. This brand is Mixue Ice Cream & Tea (hereinafter referred to as Mixue).

When mentioning Mixue, people's first impression might just be "cheap, many stores, and the brainwashing hit song 'You Love Me, I Love You, Mixue Ice City Sweet Sweet'." However, after the prospectus was disclosed, the business empire behind Mixue was revealed.

Compared to other tea beverage brands that have gone public in the past two years, such as Goodme, Cha Panda, and the soon-to-be-listed AUNTEA JENNY, what unique charm does Mixue possess?

How can Mixue achieve a net profit margin of over 15%, comparable to Coca-Cola's, despite having a gross profit margin of only 30%, which is far lower than Coca-Cola's 60%?

Dolphin Research is very interested in how such an efficient social service company operates. This article will explore the business secrets of Mixue.

The following is the detailed content:

1. What kind of company is Mixue Ice Cream & Tea?

1. From "1 Yuan Ice Cream" to "Affordable Beverage King"

Before delving into Mixue's business model, Dolphin Research will first introduce the basic situation of this company.

Mixue was founded in 1997, initially focusing on selling shaved ice, but the standardization of shaved ice was low, resulting in inefficient profitability. Around 2000, cone ice cream priced at over ten yuan became popular in the market. Founder Zhang Hongchao seized the opportunity and developed a cost-effective version of the 1 yuan cone ice cream.

With its high cost-performance ratio, the cone ice cream quickly became popular and became Mixue's first-generation explosive product. Building on the success of the cone ice cream, Zhang Hongchao established a "high quality and affordable" strategy and subsequently developed a series of affordable products.

According to the prospectus, the current top five selling products at Mixue are Ice Fresh Lemonade, Fresh Ice Cream, Pearl Milk Tea, Peach Four Seasons Spring, and Full Cup Passion Fruit, all averaging below 7 yuan, accounting for nearly 40%.

Mixue follows a classic strategy of big products + cost performance in the consumer goods industry, with Ice Fresh Lemonade, Fresh Ice Cream, and Pearl Milk Tea becoming the three best-selling products in China's ready-to-drink beverage industry.

In 2017, Mixue also established a freshly ground coffee brand "Lucky Coffee," similarly focusing on the low-price segment, further expanding its product categories.

2. The "Shovel Seller" of the Beverage Industry: "Others Sell Drinks, I Sell Ingredients"

To understand Mixue's business model, we first need to know how Mixue makes money. According to the prospectus, Mixue's revenue can be divided into two parts: sales of goods and equipment, and franchise and related services. **

a. Sales of products and equipment account for over 95%, which is the core of Mixue's revenue. In simple terms, everything needed to sell a cup of beverage by franchisees, such as fixed assets—equipment, and consumables—ingredients, packaging materials, etc., must be purchased from Mixue. This means that Mixue essentially acts as a "shovel seller."

b. Franchise and related services account for no more than 5%. This part of the income consists of three fixed costs that franchisees need to pay annually, including franchise fees, management fees, and training service fees, which are unrelated to the operating status of the franchise stores.

Since sales of products and equipment account for the majority, although Mixue does not directly participate in the profit-sharing of each franchise store, its revenue is strongly tied to the terminal retail sales (GMV) of the franchise stores.

3. Heavy asset investment and scale expansion are key

Since Mixue's main revenue comes from "selling shovels," where do the "shovels" come from? Let's look at a set of data:

According to the prospectus, Mixue's fixed assets account for 28% of total assets, far higher than its peers like Gu Ming, Cha Bai Dao, and Hu Shang A Yi, which also primarily operate on a franchise model, and even higher than Nai Xue's Tea (where direct-operated stores account for over 80%).

But why does Mixue, which seems to expand with a light asset model through franchising, require such a large fixed asset investment? A further breakdown reveals:

Mixue's fixed assets mainly consist of various production equipment and self-built warehousing and logistics facilities, used to produce "shovels" and to transport them after production.

This is crucial: Mixue produces 60% of its raw materials in-house, and 100% of its core raw materials are self-produced, while peers like Gu Ming, Cha Bai Dao, and Hu Shang A Yi have a much lower proportion of self-produced raw materials, generally below 30%. To some extent, it can be said that Mixue is a raw material wholesaler.

For heavy asset investment in manufacturing, continuously expanding production scale, increasing shipment scale, improving capacity utilization, and diluting fixed costs are key.

And that's exactly what Mixue is doing: in recent years, it has directly entered the fast lane of store expansion, with the number of stores skyrocketing from 20,000 in February 2021 to nearly 46,000 stores.

The scale and speed of store openings are unmatched among all fresh beverage companies, so the question arises: why is Mixue so favored by franchisees?

4. Low Initial Investment + Short Payback Period, Franchisees' "Stable Happiness"

When franchisees choose a brand to join, they mainly consider three factors: initial investment, payback period, and the brand's attractiveness (brand strength, supply chain management, marketing support, etc.). The first two factors are crucial indicators for measuring the profitability of franchisees, while the brand's attractiveness will be analyzed later.

Firstly, regarding the initial investment, as shown in the chart below, equipment and decoration costs are the two largest expenditures, and Mixue is significantly lower than other brands. Additionally, the various hidden costs for franchisees at the beginning (opening service fees, site selection fees, design fees, etc.) are also relatively low, making the initial investment for opening a Mixue store lower for franchisees.

In terms of payback period, for the ready-to-drink tea industry, the payback period for franchisees can differ by more than a year depending on the store location and the timing of joining the franchise.

According to the management of Mixue and some franchisees, on average, Mixue's payback period is around 14-16 months, which is shorter than the industry average (18-24 months).

What is even more commendable is that, despite rapid store openings, Mixue's single-store model has not collapsed. As seen in the chart below, both the average daily retail sales and order volume per store remain robust, although some older stores have experienced slight declines in sales. However, compared to Luckin Coffee, which faced over a 20% decline in same-store growth during its expansion from 10,000 to 20,000 stores due to competition and store traffic diversion, Mixue has performed much better.

Therefore, for franchisees, Mixue's "stable happiness" is more attractive.

5. Low Gross Profit, Low Fee Rate, High Net Profit

From a profitability perspective, a horizontal comparison with other franchise models like Gu Ming, Cha Bai Dao, and Hu Shang A Yi shows that, based on similar gross profit margins, Mixue's sales expense ratio and management expense ratio are much lower than its competitors, resulting in a significantly higher net profit margin.

Through these five dimensions, we have initially clarified Mixue's basic situation and business model. Unlike the high-end liquor industry's "naturally beautiful" high gross profit margin business model, brand strength is the key.

In the ready-to-drink tea sector, which has low gross profit margins and lacks brand loyalty, the competition often relies on the company's operational efficiency and management efficiency, making it much more challenging to operate.

However, Mixue is such a company that has achieved high net profit margins in a low gross profit margin sector through efficient operations and management. The question is how does Mixue achieve this? How sustainable is this business model? What are the barriers? Below, we further analyze:

II. Efficient supply chain management + store management is the core

1. Insist on doing difficult but correct things, self-build the supply chain

Around 2015, new-style tea drinks represented by Heytea, Mixue, and Lele Tea emerged, changing the previous raw material pattern dominated by tea powder and crushed tea leaves, greatly improving product quality & freshness, and entering a rapid growth phase.

At that time, many brands focused on product research and development and market promotion in pursuit of rapid store expansion. They generally relied on external suppliers for raw material supply, neglecting the construction of their supply chain, after all, building a supply chain requires a large amount of investment in funds, manpower, and materials, which is not a high return on investment action in the short term.

However, in the long run, reliance on suppliers for food raw materials can easily lead to the following results: 1. Unstable supply, franchisees are prone to stockouts; 2. Raw materials are subject to suppliers, leading to unstable product taste and poor consumer experience; 3. Large suppliers have strong pricing power, high markup rates, which lower brand profit margins.

The foresight of Mixue's management lies in the early recognition of the importance of the supply chain, and since 2012, they have been working on building a comprehensive self-supply chain, making them one of the earliest tea brands in the ready-to-drink tea industry to achieve a full industry chain layout.

Upstream: The upstream of the supply chain involves the planting & procurement of raw materials (the planting ratio is currently low), Mixue directly purchases large quantities of raw materials such as tea leaves and fresh fruits from source bases in China through a direct procurement model, reducing transportation losses while obtaining prices far below the industry average.

Taking lemons as an example, Mixue, as the largest lemon purchaser in China (annual consumption of 60,000 tons of lemons), established Xuewang Lemon Co., Ltd. in 2020 in Anyue County, the largest lemon producing area in China, setting up a storage base and directly purchasing lemons from local farmers, avoiding the need to import large quantities of lemons from South Africa, with lemon procurement prices 20% lower than the industry average.

Source: Mixue Prospectus, Dolphin Research

Midstream: The midstream of the supply chain refers to the processing & production of ingredients and packaging materials (material processing industry), which is also the area where Mixue has invested the most effort and capital in building its supply chain.

Currently, Mixue has established five major production bases in Henan, Hainan, Guangxi, Chongqing, and Anhui, with an annual comprehensive production capacity of about 1.65 million tons, among which the Henan production base can produce seven categories of ingredients: sugar, milk, tea, coffee, fruit, grain, and materials, making it the largest production base in terms of output and the most complete in product variety to date Currently, 60% of the raw materials sold by Mixue to franchisees can be completely self-produced, and 100% of the core raw materials are self-produced, which accounts for the highest proportion in the Chinese ready-to-drink beverage industry. The biggest advantage is that self-production can reduce costs by 20%-40% compared to external sourcing, and the product stability is strong.

Source: Mixue Prospectus, Dolphin Research

Downstream: The downstream of the supply chain mainly involves transporting the produced ingredients and packaging materials from various production bases to each franchise store. To ensure logistics efficiency, Mixue adopts a unified distribution network (self-owned logistics + third-party cooperation), covering all stores nationwide. High-tier cities primarily use self-owned logistics, while lower-tier markets flexibly allocate third-party logistics resources based on order density.

In addition, to provide logistics support for the last mile, Mixue was the first in the industry to establish its warehousing system in 2014, and it has now built the largest warehousing and logistics base in the industry, including five central warehouses and 21 regional distribution centers, and established ambient, low-temperature, and frozen warehouses based on the storage temperature of different materials.

For the ready-to-drink tea beverage industry, high-frequency, small-batch rapid delivery and multi-point distribution are key to improving the operational efficiency of franchise stores. According to the prospectus, Mixue currently achieves a delivery frequency of twice a week, and over 90% of stores in county-level administrative regions nationwide can achieve delivery within 12 hours. The coverage and depth of the distribution network are far ahead in the industry, and in terms of cost, the delivery cost of the self-built distribution network is about 10%-15% lower than the industry average.

The large-scale direct procurement upstream + the self-controllable deep processing in the midstream + the self-built vertical logistics transportation network downstream construct a highly vertically integrated supply chain system for Mixue. While ensuring the stable quality of Mixue products and efficient delivery to franchise stores, it utilizes economies of scale to compress costs at every link, creating profit space for itself and its franchisees.

2. Extreme Standardization of Store Operations

Based on the highly vertically integrated supply chain system, Mixue has absorbed the "standard answer" from the retail industry for store operations—efficient large-scale replication based on standardization.

First, in the beverage production process, except for a few individual products, Mixue's mainstream products still adopt the "factory-store" model of factory-prepared compressed raw materials, which are then brewed in-store, somewhat similar to Coca-Cola's standardized production of concentrated liquid, which is then sold to franchised bottlers.

The benefits of this model are also evident, as it can reduce raw material costs through industrial-scale production, improve beverage production efficiency, ensure product standardization, and control taste In the operation process, the details of employees' beverage production processes, hygiene standards, service specifications, etc., are all uniformly trained by "Mixue Business School," and monitored and managed throughout the process through a digital system.

In addition, Mixue has formed a team of over 1,000 regional managers to conduct strict weekly inspections of store operations (with an average of 30-40 stores per regional manager), ensuring compliance in franchise stores.

Taking raw materials as an example, if a franchisee does not purchase from Mixue and uses non-designated raw materials, the first violation incurs a direct fine of 100,000-120,000 yuan (half a year's net profit for the franchisee), which is a significant penalty.

In summary, Mixue has gradually formed a positive cycle of "self-produced raw materials → cost advantage → low-price customer acquisition → efficient operation → scale expansion → further cost dilution" based on a low-cost + high-efficiency supply chain system and efficient standardized store operations, thus creating a competitive barrier that is difficult for peers to replicate.

The result of this approach is reflected in the pricing of freshly made drinks compared to packaged drinks. Although opening stores is quick and profitable, this price point is something others cannot compete with.

Therefore, during the rapid store opening process, it is difficult to see scenarios similar to Luckin Coffee being targeted by Kudi. It is another typical store-type consumer company that relies on heavy assets and low margins to establish a moat business, which is somewhat similar to Costco.

3. Competitive landscape is solid, low prices make it hard to find rivals

The previous discussion highlighted how Mixue has established an extreme cost & efficiency advantage competitive barrier through efficient supply chain & store management efficiency, and gradually expanded its scale to amortize costs and strengthen its competitive advantage. But how sustainable is this business model? Is it easily surpassed by other peers?

Before discussing this issue, it is necessary to study the competitive landscape of freshly made tea drinks: based on price segments, freshly made beverages can be divided into high-end (above 20 yuan), mid-range (10-20 yuan), and low-end (below 10 yuan).

The high-end & mid-range markets have low concentration, fierce competition, and an uncertain landscape.

With the rapid development of new tea beverages, a large number of freshly made tea drink brands have emerged, especially in the mid-range price segment of 10-20 yuan. In recent years, brands like Cha Bai Dao, Gu Ming, and the soon-to-be-listed Hu Shang A Yi and Ba Wang Cha Ji have concentrated in this track.

The fundamental reason lies in the fact that the mid-to-high-end price segment leaves enough profit space for franchisees & brand owners. For brands that are not outstanding in supply chain efficiency and store management efficiency, if they focus on product innovation & brand marketing, they can still maintain their "small piece of land" and balance cost-effectiveness and profitability.

However, the problem is that, whether in product innovation or brand marketing, in the view of Dolphin Research, the barriers are not high. There are numerous homogeneous products & marketing methods on the market, which also leads to the need for brand owners to continuously invest heavily in product & marketing to maintain their competitive advantage.

Therefore, the outcome is that competition in the mid-to-high-end track becomes fierce, with no single brand holding more than 10% market share, making it difficult to form brand dominance. The competitive landscape of low-end tea drinks is solid, with Mixue dominating. For the low-end freshly made tea drink market priced below 10 yuan, consumer demands for product quality are not high; as long as it is "drinkable," stable, and quenching, it is sufficient.

Based on this, naturally, the lower the price, the more competitive it becomes. However, the only way to ensure low prices while guaranteeing profits for franchisees and brand owners is to improve supply chain and store operation efficiency.

According to previous analysis, most tea brands did not have the capability or willingness to choose this "difficult but correct" path of hard-earned money in the early stages, thus basically losing their entry ticket to the low-end tea drink market.

Currently, Mixue holds a market share of over 30% in the low-end price range, standing alone. The remaining brands are mostly local brands, and in terms of store scale, supply chain management efficiency, and expansion capability, Mixue is leading by a wide margin.

Moreover, in 2024, Mixue opened up franchise opportunities in rural areas, and through a "dimensionality reduction strike" against tea brands in these regions, Mixue's market share is expected to have further room for growth.

4. Unique Super IP, Further Consolidating Competitive Advantage

In addition to extreme supply chain and store operation efficiency, Mixue has another major "weapon"—the Snow King IP. In the current boom of IP businesses, Mixue began its IP business layout as early as 2018.

In 2018, Mixue collaborated with Hua Yu Hua to create its exclusive IP—Snow King, which, like Pop Mart's Molly and Labubu, has no story background, only a "cute" character design. In the following years, most of Mixue's marketing activities revolved around Snow King, with offline store designs, promotional materials, and staff attire incorporating Snow King elements to enhance exposure. Online, various topic discussions were initiated through meme creation. In 2023 and 2024, two animated series featuring Snow King as the protagonist, "Snow King Arrives" and "Snow King's Fantastic Sand Dune," were launched consecutively to strengthen emotional connections with consumers.

According to third-party data, in 2024, although Snow King's ranking in terms of volume and interaction is lower than Chiikawa, Loopy, and Line Friends, it has already surpassed Lingna Belle and Jellycat, directly ranking fourth before its listing in 2025, becoming a top player in the IP industry.

Mixue's prospectus also generously emphasizes the importance of Snow King, viewing it as Mixue's "lifetime spokesperson."

On the surface, the benefits brought by the IP business to Mixue are self-evident: 1. Launching new products enhanced by Snow King increases product premium and contributes additional revenue; 2. Marketing efficiency significantly improves, reducing customer acquisition costs through various Snow King-related emojis and short videos spread across major platforms.

However, Dolphin Research believes that what is more important is that, since other tea beverage brands do not have their IP image, during the subsequent market expansion process of Mixue, Xuewang can help consumers establish brand image more quickly and enhance brand loyalty.

Overall, Dolphin Research believes that the true value of Mixue lies in successfully breaking out of the business model of the ready-to-drink tea industry, which has low consumer loyalty and low competitive barriers, through its enormous scale and efficiency advantages. It has moved towards a business model similar to that of Nongfu Spring and Coca-Cola in the ready-to-drink industry, and by continuously expanding stores, supporting the market, and strengthening the supply chain, it has raised its moat, making it difficult for a second competitor to emerge with low prices.

In addition, the extreme cost-effectiveness and the big single product model can help Mixue successfully navigate economic cycles and resist disturbances during economic downturns.

In the next article, we will focus on the calculations of Mixue's overseas expansion and medium to long-term growth potential, so stay tuned!