PMGM7014 Chap.7 Five Forces in China's Tea Drink Market
Five Forces in China's Tea Drink Market
What this chapter trains
The syllabus lists Mixue as the case for industrial competitive analysis with the five-force model. The chapter uses that pairing to build one habit: every force you rate must rest on a fact from the case and a mechanism that turns the fact into pressure on profit.
The slides name the forces as rivalry in the industry, the threat of substitutes, the power of suppliers, the threat of new entrants and the power of customers.
Most textbooks call the last one buyer power, and you can use either name as long as you are consistent.
The case in a few facts
Mixue sells freshly made fruit tea, ice cream and coffee at very low prices, with core drinks at RMB 2 to 8. By the end of 2024 it ran 46,479 stores in China and abroad, and 99.8% of them were franchised.
Unlike most tea brands, it earns most of its money by selling ingredients, packaging and equipment to its franchisees. Starbucks sits at the other end of the market, with company-owned stores and an average transaction value of RMB 30 to 40 in China.
Holding the two side by side shows how different the same industry looks from two positions.
Forces that look strong, and one that disappeared
Rivalry in the segment is intense. There were about 660,000 outlets at the end of 2023, the five largest firms held only about 35.0% of the market, and growth had slowed sharply. Consumers hold real power as a group because switching costs nothing.
Supplier power is the instructive one, because it changed over time. Mixue once prepaid suppliers in full or nearly in full. Then volume, its own factories and its own lemon base reversed the balance. A good answer says which period and which firm a rating describes. The remaining two forces sit in the middle. Coffee competes for the same moment in the day, which helps explain why Mixue runs its own coffee brand.
New entry is cheap at the level of a single store but very hard at the scale the leader has reached.
From cost position to barrier
The chapter then links the forces to strategy. A cost advantage built on integrated production and a national logistics network protects the incumbent, because a newcomer has to match its prices while paying more for every input.
This is where the three generic strategies from the lecture come in. Mixue follows cost leadership with a lean toward lower-tier cities, while Starbucks differentiates. You will also meet a subtle point: Mixue has two different sets of buyers.
Franchisees must buy from headquarters, and consumers buy from franchisees.
What you leave with
You finish with a five-step routine for any case, a rating rule you can apply in a timed answer, and a finished model answer that runs all five forces on a hypothetical newcomer.
Two short practice items test the traps students fall into most often: reading one data point as a verdict on the whole industry, and forgetting whose seat a rating is taken from.
What this chapter covers
- 01
Five forces as listed on the lecture slides
- 02
Rating a force from a named seat and segment
- 03
Fragmentation and slow growth driving tea rivalry
- 04
Franchisees and consumers as two separate buyer groups
- 05
Backward integration reversing supplier power at Mixue
- 06
Cost advantage acting as a barrier to entry
- 07
Cost leadership set against Starbucks differentiation
- 08
A five-step routine for running the model on a case
Worked example · free
Should a premium tea chain answer low-price rivals with discounts?
- 2Fix the seat: premium segment, first-tier malls, Jadecup's view.
- 2Rate rivalry and buyer power with case evidence from the tea market.
- 2Explain why a price cut plays to the low-cost leader's strength.
- 2Recommend a move and name the fact that would change it.
Key terms
- Five Forces Model
- A framework that explains industry profitability through five pressures: rivalry, substitutes, supplier power, new entrants and buyer power. Their combined strength sets how much profit firms in the industry can keep.
- Threat of New Entrants
- The risk that newcomers add capacity and compete for the same customers. Its strength depends on entry barriers such as scale economies, cost advantages and access to supply.
- Supplier Power
- The ability of input providers to raise prices or reduce quality for their customers. It is strongest when a buyer is small, pays in advance or has few alternative sources of supply.
- Cost Leadership
- A generic strategy in which a firm competes by having the lowest costs in its industry. That lets it charge lower prices, or earn wider margins at average prices, than its rivals can.
- Backward Integration
- A move in which a firm takes over activities further up its supply chain, such as growing or processing its own ingredients, to reduce dependence on outside suppliers.
Five Forces in China's Tea Drink Market FAQ
Is buyer power the same thing as the power of customers on the lecture slides?
Yes. The slides use the wording power of customers, and most textbooks call it buyer power. Both refer to how strongly purchasers can push prices down or demand more for the same price. In the Mixue case, apply it to two separate groups: consumers, who can walk to another counter for free, and franchisees, who are contractually bound to buy supplies from headquarters.
How can one industry have both high rivalry and a very profitable leader?
Rivalry describes the pressure across the segment, not the result for every firm in it. A firm whose costs sit well below its rivals' can stay profitable at prices that hurt everyone else. Mixue grew revenue and net profit in 2024 even while average sales per store were falling. That combination suggests its cost position absorbs pressure that weaker chains cannot.
Should I rate each force as a number or as a word?
Words such as low, moderate and high are usually enough, provided each one comes with a dated fact and a mechanism. A numeric score looks precise, but it invites the question of where the number came from. If you use a scale, define it once and apply it to every force in the same way.
Does Mixue's success mean opening a tea shop is easy?
Opening one shop is cheap, and the case's own origin story shows how quickly relatives copied the first ice-cream outlet. Scaling is the hard part. A newcomer lacks the purchasing volume, factories and delivery network that let the leader sell at very low prices and still make money, so it would compete at the leader's price with a higher cost base.
Exam move
Take one short article about any Chinese consumer chain and run the five-step routine in fifteen minutes. First, write a single line naming the segment and the firm whose position you are taking. Next, find one dated fact for each force and write the level and mechanism next to it. Then switch seats: redo only the supplier and new-entrant lines from the point of view of a small newcomer, and note which ratings change.
If none change, your facts probably describe the industry in general rather than the firm's position, so replace them with facts about the firm itself.
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