In China, it is rare for any milk tea to have a unit price of less than 10 yuan (about 35,000 VND), but the price of Mixue’s pearl milk tea/tea ranges from 6 to 8 yuan, equivalent to from 21,000 – 28,000 VND. This price is less than half of the 15 yuan price of rival chain Good Me.
Mixue brand full name is Mixue Bingcheng, founded in 1997 by Zhang Hongchao. This is a chain of stores specializing in selling ice cream and tea-based beverages.
Mixue established the company in 2008, and in 2010 changed its name to Zhengzhou Luong Ngan Enterprise Management Co., Ltd. The company’s headquarters is located in Zhengzhou, a city in Henan province, China.
A few years later, Mixue established subsidiaries dedicated to raw material production, logistics, warehousing and investment management.
In China, the price is from 6 to 8 yuan, equivalent to about 21,000 – 28,000 VND. In Vietnam, Mixue products also have a price in the popular segment, only about 25,000 VND/cup, only half of the price range from 50,000 VND to 65,000 VND/cup of coffee and other milk tea brands.
To explain this extremely affordable price, first try to learn about Mixue’s operating model.
Mixue’s September prospectus revealed that the company’s revenue mainly comes from franchising, accounting for 96% of revenue.
Under the franchise sales model, the company will sell raw materials, packaging materials, equipment, tools, vehicles and other goods to franchised stores, while collecting franchise fees, management fees , training fees,… from these stores.
Figures show that 72% of Mixue’s income comes from selling ingredients (to franchise stores) instead of selling mixed milk tea. This is not difficult to understand when out of 21,629 milk tea shops of Mixue, 99.8% are franchised stores.
Following the path of franchising, Mixue is actually doing business with a B2B (Business to Business) model instead of B2C (Business to Customer). Mixue’s main customers are actually franchise partners, not hard-working girls who smoke milk tea every day.
Mixue should be known more as a supplier of ingredients for milk tea shops instead of as a supplier of ready-to-drink milk tea. This is the key to the story of a cup of milk tea only 6-8 yuan or 25,000 VND that people wonder.
Back to the main problem, why can Mixue produce products at such a price that makes the competition so boring?
The first reason, Mixue self-produced main ingredients to reduce the cost of milk tea. According to the prospectus, there are 3 groups of ingredients needed to make milk tea, including: solid drinks, including milkshake powder, milk tea powder and vegetable powder,…; flavored beverage syrups, including sucrose-flavored partner flavored soft drinks, juices; jam; fresh ingredients like fruit and tea.
The company has built its own food production facility and continuously expands its portfolio of self-produced ingredients.
Not only that, the company chose to set up production and processing factories in some important upstream raw material production areas. The necessary production materials are purchased directly locally, which not only reduces material transportation losses, but also reduces procurement costs, increases supply speed, helps ensure quality as well as lowers production costs.
Second, not only has advantages in terms of production, but Mixue also has advantages in terms of warehousing and logistics. The company has established warehousing and logistics facilities in 22 provinces including Henan, Sichuan, Xinjiang, Jiangsu, Guangdong and Liaoning, and established a basic logistics and transportation network covering nationwide through the company’s logistics partners.
This, of course, helps to manage the costs of transportation, storage, .. in the most optimal way.
Third, Mixue possesses the “power” of the “big buyer”. It should be emphasized that the number of stores in Mixue ranks first in the ready-to-drink tea industry in China, according to Tan Kinh Bao.
The company’s prospectus indicates that, by the end of March 2022, Mixue had a total of 21,582 franchised stores and 37 directly operated stores in China (only Mixue brand milk tea stores, excluding coffee and ice cream shops).
Mixue store network has covered 31 provinces, autonomous regions and cities in the world’s most populous country and to countries such as Vietnam, Indonesia, Singapore…
With large consumption, Mixue has two advantages in hand. One is the power to negotiate prices with “upstream” suppliers. Buy a lot – good price, that’s an immutable law in the market.
Besides, when opening a factory by itself, having a large output will optimize fixed costs per product unit, helping to lower product costs.
One question is selling at such a low price, is Mixue profitable? Invite readers to read part 2: “Decoding” revenue and profit of Mixue.