Chinese Beverage Giants Pivot to Ice Cream, Chasing 60% Margins

A growing number of China's leading beverage chains are diversifying their menus with premium ice cream, seeking new revenue streams amid intense market competition. At least 12 major tea and coffee brands have launched nearly a hundred new ice cream and related products this year, signaling a significant strategic push into the lucrative dessert category.

The "Gelato Rush"

Several of the industry's biggest names are leading the charge with Italian-style Gelato. Good Me is set to open its first "Fresh Enjoyment Store" concept in Nanjing on September 19, preceded by a pop-up event to introduce its handmade "Gulado" Gelato products, according to *Time Weekly*. This follows similar moves by its rivals:

• Heytea is expanding its "Heylado" concept, first launched in 2019, into more stores across cities like Xiamen, Shenzhen, and Shanghai, often with localized flavors.
• Chagee introduced its "Chalado" line on May 22 and, as of August 28, had rolled it out to over 190 stores.
• Nayuki has integrated Gelato directly into its beverages, offering items like the "Gelato Perfume Coconut" and "Gelato Oolong Iced Tea."

Even brands in lower price tiers, such as Mixue, Sweet7, and ChaPanda, are introducing soft-serve and other frozen desserts, broadening the trend across the market.

A Scoop of Profit

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The primary motivation for this expansion is the attractive profit potential of ice cream. Cui Jianwei, founder of the specialized chain Mr. Wild, told The Paper that the gross margin for Gelato can be around 60%, which he described as a reasonable level for the industry. This figure stands in contrast to the broader cold beverage sector, where Yili's most recent annual report showed a gross margin of 37.89% for its cold drink products.

Early results appear to validate the strategy. Chagee reported during an earnings call that stores featuring its "Chalado" products saw an average increase in offline Gross Merchandise Volume (GMV) of over 20%. For companies like Good Me, which saw robust revenue growth but relatively flat per-store sales in its latest mid-year report, adding new product categories like ice cream is a key tactic to drive incremental growth.

Market Synergy and Operational Challenges

Beverage chains are well-positioned to enter this market by leveraging their existing infrastructure. They can utilize established supply chains for dairy and fruit, extensive retail footprints, and large customer loyalty programs. Good Me, for example, operates 24 warehouses providing bi-daily cold-chain deliveries to approximately 99% of its stores, a logistical advantage for distributing new frozen products.

However, the move is not without challenges. These chains now compete directly with established ice cream brands like Mr. Wild and Dairy Queen. Industry experts caution that success requires more than just adding a new item to the menu. Cui of Mr. Wild noted that the operational complexity of managing fresh Gelato, including flavor rotation and quality control, is often underestimated. As more beverage brands enter the fray, long-term success will likely depend on their ability to master these operational details and consistently deliver a high-quality product.