Why did Mixue Ice Cream, a company with humble beginnings, become the first listed milk tea company?

Mixue Ice Cream Co., Ltd. (hereinafter referred to as "Mixue Ice Cream"), a tea beverage chain known for its "cheap" prices—2 yuan for an ice cream, 4 yuan for a cup of fruit tea, and 6 yuan for a double-flavor milk tea—has recently been rumored to be raising funds and going public. It is understood that Mixue Ice Cream has just completed its first round of financing of 2 billion yuan, with a valuation exceeding 20 billion yuan, far surpassing popular tea beverage brands such as Heytea and Nayuki.

Starting from an inconspicuous shaved ice workshop in Zhengzhou, with low average order value, franchisees who are often ordinary people in third- and fourth-tier cities, and customers mainly low-income students, why has such a grassroots tea shop become a darling of capital?

If you carefully observe Mixue Ice Cream's growth trajectory, you will find that it has at least three aspects of product development that are worth learning from: product strategy, product development, and product pricing.

01

Product is strategy:

Positioned as "high quality at affordable prices", deeply cultivating the lower-tier market

In the Chinese tea beverage market, Mixue Ice Cream is not as well-known or prestigious as Heytea and Nayuki, especially among people in first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen. They may not have even heard of it, let alone tried it.

This is closely related to its product positioning. Since its inception, Mixue Ice Cream's goal has been clear: high quality, low price, and deep cultivation of the lower-tier market. This determines that it will not appear in the city centers of first- and second-tier cities, but in urban villages, schools, commercial streets, transportation hubs, and other places in third- and fourth-tier cities, using its own price advantage to aggressively reap the benefits of the lower-tier market that has been overlooked by leading brands, but which is "valuable".

Mixue Ice Cream Stores

According to Mixue Ice Cream's official website, it has over 10,000 offline stores, covering 31 provinces. In fact, its seemingly "rustic" and unkempt interior design saves on high costs and greatly shortens the renovation cycle, thus creating an easily replicable franchise model.

For any company, the product is the core competitiveness; making a good product means you've already won half the battle. Mixue Ice Cream's success lies in this: it had a clear positioning from the very beginning, which laid a solid foundation for subsequent product development.

02

Make the product the best it can be:

Find your own strengths and pursue a differentiated development path.

High gross profit and low net profit have always been a pain point for the tea beverage industry.

According to statistics, Heytea, which focuses on fresh fruit and fresh milk, has a gross profit of about 60%. Taiwanese milk tea brands such as CoCo and Yi Dian Dian have a gross profit of up to 80% due to their cheap raw materials. However, after deducting costs, their net profit is only a few percent. Mixue Ice Cream is an "outlier" in this group. It has the lowest unit price and is even considered "rustic," but it is making a fortune quietly.

Why does Mixue Ice Cream still have a profit margin even when it sells for such low prices?

Faced with a fiercely competitive tea beverage market, they didn't lose their footing but developed at their own pace. Since they aimed to penetrate lower-tier markets, prices couldn't be raised, and quality couldn't be lowered; they had to stick to their "high quality at a reasonable price" characteristic no matter what.

Starting in 2012, founder Zhang Hongchao decided to establish his own independent R&D center and central factory, striving to achieve complete self-production and self-sales of core raw materials. In this way, Mixue Ice Cream can control the raw materials and have bargaining power.

In fact, this was the right step.

Currently, Mixue Ice Cream has a fully automated production workshop of over 50,000 square meters, a service and logistics distribution center of over 20,000 square meters, and five giant self-owned warehouses across the country that directly reach stores in every city. Costs have been reduced to the minimum in almost every aspect. This is the reason why Mixue Ice Cream did not raise prices during the pandemic, while other tea shops raised their prices.

According to Zhang Hongchao, all costs are within a controllable range.

Mixue Ice Cream Warehouse

Competition between companies is like a race. If too many people are on the same track, it becomes difficult to win. The wise choice is to switch tracks or forge a differentiated path. Mixue Ice Cream has adopted a cost leadership strategy, continuously streamlining its supply chain to differentiate itself from other tea beverage brands in the same market.

03

Pricing determines the market:

Adhere to a low-price strategy, focusing on both direct operation and franchising.

In 2006, "Rainbow Hat" ice cream appeared in Zhengzhou, selling for over ten yuan a stick, attracting many buyers. Zhang Hongchao decided to try making it himself, buying the ingredients according to the recipe. He eventually sold it for only 1 yuan a stick, with equally good quality and taste. As a result, his low-priced ice cream became an instant hit, and Mixue Ice Cream became an overnight sensation.

Regarding pricing, Zhang Hongchao's principle is: not to make decisions based on other people's prices, but to work backward from the product cost. For example, when pricing ice cream, he meticulously worked backward and found that an ice cream made with eggs, fine cornstarch, sugar, and milk would still make a profit even if it only sold for 1 yuan per stick.

The pricing principle, which determines the price based on the product's actual cost rather than seeking excessive brand premium, along with precise cost accounting and control, later became part of Mixue Ice Cream's brand DNA.

The strategy of low profit margins and high sales volume is essential for maximizing profits. Therefore, Mixue Ice Cream adopted a combination of direct operation and franchising. Compared to other tea beverage brands, Mixue Ice Cream has a low entry barrier for franchising, and even offers loan support.

Mixue Ice Cream stores nationwide

In opening up its franchise program, Mixue Ice Cream rarely invests in franchise advertising. Instead, it attracts franchisees through word-of-mouth and the wealth-creating effect of each existing store. The savings from advertising are used to create a new "free loan" model. Mixue allocates tens of millions of yuan annually to provide interest-free loans to franchisees, addressing their funding needs when opening new stores and supporting upgrades and renovations for existing franchises.

Pricing represents a company's strategy and its profit structure; in other words, it largely determines its development direction. Just like Mixue Ice Cream, which focuses on low prices and high volume with low profit margins, Mixue Ice Cream has achieved phenomenal growth in its store expansion, making scale its core advantage.

04

Conclusion

For businesses, the key is to establish a sound strategic positioning and dedicate themselves to perfecting their flagship products. Just like Mixue Ice Cream, its low profit margins and high-efficiency turnover have become its trump cards. This unusual milk tea brand is now penetrating the subculture of young people, becoming a symbol of anti-consumerism among contemporary youth.