Key Points
- JPMorgan has initiated coverage on China’s “Bubble & Brew” (coffee and tea) sector. The bank sees the market in a phase of rapid growth and consolidation.
- Luckin Coffee and Guming were named as top picks due to their scale and pricing power.
- Coffee and tea are becoming daily commodities in China, with significant room for market expansion, especially in smaller cities.
- Despite a recent stock market correction, JPMorgan is optimistic about the sector’s future, expecting a positive surprise in 2026.
JPMorgan has started covering China’s “Bubble & Brew” sector, saying that the country’s coffee and tea market is hitting an exciting new phase. The bank believes the market is experiencing both rapid growth and rapid consolidation of power among the top players.
The bank began coverage of seven companies that make fresh drinks and beverages, naming Luckin Coffee and Guming as its top picks. JPMorgan praised these companies for their large scale, pricing flexibility, and strong financial performance at the store level.
Analysts led by Jessie Xu noted that coffee and tea in China have gone from being “an elite status symbol to an accessible daily commodity.” This shift has been driven by low-priced local chains and people drinking coffee and tea more frequently. Since 2020, the average coffee consumption per person has more than doubled and is expected to reach 25 cups in 2025. Still, this is far below global averages, suggesting there is ample room for growth.
At the same time, the market is quickly consolidating. The top eight companies are expected to control 25% of all outlets by 2025, a big jump from just 10% in 2022. JPMorgan sees the biggest growth opportunities in smaller, lower-tier cities, where store numbers are expected to grow by more than 20% each year through 2028.
In this competitive environment, JPMorgan prefers companies with strong pricing power and robust supply chains. As a result, they gave “Overweight” ratings to Luckin, Guming, Mixue, and Nongfu, with Luckin and Guming being named the top picks.
Looking ahead, JPMorgan sees several factors that could drive the market, including new product launches and expansion into other categories like milk and snacks. The bank also noted that Chinese brands like Luckin, Chagee, and Mixue have started entering the U.S. market this year, which it calls “a new chapter” for these companies.
Despite a recent sharp stock price correction, the bank’s analysts believe the “correction is overdone” and expect 2026 to be a surprisingly good year as new initiatives take hold and competition eases.
