The once-thriving milk tea industry in mainland China is facing a crisis, as nearly 200,000 milk tea shops have closed in the past year. The downturn has been particularly stark for some brands that were once household names, with many shuttering due to mounting losses and fierce competition.
One of the most notable casualties is Yuan Zhen Zhen, a brand that had once boasted a network of over 300 outlets. After incurring losses of approximately 10 million Chinese Yuan (about 10.7 million Hong Kong dollars) over two years, founder Xie Yao made the difficult decision to close all directly operated stores. The brand is now shifting focus to street-side stalls in a bid to remain relevant in a rapidly changing market.
Local media reports indicate a worrying trend across the industry. In the 12 months leading up to November 2024, 197,000 milk tea outlets closed their doors. This figure includes both small independent shops and larger franchise chains that once saw rapid growth.
Among the impacted, Wang Wang, who invested his life savings of five years into his own milk tea venture, lost around 300,000 Yuan (approximately 320,000 Hong Kong dollars) in just over a year before ultimately closing down. Lizhi, who joined a lesser-known third-tier tea brand, invested more than 400,000 Yuan (around 430,000 Hong Kong dollars) into a shop that lasted less than six months. Similarly, Bing Bing, who opened three franchise stores under a popular first-tier brand, accumulated losses of over 2 million Yuan (around 2.14 million Hong Kong dollars) in just 14 months.
The situation for many brands has been equally grim. Tea Bai Dao, which went public earlier this year, opened 826 franchise stores but simultaneously shut down 245. This represents a store closure rate of approximately one for every three new openings. Even larger brands are not immune: Nai Xue’s Tea closed 89 of its directly operated stores in the third quarter alone, and its subsidiary Tai Ge was completely shut down at the start of the year.
Industry analysts point to several factors contributing to the struggles. The market has become oversaturated with milk tea shops following years of aggressive expansion. While new store openings initially fueled the industry’s growth, the sheer volume of brands has led to intense competition and a price war that has eaten into profits. Moreover, many smaller brands have found it difficult to survive as they struggle to differentiate themselves from larger, more established names.
Experts warn that the milk tea business, once viewed as a safe investment, now carries significant risks. Brands have lowered entry barriers, allowing for more players to enter the market, but this has also led to operational risks and decreased profitability. For aspiring entrepreneurs, analysts advise caution, as the road to success in the milk tea business is becoming increasingly challenging.
As the industry continues to grapple with oversaturation, competition, and rising operational costs, many wonder what the future holds for the milk tea market. While some brands have successfully adapted to the changing landscape, others may find themselves closing shop in the months to come.
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