Guming Tea: How a 'Costco-Style' Supply Chain Strategy is Rewriting China’s Tea Industry Growth Playbook

$GUMING(01364.HK) When Mixue Bingcheng rings the bell under the halo of the "King of Lower-Tier Markets," and when Cha Bai Dao and Shanghai Aunt rush to IPO, Gu Ming, another player in the "Freshly Made Tea Beverage Listing Club," seems particularly low-key. However, the script of the capital market never follows the usual logic!

Judging from the post-listing performance, Cha Bai Dao and Shanghai Aunt broke on the first day of listing, with their stock prices plummeting, while Gu Ming soared with nearly a threefold increase, surpassing Mixue Bingcheng (whose post-listing increase was about onefold), leaving others far behind.

What secrets lie behind this stark contrast? With all focusing on the franchise model, Gu Ming, Mixue, Cha Bai Dao, and Shanghai Aunt, whose model is more "resilient"? Who can laugh last in this marathon of tea beverages with tens of thousands of stores?

Dolphin Research takes you deep into the business secrets of the four "ten-thousand-store" tea beverage giants, focusing on two core propositions:

1. "Hardcore" Dissection of Business Models: What are the underlying logics of the four franchise models? Is it the franchise fee, supply chain, or regional strategy?

2. Predicting the "Winner" in the Endgame: In the era of ten-thousand stores, what are the key factors determining victory? Whose model has more of a "king's appearance"? How does Gu Ming's future growth space look?

Additionally, since Chagee is overall positioned as a high-end brand with a cup price above 20 yuan, relying more on product & marketing drive, this article focuses on the comparison of mid-to-low-end tea beverage business models below 20 yuan, thus temporarily excluding Chagee from the comparative study.

The following is the detailed content:

1. From Regional Milk Tea to the National Mid-Range Chain Tea Beverage "Three Musketeers"

Before delving into the analysis, Dolphin Research briefly introduces the background of the three tea beverage brands Gu Ming, Cha Bai Dao, and Shanghai Aunt (Mixue Bingcheng is not elaborated here, see "The 'Pinduoduo' of the Fresh Beverage World Mixue Bingcheng: What Gives the 'Snow King' Its Confidence?"). The three tea beverages were founded in Zhejiang, Sichuan, and Shanghai, respectively, initially as regional brands, and began national expansion by opening franchises around 2015. By 2024, the number of stores for the three tea beverage brands is close to ten thousand.

From the products offered by each, although the signature products are not the same (Gu Ming's Super A Cheese Grape, Cha Bai Dao's Mango Pomelo Sago, Shanghai Aunt's Blood Glutinous Rice Milk Tea), in fact, from each menu, the core product categories are nothing more than fresh milk tea and fresh fruit tea, with high homogeneity, focusing on the mid-range price band of 10-20 yuan.

However, whether it is fresh milk tea or fresh fruit tea, the three tea beverages focus on "freshness" in their product ideas, so most raw materials require low-temperature cold chain transportation, with a taste significantly improved compared to the "concentrate + water" represented by Mixue Bingcheng below 10 yuan.

In addition, in terms of store opening ideas, the three tea beverage brands are also quite similar, mostly choosing to open in areas with high foot traffic such as commercial streets, community stores, and schools.

On the surface, apart from the different names, the three tea beverages seem to have no significant differences in other aspects.

2. Success and Failure Both Lie in the Supply Chain

In terms of profit model, the four freshly made tea beverages essentially have no major differences, all adopting the franchise model, rapidly expanding stores through franchisees, and making money by selling ingredients, packaging materials, and equipment to franchisees, acting as "shovel sellers", with franchise fees & service fees accounting for a low proportion. Therefore, as analyzed in our previous analysis of Mixue Bingcheng's business model, although each tea beverage brand does not directly participate in the revenue sharing of each franchise store, their income is strongly tied to the GMV of the franchise stores.

Therefore, the revenue growth of tea beverage brands relies on two parts—continuous store opening by franchisees and the improvement of single-store revenue.

After the entire industry's rapid expansion in 2022 and 2023, with some high-line cities and mature areas gradually approaching saturation, although the four tea beverage brands simultaneously slowed down their store opening pace in 2024, they still maintained double-digit growth.

The slowdown in store opening speed also led to a decline in the revenue growth rate of tea beverage brands, but surprisingly, Cha Bai Dao and Shanghai Aunt experienced negative revenue growth in 2024.

This also points to a fact—their single-store revenue has encountered significant problems! As can be seen from the chart below:

With leading tea beverage brands launching price wars, the competition in the freshly made tea beverage industry reached a fever pitch in 2024. Under the pressure test, the same-store revenue of Mixue Bingcheng and Gu Ming remained basically flat compared to 2023, without being significantly impacted, while Cha Bai Dao and Shanghai Aunt experienced double-digit declines.

Why do two completely different results occur when the products offered, site selection, and business models appear similar on the surface? In Dolphin Research's view, the real gap behind this lies in the often-overlooked link—the supply chain.

To facilitate understanding, Dolphin Research has detailed a comparison of the supply chain construction of the four tea beverage brands in the table below, showing:

a) Mixue Bingcheng has the strongest supply chain system in the industry, relying on large-scale upstream raw material direct procurement + 100% self-production of core ingredients, which can minimize the material costs supplied to franchisees, while the self-built deep storage and distribution system downstream can efficiently reach the front-end stores.

b) Gu Ming's overall supply chain comprehensive strength is second only to Mixue Bingcheng, with no major weaknesses except for a lower self-production ratio in the production stage. Additionally, Gu Ming is the only tea beverage brand in the industry with its own cold chain logistics fleet, capable of delivering short-shelf-life fresh fruits and fresh milk to lower-tier cities every two days (even daily in densely populated areas), with high delivery stability and warehouse-to-store cost accounting for less than 1% of GMV (the industry average is about 2%, with a delivery frequency of twice a week).

c) Cha Bai Dao and Shanghai Aunt have relatively weak supply chain construction, adopting a light asset model, outsourcing most of the heavy asset stages of production, storage & distribution to third parties. This model, while reducing the management difficulty of the supply chain and allowing funds to be concentrated on brand marketing and market promotion in the early stages, also leads to weak cost control by the brand, and risks such as inconsistent quality control and stockouts, directly affecting store operations, especially during rapid store expansion and when the industry enters a red ocean price war stage, these issues will accelerate and become prominent.

In 2024, as leading tea beverage brands launched price wars, lowering the price of tea beverage items (the average price of mainstream brand products generally dropped from 15-20 yuan to 10-15 yuan), under such circumstances, if the raw material supply price remains unchanged, it will naturally reduce the profitability of stores and extend the payback period for franchisees.

Since Cha Bai Dao and Shanghai Aunt's supply chains largely rely on third parties, there is limited room to pass on cost savings to franchisees. According to research information, some franchisees of Cha Bai Dao and Shanghai Aunt turned to privately sourcing fruits to reduce costs, leading to unstable product quality and affecting store GMV, which is a key reason for the severe decline in same-store sales for Cha Bai Dao and Shanghai Aunt.

In contrast, brands like Mixue Bingcheng and Gu Ming, which have their supply chains in their own hands, can use price to exchange for volume in price wars, enhancing scale effects to reduce supply chain costs, thereby maximizing benefits for franchisees and weathering the storm together. Therefore, essentially, the supply chain capability of tea beverage brands determines the risk resistance of franchisees under industry pressure tests.

Dolphin Research boldly speculates here that the gap in supply chain construction & completeness among different tea beverage brands will become increasingly significant.

Brands with self-built supply chains will gradually strengthen the positive cycle barrier of "self-produced raw materials → cost advantage → low-cost customer acquisition → efficient operation → scale expansion → further cost dilution" in price wars.

In contrast, tea beverage brands relying on third-party supply chains will fall into a vicious cycle of cost disadvantage → squeezing franchisees → extended payback period for franchisees → increased store closure rate under price wars.

In fact, as shown in the chart below, the store closure rate of Cha Bai Dao and Shanghai Aunt surged significantly in 2024, while Mixue Bingcheng and Gu Ming remained relatively stable.

At this point, Dolphin Research needs to first unify a point of understanding: that the business model of self-built supply chains like Mixue and Gu Ming is superior in the long run to those of Cha Bai Dao and Shanghai Aunt, which rely on third-party supply chains.

Some investors may wonder why, if the supply chain is so important, Cha Bai Dao and Shanghai Aunt did not build their supply chains from the start. The answer is actually quite simple—the issue of input-output ratio. On the one hand, production bases, purchasing cold chain equipment, logistics vehicles, etc., require huge upfront investment funds. Additionally, if a supply chain is self-built, it requires unified management of raw material procurement, inventory management, and logistics distribution for each franchise store, significantly increasing the management difficulty for the enterprise.

According to the prospectus information of each tea beverage brand, although Cha Bai Dao and Shanghai Aunt are also trying to make up for their supply chain shortcomings through fundraising, their progress is clearly lagging behind Gu Ming and Mixue Bingcheng.

3. Even with Self-Built Supply Chains, What is Gu Ming's Unique Formula?

1. Build Strong Fortresses, Fight Stupid Battles

In the above text, we compared the four tea beverage brands from the perspective of the supply chain. So, as brands with self-built supply chains, what are the differences between Gu Ming and Mixue Bingcheng?

First, in terms of store opening ideas, Gu Ming chose a different path. Unlike the nationwide layout model adopted by Mixue Bingcheng, Cha Bai Dao, and Shanghai Aunt, Gu Ming is the only tea beverage brand among the four to adopt a regional densification method for expansion. According to the prospectus, Gu Ming considers a single province with more than 500 stores as a "key scale." Only when a single province reaches a key scale, the market share reaches a certain level, and the store profitability is good, will Gu Ming consider entering surrounding provinces, focusing on "either not entering or entering thoroughly."

The result of this expansion model is that while other tea beverage brands have achieved nationwide layout (other leading freshly made tea beverage brands have generally entered 30+ provinces), Gu Ming still has 17 provinces not yet entered.

However, in terms of total store numbers, Gu Ming has reached a scale of nearly ten thousand stores with 19 provinces, completely comparable to leading brands like Cha Bai Dao and Shanghai Aunt with nationwide layouts, indicating that Gu Ming's store density in the provinces it has entered far exceeds other tea beverage brands.

According to the prospectus information, as of Q3 2024, Gu Ming has established a "key scale" in 8 provinces. In terms of store numbers, Gu Ming's stores are highly concentrated in strong provinces, with over 80% of stores in 8 provinces, contributing 87% of Gu Ming's GMV.

Compared to other brands' nationwide multi-point layout, Gu Ming's regional densification strategy has two obvious advantages:

1) Maximizing Supply Chain Advantages:

According to the previous analysis, Gu Ming is the only tea beverage brand in the industry with its own cold chain logistics fleet, capable of delivering short-shelf-life fresh fruits and fresh milk to lower-tier cities every two days (even daily in densely populated areas), with warehouse-to-store costs accounting for less than 1% of GMV, which is particularly important in cost-sensitive lower-tier markets.

However, the economics of self-owned cold chains highly depend on the high-density distribution of stores. Only when the store network is dense enough can the brand ensure increased transportation frequency on the basis of unchanged costs, diluting single-store logistics costs. Therefore, it can be said that Gu Ming's regional densification store opening and its own supply chain efficiency are mutually reinforcing processes.

For other tea beverage brands like Cha Bai Dao and Shanghai Aunt, due to the relatively scattered stores, they are insufficient to support the high initial investment & operating costs, so they can only use third-party logistics. However, in lower-tier cities, especially in township areas, the logistics infrastructure is relatively underdeveloped, relying on third-party logistics & distribution is not only more expensive but also faces the problem of insufficient third-party logistics coverage in some areas. This also means that the brand faces higher distribution costs, either raising product prices or giving up the supply of high-quality raw materials, both of which will weaken the brand's competitiveness.

Therefore, it can be seen that Gu Ming's self-built warehousing & logistics system is the key driver ensuring its ability to penetrate areas that other brands find difficult to layout. As a result, Gu Ming's store proportion in township areas reaches 35%, the highest penetration among all freshly made tea beverage brands.

2) Forming Regional Monopoly, Strengthening Brand Mindset:

In addition to enhancing supply chain efficiency, densifying store openings can continuously raise the entry barriers for competitors.

Dolphin Research has mentioned that for the freshly made tea beverage industry, "being available" is the biggest brand promotion. Gu Ming's goal of continuously densifying store openings within a province is to make consumers "within reach," forming a regional monopoly.

Here, a comparison can be made with the beer industry. The reason why the beer industry ultimately formed an oligopoly pattern of five major giants, with each brand having a market share of over 30% in its strong regions, is that in the early stages, brand owners provided a series of resource support to distributors through "restaurant buying stores," high channel subsidies, etc., first occupying high-quality terminal stores to form channel barriers, thereby establishing consumer brand awareness, making it difficult for other brands to overthrow each brand's base market later.

If we compare beer industry distributors to freshly made tea beverage franchisees, on the one hand, Gu Ming's strong supply chain efficiency brings cost advantages & stability, empowering front-end franchise stores, making Gu Ming's franchisees in Gu Ming's strong regions highly profitable, with fast payback periods, attracting high-quality local franchisee resources and forming a strong bond with Gu Ming.

More importantly, the process of continuously densifying store openings is also a process of continuously strengthening consumer brand awareness. Therefore, Dolphin Research believes that it will not be easy for other tea beverage brands to gain a share in Gu Ming's strong provinces later.

As a result, in the three provinces where Gu Ming first entered, Zhejiang, Fujian, and Jiangxi, the market share exceeds 25%, and the market share in the mass price band (10-20 yuan) is close to 50%, with GMV ranking first in each prefecture-level city, reaching a dominant position. It should be noted that Mixue Bingcheng's market share in its home base, Henan Province, is only about 17% (in terms of store numbers).

2. Product R&D: Study Competitors, Learn from Competitors, Surpass Competitors

From the perspective of product strategy, most tea beverage brands in the market, including Mixue Bingcheng, Cha Bai Dao, and Shanghai Aunt, generally adopt the classic big single product + low-frequency new product launch strategy, with store GMV relying on traditional big single products, with low R&D investment (R&D expenses generally account for less than 1%). For example, in 2023, Cha Bai Dao's Mango Pomelo Sago and Jasmine Milk Green, as its top two single products, accounted for nearly 20% of GMV.

However, since over 70% of the audience for freshly made tea beverages are young consumers born in the 90s, and young consumers often have changing tastes, preferring high-frequency new product trials, with low loyalty to a single product, this also forces tea beverage brands to frequently launch new products to meet consumer demand. However, high-frequency new product launches bring relatively high trial and error costs, increasing the complexity of store operations, so the best way is to minimize "ineffective innovation" and improve the success rate of popular products.

Gu Ming understands this well, borrowing from ZARA's fast fashion model in product launches, closely monitoring market-verified popular single products, quickly introducing and iterating them, focusing on "studying competitors, learning from competitors, surpassing competitors," the biggest advantage of doing so is minimizing the uncertainty of new single products.

However, the premise of this model must be based on efficient supply chain management & a strong R&D team. According to the prospectus, Gu Ming has an R&D team of about 120 people, with the highest R&D investment proportion among the four tea beverage brands. R&D personnel analyze the popular trends of tea beverages in first- and second-tier cities and then optimize them according to the actual situation in third- and fourth-tier cities, quickly launching them in stores.

As can be seen from the chart below, Gu Ming's new product launch frequency is the highest among the four tea beverage brands, and combined with channel research information, Gu Ming's new products have a high acceptance rate in the market, often quickly entering the core product line, with an average quarterly repurchase rate of 53% (the industry average new product repurchase rate is generally less than 30%).

Dolphin Research believes that Gu Ming's model insightfully captures the essence of the freshly made tea beverage industry, in a sense, there is no absolute product R&D barrier for tea beverages, and formulas are difficult to keep secret, making them extremely easy to imitate.

This also means that the ultimate winning hand is who can provide consumers with satisfactory products at the highest quality-price ratio, meaning that the final competition is still based on supply chain-based operational efficiency.

Overall, the advantage of the big single product strategy represented by Mixue Bingcheng lies in the standardization brought by industrialization, which can maximize scale effects through rapid expansion, establishing an extreme cost advantage, but it is also destined to have bottlenecks in product innovation, taste richness & differentiation.

In contrast, Gu Ming's advantage of relying on the supply chain for rapid R&D and new product launches lies in the ability to quickly respond to consumers' changing needs, maintaining consumer freshness, but the complexity of supply chain management will increase significantly.

Dolphin Research believes that there is no absolute superiority in strategy, as they respectively represent the competitive paradigms of "scale effect" and "product agility," meeting the optimal solutions for demand in the affordable and mid-range price bands.

In summary, although the biggest difference in specific strategies compared to other tea beverage brands is that Gu Ming adopts a regional densification store opening and high-frequency new product launch strategy, the core driver behind this is actually an efficient supply chain system and digitally driven store operational efficiency, gradually strengthening its competitive barriers through scale effects.

This analysis of Gu Ming's differentiated strategy ends here, with the next article focusing on future growth space and value judgment, stay tuned.

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