China's Milk Tea Shops Diversify as Nearly 40,000 Locations Close

Key facts

China's milk tea shops are diversifying well beyond their core drink menu as the broader bubble tea category cools and a wave of closures forces operators to find revenue somewhere other than a new location.

• China's tea-drink sector lost roughly 43,200 shops, close to 40,000, in the twelve months to September 2026, a closure rate near 16 percent, according to Chinese media reporting on industry store-tracking data.
• Mixue, the sector's largest chain by store count, grew first-half 2026 revenue 2.3 percent to 15.2 billion yuan while profit fell 14.7 percent. It closed 1,289 stores in the period and opened 5,455 new ones, down sharply from more than 7,600 openings a year earlier.
• Guming's first-half revenue rose 31.9 percent to 7.47 billion yuan and adjusted profit climbed 44.4 percent, evidence that strong execution can still outrun the broader slowdown.
• Nayuki, a smaller chain without the same supply-chain scale, saw first-half revenue fall 13.1 percent to 1.89 billion yuan, though its net loss narrowed to about 97.5 million yuan.
• To raise revenue per store, chains have added categories outside tea: Chagee introduced a 5 yuan tea egg at pilot Shanghai stores in September, using the same Wuyi tea base as one of its drinks, and is testing ice cream at roughly 190 outlets where average offline sales rose 20 percent. Heytea has opened an experimental gelato line, and several chains have added espresso coffee and bakery items such as cake.

What it means for the Gulf market

The Gulf's specialty tea and coffee scene is nowhere near China's scale of contraction, but the underlying mechanics are the same ones any maturing food and beverage category eventually faces: as store density in popular districts and malls rises, rents and staffing costs keep climbing while sales per location flatten, and low-price promotions erode margin faster than extra volume can replace it.

The useful lesson from China is not "add more categories," it is which additions are working and why. Chagee's tea egg and ice cream tests are succeeding because they run through the same kitchen, the same staff training, and the same supply chain as the core tea product, just a new item on an existing line. Ventures that require a different skill set, different licensing, or a different customer occasion carry far more execution risk, and at least one tea chain has already wound down a side venture that strayed furthest from its original tea expertise.

For operators in Riyadh, Jeddah, Dubai, or Cairo weighing whether to bolt on a new category as growth slows, the question worth asking is not whether a category is growing elsewhere, but whether it draws on what the business already does well, or pulls staff, inventory, and brand identity in a new direction.

Background

China's modern tea sector expanded at a compound annual rate above 20 percent through the late 2010s, as national chains pushed past their home provinces into lower-tier cities. That expansion phase has ended. Same-store growth has cooled across the category, and new-store openings by the largest chains have slowed sharply even as total store counts sit near record highs, meaning more locations are now competing for a customer base that is not growing at the same pace.

Layered on top of that slowdown is a price war that intensified during a food-delivery subsidy battle that peaked in the third quarter of 2025. Drink promotions priced well under 10 yuan, commonly cited around 9.9 yuan a cup, have become something close to a price floor across the category. Chains with their own supply chains and cold-storage networks can sustain thin per-cup margins at that scale; chains without that infrastructure have reported shrinking revenue and continuing losses, as the first-half results above show.

Against that backdrop, adding a new product line is one of the few levers a single store has to raise revenue without cutting price further or waiting for room to open another location in an already saturated city. Trade press covering the sector frames this as a limit on operating leverage: once a brand has filled a city with stores, growth has to come from selling more to the same foot traffic rather than opening more doors, which is why espresso machines, pastry cases, and new snack items have begun showing up inside stores that used to sell only cold tea drinks.

Takeaway

The clearest split in China's bubble tea contraction is between brands extending what they already do well and brands reaching for revenue in categories that have little to do with their core skill. Tea eggs, gelato, and espresso have succeeded where they run through the same kitchen and the same staff training as the core drink menu. Side ventures that require different licensing, different suppliers, or a different customer occasion carry more risk, and the ones furthest from a brand's tea expertise have been the first to close. For any food and beverage brand watching its category mature, differentiation on the core product remains a safer bet than diversification into categories chosen mainly because growth has slowed.