China Bubble & Brew franchisee operating conditions: Mixue’s same-store sales pressure persists, while Guming’s recovery outlook improves

Overview

J.P. Morgan summarizes an 8 September franchisee expert call covering China beverage chains. Its central view is that Mixue remains in a strategic transition with slower growth, Guming is comparatively resilient, and Mixue’s coffee initiative is beneficial only in suitable locations while pressuring nearby Lucky Cup stores.

Core views

The expert’s 12 Mixue stores in Henan continued to see material same-store-sales pressure, largely because rapid network growth has cannibalized existing outlets. Sales declined about 10% year-on-year in 1H26, narrowing to roughly 7% in July and 7-8% in August. A roughly 5% increase in average ticket, helped by RMB1-2 price increases on selected new products and a 1-2 percentage-point higher merchandise/snack mix, did not offset a roughly 13% decline in cup volume. Central and northern China were described as more resilient than eastern and southern China, where competition is tougher. Higher-priced product upgrades remain difficult to scale because Mixue customers are highly price-sensitive: these SKUs account for about 10% of sales and represented only 15-16% of sales in their first 10 days, versus 20-25% for conventional launches. The report sees a potential Mixue SSS inflection from November as comparisons ease and expansion becomes more disciplined. Since July, the company has tightened franchisee approval, shifted regional-manager incentives from opening stores to improving unit performance, and opened only about 800 stores in July-August, with net additions below 300. The expert expects FY26 domestic net additions of around 3,500, below the original 5,000 target, and believes SSS could turn positive after Double 11. Store upgrades have delivered an initial 10-15% sales uplift, though higher rents limit margin improvement. A typical upgraded 50-square-metre store requires RMB450,000-500,000 of investment, earns about an 11% net margin after delivery-related costs, and has a 14-16-month payback. Freshly made coffee is becoming an incremental contributor for Mixue, but adoption is location-dependent. Seven of the expert’s roughly 12 stores have coffee machines; coffee contributes about 8% of cup volume, versus 1-2% previously, and averages about 50 cups per store per day. About 70% of buyers appear incremental. Franchisees pay RMB33,000 upfront toward an approximately RMB60,000 machine, with the remainder waived if daily sales reach 40 cups within six months; stores reaching 60 cups can receive a 10% raw-material procurement discount. The expert estimates about 70% of installed stores can reach the 40-cup threshold, implying about a one-year payback for qualifying locations. However, only slightly more than 7,000 stores have machines installed, below the initial list of about 15,000 and an earlier ambition of more than 20,000, reflecting weak coffee penetration in lower-tier markets. In ASEAN, rationalization is still producing net closures, but the expert estimates post-reform SSS at about +7% year-on-year after roughly 200-300 net closures; Indonesia and Vietnam are adjusting more heavily than Malaysia and Thailand. Mixue coffee has materially harmed nearby Lucky Cup outlets. After the March rollout, Lucky Cup stores close to Mixue reportedly experienced sales declines of roughly one-third to one-half in March-April, particularly among stores opened aggressively last year and mature stores with heavy site overlap. Although Mixue’s recent marketing emphasis has shifted back toward tea drinks, the expert expects renewed coffee launches or promotions to renew pressure. Lucky Cup’s mature-store SSS is estimated at about +1-2% year-on-year, but only around 60% of stores are consistently profitable; the other 40% are loss-making or near breakeven because cup volume is insufficient. Its repositioning toward higher-quality products, RMB10-16 specialty drinks and locations in eastern and southern China remains unproven, as higher operating costs may outweigh incremental sales. The network has recorded around 1,000 net closures year to date, its FY26 gross-opening plan was cut from about 3,000 to 2,000 stores, and the expert expects net closures to continue through year-end. Fulu Fresh Beer offers lower upfront investment and quicker unit payback, but is constrained by seasonality and slowing expansion. Store capex is about RMB150,000, peak-season daily sales reached about RMB4,000 in June, gross margin is about 58-60%, and operating margin about 16-17%, implying a normal-condition payback of roughly seven to nine months. Yet demand at street-front barbecue and late-night-dining locations can fall sharply from September to November, with some stores temporarily closing. Following a group-wide decision to slow openings, the expert expects no more than about 400 further openings by year-end, taking the network from roughly 3,400 currently to about 3,800. Guming is outperforming Mixue on SSS at the expert’s locations. Its five stores saw sales decline around 6-7% year-on-year in 1H26 and about 5-6% in August; supported by a stronger new-product pipeline and higher average ticket, the expert believes SSS could return to positive growth from October. Coffee machines are installed in four of the five stores and contribute roughly 10-11% of sales, although this is below the approximately 20% reported in some other regions. The franchisee has not installed bakery equipment because renovation costs, additional labor and waste from short-shelf-life products exceed expected breakfast demand in Henan. J.P. Morgan therefore continues to view Mixue as a structurally slower-growth transition story, Guming as an alpha generator despite a tougher 2H26 comparison, and Chagee and Luckin as potentially better 4Q26 self-help and turnaround opportunities because of prospective earnings recovery and shareholder-return optionality.

Analysis framework

The report uses an expert call with a multi-brand Henan franchisee to compare store-level sales, unit economics, coffee adoption, opening pace, closures and regional conditions across beverage concepts. It links these operating observations to each chain’s near-term SSS trajectory and competitive positioning.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Same-store-sales analysis through average ticket and cup-volume changes

  The report shows that Mixue’s higher average ticket did not offset falling cup volume, helping explain continued SSS pressure.

• Industry AnalysisSupply-demand framework

  Store openings, cannibalization, closures and location supply

  The analysis treats network expansion and overlapping sites as drivers of store-level demand and uses slower openings and rationalization to assess the prospects for SSS recovery.

• Other

  Franchisee expert-call channel check

  The report relies on operating observations from a franchisee managing multiple brands to assess sales trends, profitability, payback and local competitive effects.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Mixue Group-H (2097.HK)

  Covered chain facing cannibalization-led SSS pressure while shifting toward slower, more quality-focused expansion.

  Strengths

  Coffee can generate incremental traffic in suitable stores; upgraded stores initially achieved 10-15% sales uplift.

  Weaknesses

  Falling cup volume, price-sensitive consumers and selective adoption of premium products and coffee.

  Comparison

  The report says Guming is outperforming Mixue on SSS.

  Risks

  Continued cannibalization, weaker competition in eastern and southern China, and cautious franchisee adoption.

• Guming-H (1364.HK)

  Covered chain described as relatively resilient, with potential positive SSS growth from October.

  Strengths

  Stronger new-product pipeline, higher average ticket and double-digit coffee sales contribution in the expert’s stores.

  Weaknesses

  Brand-momentum spillover in Henan remains limited; breakfast investment economics are unattractive in the expert’s locations.

  Comparison

  Its SSS pressure was milder than Mixue’s in the franchisee sample.

  Risks

  A tougher 2H26 cadence after strong 2025 through 1H26 performance and regional variation in coffee and breakfast demand.

• Lucky Cup

  Competitor pressured by Mixue’s coffee rollout and operating in net-closure mode.

  Strengths

  Mature-store SSS is estimated to be modestly positive.

  Weaknesses

  Only about 60% of stores are consistently profitable and repositioning remains unproven.

  Comparison

  The chain faces direct overlap with Mixue and is attempting to reposition closer to Luckin and Cotti.

  Risks

  Renewed Mixue coffee promotions, insufficient cup volume and further net closures.

• Fulu Fresh Beer

  Franchised fresh-beer concept with attractive unit payback but seasonal demand exposure.

  Strengths

  Low approximately RMB150,000 capex, 58-60% gross margin and estimated 7-9 month payback under normal conditions.

  Weaknesses

  Demand can fall sharply outside warmer months.

  Comparison

  Its operating model is distinct from tea and coffee chains because of strong seasonal concentration.

  Risks

  Temporary store closures in the September-November period and slower expansion.

Key data

• Mixue SSS~10% YoY decline in 1H26; ~7% in July and ~7-8% in AugustThe decline narrowed, but store cannibalization remained the main drag.
• Mixue cup volume~13% YoY declineThis more than offset a roughly 5% increase in average ticket.
• Mixue FY26 domestic net additions~3,500 storesExpert estimate versus the original 5,000-store target.
• Mixue coffee contribution~8% of cup volume; ~50 cups/store/dayBased on installed machines at the expert’s stores.
• Lucky Cup disruption~one-third to one-half sales declineReported for Lucky Cup stores near Mixue after Mixue launched coffee in March.
• Lucky Cup net closures~1,000 year-to-dateThe expert expects the network to remain in net-closure mode through year-end.
• Guming SSS~6-7% YoY decline in 1H26; ~5-6% in AugustThe expert expects a potential return to positive growth from October.

Impact & implications

The report argues that slowing Mixue openings is necessary to relieve cannibalization and support a later-2026 SSS recovery, while coffee can improve unit sales where local demand supports it. Competitive spillover leaves Lucky Cup vulnerable, whereas Guming’s product pipeline and ticket profile support relative resilience.

Risks

• Mixue’s higher-ticket products and coffee rollout may not achieve broad adoption among price-sensitive consumers.
• Store cannibalization and competitive pressure could keep Mixue SSS weak for longer than expected.
• Lucky Cup’s repositioning may fail to generate enough sales to offset higher operating costs.
• Fulu Fresh Beer’s seasonal downturn can reduce utilization and prompt temporary store closures.

What to watch

• Whether Mixue SSS improves after Double 11 as comparisons ease and net store additions slow.
• The pace of Mixue coffee-machine installations and the share of stores reaching the 40-cups-per-day threshold.
• Lucky Cup’s closures, profitability mix and exposure to any renewed Mixue coffee promotion.
• Whether Guming achieves positive SSS growth from October.
• ASEAN site rationalization, SSS recovery and the availability of high-quality locations for renewed expansion.