Key Summary
In the first half of 2026, Mixue Group (the parent company of Mixue Ice City) experienced a slowdown in growth: revenue increased by only 2.3%, while profits plummeted by 14.7%, marking the first time since its listing that it sold more products but made less profit. This is due to the failure of its past strategy of relying on rapid expansion to drive growth. Although the number of global stores increased by 11,000 to 64,000, revenue per store decreased by 17%. The company attributes this to the “painful” process of transformation, as it shifts from a focus on expanding store networks to a focus on improving store performance through product upgrades and diversifying its brands (such as Lucky Cafe and Fulu Family Fresh Beer). However, achieving high growth in the short term remains challenging, as it also faces competition in lower-tier markets and a contraction in overseas operations.
1. Performance Slows Down: Increased Revenue, but Not Profits; Stock Price Plunges
Mixue’s revenue for the first half of the year was 15.2 billion yuan (only 300 million yuan more than last year), with a net profit of 2.3 billion yuan (400 million yuan less than last year), and its gross profit margin dropped by 1.2 percentage points to 30.4%. Following the release of these financial results, the stock price plummeted by 15% in two days (8.37% on the first day and 7.11% on the second), leaving the company’s market value at 80.3 billion Hong Kong dollars.
Management explains the reasons for this decline: firstly, the intense competition in the delivery sector last year set a high baseline for store performance, and the reduction in subsidies this year has led to a decrease in revenue per store. Secondly, the increase in blended tea and coffee brands has led to a general price war, squeezing profits. According to industry estimates, the average annual sales revenue per franchise store has dropped from 550,000 yuan to 460,000 yuan, a decrease of 17%. The more stores Mixue opens, the more customers are diverted to other brands, weakening the profitability of each store.
2. Changing Growth Strategy: From Rapid Expansion to Quality Improvement
In the past, Mixue focused on expanding its store network to increase its scale; however, this strategy has shown diminishing effectiveness. While the number of global stores increased by 11,000, revenue growth was only 2%, far below the 30%+ rates of competitors like GuMing and Luckin Coffee. This indicates that the strategy of using new stores to drive growth is no longer effective, as more new stores lead to customer diversion and reduced profitability per existing store.
Now, the company is shifting its focus to improving the quality of its existing stores rather than blindly expanding. In other words, quality has taken precedence over quantity.
3. Intense Competition in Lower-Tier Markets
58% of Mixue’s stores are located in third-tier and lower cities, but now all major brands are competing for this market. GuMing has a significant presence in rural areas, while Kudi started from a lower-tier market base, and both Luckin Coffee and Starbucks are also entering these areas. Many counties now have “milk tea and coffee streets,” and there are numerous stores in rural towns as well.
Although Mixue has opened 6,786 new stores in lower-tier markets, the competition is fierce, and price wars are intensifying, reducing the benefits of operating in these areas. Previously, Mixue had a monopoly in these regions, but now customers have multiple options, diluting its price advantage.
4. Transformation Challenges: Costly Product Upgrades and Potential Brand Frictions
Mixue has made several efforts to transform its business, but these come with costs:
- Product Upgrades: The company has invested 1.6 billion yuan this year to upgrade its production lines and cold chain systems by replacing jam with frozen fresh fruit and regular milk with chilled fresh milk. This has increased costs by 4.1%, which has reduced profits. While management believes this will improve customer loyalty in the long term, consumers may worry about potential price increases.
- Diversified Branding: Mixue has launched affordable coffee brands (Lucky Cafe) and fresh beer brands (Fulu Family). However, there are concerns about potential competition between these new brands and its main brand. For example, if customers want a cheap coffee, they might choose Lucky Cafe instead of Mixue Ice City. The potential for internal friction between these brands remains uncertain.
- Overseas Expansion: Mixue’s overseas operations have suffered, with 355 stores closing, leaving it with only 4,378 overseas locations. This suggests that overseas expansion is facing difficulties, possibly due to intense local competition, high operating costs, or cultural differences in taste preferences. While Mixue hoped to use overseas markets as a new growth driver, these challenges are hindering its progress.
Conclusion
Mixue is transitioning from rapid expansion to high-quality growth, but this transformation requires time and capital, as well as the ability to overcome both internal and external competition. It will be difficult to return to its previous high growth rates in the short term. However, by stabilizing its presence in lower-tier markets and resolving the challenges associated with its transformation, the company still has opportunities for future success.