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Investing.com -- JPMorgan has begun coverage of China’s “Bubble & Brew” sector, arguing that the country’s coffee and tea market is entering a phase where rapid penetration meets accelerating consolidation.
The bank initiated coverage on seven freshly made drink and beverage names and named Luckin Coffee and Guming as its top picks, citing their scale, pricing power and strong store-level economics.
Analysts led by Jessie Xu said coffee and tea have shifted from “an elite status symbol to an accessible daily commodity,” driven by low-priced domestic chains and rising consumption frequency.
Per-capita coffee intake has more than doubled since 2020 and is estimated at 25 cups in 2025. Penetration, however, remains far below global benchmarks, suggesting significant room for expansion.
At the same time, the supply side is consolidating quickly, with the top eight companies expected to control 25% of total outlets by 2025, up from 10% in 2022.
JPMorgan sees the strongest growth coming from low-tier cities, where store counts are projected to grow more than 20% annually through 2028. Mid- to low-priced segments—drinks below 20 yuan—are expected to drive the bulk of gross merchandise value (GMV) gains.
In this environment, analysts prefer well-rounded operators with pricing appeal and robust supply chains. As such, they initiated Luckin, Guming, Mixue, and Nongfu at Overweight (OW), with the first two named top picks in the sector.
Meanwhile, Eastroc Beverage and CR Beverage were initiated at Neutral, while Chagee is rated Underweight.
“Order of preference: Luckin (OW) & Guming (OW) > Mixue (OW) & Nongfu (OW) > Eastroc Beverage (N) > CR Beverage (N) > Chagee (UW),” the bank’s note highlights.
JPMorgan highlights several catalysts ahead, including new product launches, expansion into categories such as milk and finger foods, and the competitive implications of Starbucks China’s plan to reach 20,000 stores from about 8,000 today.
Luckin, Chagee, and Mixue have also entered the U.S. market this year, which analysts describe as “a new chapter” for Chinese freshly made drink brands.
Distributor renewals across the beverage ecosystem in November and December may also drive share shifts among Wahaha, Nongfu, CR Beverage and Eastroc.
In terms of valuations, analysts flagged that they have corrected sharply due to China’s F&B delivery subsidy campaigns, with share prices falling 30%–60% from peak to trough despite continued strong same-store sales (SSS) growth.
But the team believes that the “correction is overdone.” Luckin, Guming and Mixue now trade at 14–19x 2027 earnings, or about 0.7x PEG, against projected 20%–28% EPS CAGRs from 2024 to 2027.
The bank expects 2026 to surprise positively as new initiatives take hold and competitive pressures ease.