Entering the ‘10,000-Store Era’, Will Mixue’s Overseas Development Go Smoothly?

With its extreme low-priced positioning, Mixue stood out from the pack of glamorous milk tea brands, maintaining its expansion during the epidemic, and its profit levels were quite impressive.

When the public thought it was just a tea drink brand for the lower-tier cities in China, Mixue has long been successful against the odds, becoming the fifth-largest  fast-food chain in the world by outlets, behind McDonald's, Subway, Starbucks and KFC. Back in 2018, Mixue started its journey overseas. To date, it has expanded more than 3,000 stores overseas.

At the same time as the rapid opening of overseas stores, the brand power and profit level of Mixue is also in a synchronized growth trend. Chinese friends living in Southeast Asia told us that locals who have the strength to open stores often ask for their help to establish contact with Mixue, hoping to become Mixue’s franchisees. This means that Mixue is already famous and has a strong brand attraction in the local area.

Now the domestic new tea drinks has stepped into the ‘10,000-store era’, the industry has entered the stock breakthrough and brand premium development stage. In the face of fierce competition in the domestic market, the prospect of overseas markets for Chinese tea drink brands is very broad, so new tea drink brands began to explore overseas markets. How did Mixue develop from a local brand into a multinational tea drink giant? Will it be a smooth road overseas?

From ‘HanLiuBaoBing’ to Mixue, Multi-link Layout Completes Primitive Accumulation

The predecessor of Mixue can be traced back to ‘HanLiuBaoBing’ which wad founded in 1997  by Founder of Mixue, Zhang Hongchao(张红超). After several attempts to start his own business, from Chinese and Western restaurants to home-cooked food restaurants, he eventually returned to cold drinks. In 2006, Mixue Super Ice Castle launched its first fresh ice cream priced at one yuan a piece, which was a big hit. The company then began franchise expansion in Henan, reaching 180 stores in 2008.

In 2008, the melamine incident led to the shutdown of the upstream ice cream powder supplier, and Mixue then started to build its own supply chain. Since then, Mixue has been laying out its core raw material procurement, production, warehousing and logistics, and has moved from the province to outside the province, with the number of stores opening up to more than 1,000 per year. As of August this year, the number of Mixue stores worldwide has exceeded 32,000 stores.

Mixue’s business model is a typical S2B2C model, covering product development, procurement, production, sales, warehousing and logistics of ready-made drinks and ice cream, as well as all aspects of chain operation, with directly-managed stores as a model to guide and the expansion of franchises as the main body. Mixue brand is mainly served by three major companies, MIXUEBINGCHENG Co., Ltd(蜜雪冰城股份有限公司), Daka International Food Co., Ltd(大咖国际食品有限公司), and Shangdao Zhihui Supply Chain Co., Ltd(上岛智慧供应链有限公司), which collaborate to form a complete industrial chain, in addition to the establishment of subsidiaries specializing in the training of franchisees.

According to the prospectus of Mixue, Mixue collects fees from its franchisees according to three levels: provincial capital cities, prefecture-level cities and county-level cities. In addition, franchisees are required to pay for contract performance bond, daily management, operational guidance and others. Most importantly, the ingredients and packaging materials used by the franchisee must be purchased from Mixue, or the franchisee will pay liquidated damages, which has become the main source of revenue for Mixue. The prospectus shows that the two items of ingredients and packaging materials sold by Mixue to its franchisees contributed 86.27%, 85.56% and 87.08% of its revenue from 2019 to 2021, respectively. 

Mixue’s store size is positively correlated with its revenue size. Through the revenue model of continuous franchise expansion in China, Mixue has completed its primitive accumulation, and set up a solid foundation for its move to overseas markets.

In 2018, Mixue opened its first overseas store in Hanoi, Vietnam, which became the first step taken overseas. Currently, Mixue has opened more than 3,000 stores in 11 countries, including Vietnam, Indonesia, Singapore, Thailand, South Korea, Japan and Australia.

According to Vietnam Finance, as of April this year, the total number of Mixue stores in Vietnam had reached 1,000, officially making it the largest beverage chain in the country. In February this year, Mixue opened its first Australian store in Sydney, with sales topping USD 3,500 on the store's first day of business, according to Pandaily.

Sticking at Market Positioning and Localized Innovation to Grasp the Audiences

In recent years, most tea drink brands emerged in the big cities and took the high-end route, of which products are generally twenty to thirty yuan a cup. Mixue took a different path, aiming at three or four tier cities, with prices less than ten yuan.

In the process of going overseas, Mixue's market positioning is still consistent with the domestic, using a low price strategy, mainly focusing on the Chinese and college student groups. In Indonesia, the ice cream is priced at Rp 8,000, pearl milk tea are within Rp 20,000. Lemonade in South Korea is priced at around RMB 8, equivalent to the price of a local bottle of water, and the most expensive cheese milk tea is priced at no more than RMB 16. In Australia, Mixue’s products are mostly priced at AUD 2-5, while a bottle of mineral water in Sydney costs around AUD 3, which is quite affordable.

In terms of location, its first store in South Korea was chosen near Chung-Ang University, and its second store in Japan was chosen at Rikkyo University in Tokyo, with college students remaining the main consumers of Mixue overseas. The standard store area of Mixue is usually set at 20-40 square meters, with a store width of 3-4 meters, which makes the store streamlined, occupy a small area, and have lower operating costs, making it easy to replicate. 

In terms of operation, Mixue combines with the local culture to make certain modifications to the store design, cartoon image and product flavors. Through localized innovation, Mixue is able to grasp the preferences of the audience, making it easier for the brand to be loved. The Snow King(雪王) in Thailand wears a crown and gold and silver jewels, modeled after the local dress style. Mixue also adjusts the sweetness of its products according to the sweet tooth of people in Southeast Asia. And almost every time it expands its stores in a new region, Mixue will release a local language version of the theme song to better suit the local atmosphere.

Through the brand strategy of low price and localization innovation, Mixue has been able to better cater to audiences in different regions and promote the rapid development of overseas markets.

Online and Offline Fancy Marketing to Enhance Awareness and Customer Stickiness

In addition to positioning and product localization, Mixue also attaches great importance to the localization of online and offline marketing activities, and strive to make marketing activities harvest effects.

At the online level, Mixue has carefully built social media accounts to attract local young people and use them as a medium to publicize offline activities, promoting the conversion of online attention to offline sales. For example, Mixue’s official account in Indonesia, ‘mixueindonesia’, has been operating since December 4, 2019, and has already gained more than 250,000 fans.

On Valentine’s Day this year, Mixue launched a "Buying two cups can get a couple's certificate from Mixue" activity, which was publicized on its official account. The post eventually received tens of thousands of likes, several times more than other posts. At the same time, Mixue also offered a 50% discount on a second drink by following the official account and encouraged people to tag the post with ‘Mixue indonesia’ to expand the activity’s reach.

At the offline level, Mixue’s official IP--the crown-topped, snow-white, round and chubby cartoon character ‘Snow King’ - also sings, dances and walks around the streets overseas to attract the public's attention and bring consumers and the brand closer to each other.

Expanding with Hidden Concerns, Supply Chain Construction Is Important Work

The rapid overseas expansion of Mixue may seem to be perfect, but there are also hidden concerns.

The prospectus shows that as of March 31, 2022, Vietnam Mixue’s operating income for the quarter was 9,294,400 yuan, but the net profit was -320,200 yuan, and Indonesia’s operating income for the same period was 25,410,800 yuan, and the net profit was 2,235,500 yuan. Mixue’s profitability in Southeast Asia is not very satisfactory, and even in the first overseas station in Vietnam, a loss.

Compared with Southeast Asia, where the population size is large and labor costs are low, the operating costs in Australia, South Korea and Japan are only higher. How to balance costs and profitability in overseas development is a challenge for Mixue, which insists on taking the high quality and affordable route.

In addition to less-than-ideal profitability results, Mixue also faces competition from local tea drink brands overseas. In 2020, Mixue began to move towards Indonesia, but as early as 2018, two local chain brands,Haus and Esteh Indonesia, have been developed, both of which focus on mass, low-priced positioning. Most of Haus’s milk tea is priced at Rp 5,000-15,000. And Esteh Indonesia focuses on classic milk tea, lychee iced tea, and other tea drink series, with prices not exceeding Rp 16,000.

These two tea drink brands started earlier than Mixue in Indonesia, and as local brands are relatively more knowledgeable about the local market. More importantly, the two are positioned similarly to Mixue and are even more low-priced than Mixue, which also has an impact on Mixue’s market expansion in Indonesia.

Looking back at the success of Mixue on the domestic road, the self-constructed supply chain greatly enhanced its profitability, the franchise system protected its expansion speed, and the cost-effective route helped it differentiate itself.

Of these three factors, the self-constructed supply chain is the foundation of its adherence to the high quality and affordable route. If Mixue wants to continue mass positioning in overseas markets, it also needs solid supply chain construction. According to the prospectus of Mixue, the company has begun the layout of Hainan production base, in order to close to the consumer market in Southeast Asia, and  rely on local high-quality agricultural resources to expand the production advantage and reduce costs.

However, Mixue is aiming for much more than Southeast Asia, as a result of which, how to multi-link layout of the supply chain of other overseas markets is an urgent issue to consider in the expansion of Mixue’s business map. 

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