By LU Yibei

In the first half of 2023, Chinese milk tea shop Heytea opened 1,003 new stores. Naixue (the company changed its Japanese-style name Nayuki to Naixue last year), another milk tea chain, is brewing its expansion much more slowly. That means only 88 new stores in Q2 and 145 in total for H1. In the first half of last year, more than 250 new outlets opened their doors to customers.

Big dreams, small numbers

Around the end of Q1, Naixue announced a plan to open 600 stores this year.

At the time, the forecast seemed more than optimistic but now seems far out of sight. With 145 done, that's only 455 to go - at least 75 each month, or three times the current rate of expansion.

Breaking bread together

Naixue was founded in 2015, targeting young female customers aged 20 to 35. Naixue stores offer comfortable spaces and fresh ingredients, putting the company at the top end of the saturated milk-tea market. Unusually, and perhaps the reason behind the slowdown, Naixue manages all its stores directly, whereas most competitors are all about franchising.

In Q4 last year, Naixue acquired a sizeable chunk of Lelecha – another milk tea and baked goods operation - for US$75 million (538.06 million yuan), and became the bakery's main shareholder. Lelecha’s strengths lie in store expansion, supply chain, digitalization and management, exactly what Naixue needs.

Hottest tea model seethes with success

Heytea’s franchise model has proved almost too hot to handle since its launch in November 2022, opening more than 200 stores a month, a feat of considerable organizational dexterity. How the Heytea approach will play out is far from certain, but the plan is being executed with staggering rapidity.

China’s tea market is expected to reach US$28 billion by 2030. As competition intensifies, store expansion is seen as a crucial factor for revenue growth and future prospects. Naixue’s ownership model may hinder its ability to keep up with the market on one hand, while prompting them to explore novel approaches.