In mainland China, tea shops, coffee houses, and small bars used to be the entrepreneurial dreams pursued by young people in pursuit of “poetry and distance”. However, now they are jokingly referred to as the “new three-piece suit of returning to poverty for the middle class” and have become the “three-piece suit of bankruptcy” for young entrepreneurs after homestays, camping, and murder mystery games. From the big cities of Beijing, Shanghai, Guangzhou, and Shenzhen to the sinking county towns, these small shops are popping up in large numbers only to quickly go out of business. Social media platforms are filled with a plethora of “closure posts”, highlighting a beverage market that is increasingly saturated and fiercely competitive, shattering the dreams of countless young entrepreneurs.
According to a report by “投資界” from Beijing Tsingke Entrepreneurship Consulting Co., Ltd. on June 15, Liu Tong, born in Chengdu, resigned from a large internet company in Beijing two years ago and decided to open a coffee shop in her hometown, a decision made after careful consideration with her boyfriend.
However, shortly after the coffee shop opened, it struggled to make ends meet, sometimes not having a single customer all day. They were plagued by rent and utility bills, and eventually the two decided to cut their losses and close the small shop.
“Spending tens of thousands (RMB, same below), both poetry and distance have come to naught,” said Liu Tong.
Like Liu Tong, many young people who have fallen from the “small shop dream” have similar processes – saving up money early on, only to decide to start a business and open a shop years later. In the end, most of them are dealt a heavy blow by reality.
By the end of April this year, Jiang Yun’s small bar could no longer hold on.
This music-themed small bar opened in a first-tier city’s office building area in October last year. Jiang Yun said that considering rent, labor, and other daily costs, the breakeven point for the bar was around 3000 yuan per day. However, due to improper location selection and other reasons, his small bar had less than half the daily customers of the neighboring breakfast shop for over half a year, with a daily turnover of only around 1800 to 2000 yuan, “constantly losing money”.
After holding on for six months, the small bar closed. Reflecting on this failed experience, Jiang Yun cautioned, “Don’t try lightly, especially in some non-essential, highly saturated race tracks.”
The market size of small bars may not be large, but the two popular tracks of tea shops and coffee houses have seen a wave of young people falling into the cycle of “opening shop then going bankrupt”.
In recent years, there has been a hot market for second-hand coffee machine transactions on online platforms. On social media platforms such as Xiaohongshu and Douyin, posts about closures of small bars, coffee shops, and tea shops abound, with over 10,000 posts related to tea shops and small bars closing, and more than 500,000 notes on “dealing with closed and idle coffee shops”.
Behind these closed doors lies an increasingly saturated ready-to-drink market. Near a metro station close to an urban village in Shenzhen, nearly 20 beverage shops are crammed into a 200-meter-long snack street, with two or three tea shops of the same price range appearing side by side.
Such streets are not uncommon. Whether on the streets and alleys of first-tier cities or in more rural county towns, it is not difficult to see streets lined with milk tea shops, coffee shops, and chain brands.
Even in locations with high foot traffic and a concentrated target consumer base, after deducting costs such as rent, utilities, equipment, staff wages, store transfer fees, and a series of other necessary expenses, a conservative estimate shows that breaking even generally requires about 1.8-3 years. However, many shops on these streets often change names and facades within six months.
“In this industry, 20% of franchisees make 80% of the money,” said industry insider Guo Ling, who has long been paying attention to the ready-to-drink industry. Large franchisees have more resources and capital for turnover, they have professional site selection personnel, and have systematized franchising. By rationalizing resource allocation, they ultimately achieve “profits rolling in”.
After talking to several shop owners who declared bankruptcy, three most common reasons for closures were identified: improper site selection, insufficient budget, and fierce competition within the industry.
Furthermore, many underestimated the payback period of their shops, especially small franchisees who often start investing without sufficient research. Apart from the substantial upfront costs of store transfer and equipment purchase, there are ongoing expenses such as rent, staff salaries, raw materials, etc. If there is not enough cash flow turnover for a year or more, the shops usually face closure.
According to data from the China Chain Operation Association, it is projected that the growth rate of the new tea beverage market in China will slow from 44.3% in 2023 to 12.4% in 2025.