Coffee shops brew new growth with tea drinks

The brand had 69.4 million registered members as of the end of 2023. The number nearly doubled in the first five months of this year to reach more than 130 million.

Chagee's founder Zhang Junjie said at a forum in May this year that in the first quarter, the company had achieved revenue of 5.8 billion yuan. Its average store sales in the first quarter reached 549,000 yuan, which exceeded all the other tea beverage on-premises stores and Starbucks China, he said. The company reported revenue of 10.8 billion yuan in 2023.

Other tea-making brands have gained momentum as well. As of May 17, the number of Mixue Bingcheng stores stood at 29,273 with Auntea Jenny locations numbering 8,000. By the end of 2023, there were over 9,000 Goodme stores in operation.

This is not Luckin's first attempt to enter the tea market.

In 2019, the company launched "Little Deer Tea", a new tea drink brand that initially saw success with over 300 stores. However, the brand struggled to maintain momentum, eventually scaling back operations and converting most Little Deer Tea stores into Luckin Coffee outlets.

Having a slice of cake from a tea shop might be what Luckin Coffee requires to boost sales amid challenges in profitability.

The company reported a 13 percent decline in net profit for the second quarter of 2024, primarily due to a decrease in average selling prices and ongoing market competition.

The intense price wars in the coffee sector have made it difficult for brands to maintain profitability, forcing them to continuously innovate.

Luckin Coffee's revival of its light milk tea series may be a strategic response to these challenges, which offers a diversified menu to appeal to consumers beyond traditional coffee consumption hours.

The boundaries between coffee and tea sectors are becoming more blurred thanks to the integration of products. Tea beverage brands like Auntea Jenny and Nayuki are themselves entering the coffee market, adding coffee items to their menus and increasing competition.

Starbucks is also adapting to these market dynamics. In its third-quarter report for 2024, the company emphasized its focus on high-quality, sustainable growth in China.

The company has continued to seek growth from expansion, particularly via its penetration into smaller cities. A recent report by online delivery platform Meituan said that in the past three years, the number of coffee shops in county-level markets across the country has continued to rise.

As of January 2024, the number of coffee shops in county-level towns had increased by 113.36 percent compared to a year earlier. According to GeoQ Data, the number of coffee chain stores at the county level had reached 5,454 as of January, accounting for about 17 percent of the total number of coffee chain stores in the country.

Starbucks added 213 new stores in the third quarter alone, bringing its total to over 7,300 in more than 900 county-level markets. Meanwhile, the company is also tapping the potential from Chinese communities to reach new store numbers by the end of this fiscal year.

wangzhuoqiong@chinadaily.com.cn