Mixue pours up strong growth in China’s overheated bubble tea market

The country’s leading premium tea chain has relaunched its Hong Kong IPO, reporting 42% profit growth in the first nine months of last year even as many of its rivals reported declines

Key Takeaways:

• Mixue has relaunched its Hong Kong IPO, as it faces stiff competition from rivals using similar budget-friendly pricing strategies to serve increasingly cautious consumers
• The leading bubble tea chain outpaced its rivals by adding 7,737 stores in the first nine months of last year, driving a 21.2% revenue increase to 18.7 billion yuan

By Hugh Chen

In China’s overheated bubble tea market, Mixue Group stands out for its big success. Often dubbed the “Pinduoduo of milk tea” – drawing parallels to the e-commerce giant known for its cut-to-the-bone prices – Mixue has leveraged its affordability to achieve remarkable growth in a market crowded with tens of thousands of stores with very similar products.

The current climate has further bolstered the company’s position, as China’s slowing economy drives consumers toward more affordable options, especially for non-essential items like bubble tea. That unique mix of market factors, combined with its own aggressive posture, has helped Mixue build a network of more than 40,000 stores in China – more than four times the size of its closest rival.

Mixue is now testing whether investors share a similar bubbly outlook on its prospects as it relaunched its stalled Hong Kong IPO by filing an updated listing document on Jan. 1. The timing appears to capitalize on recent regulatory signals suggesting an end to the recent moratorium on new bubble tea listings. Following the Chinese securities regulator’s December announcement indicating that rival Guming’s Hong Kong IPO could proceed after a prolonged delay, both Guming and competitor Auntea Jenny swiftly filed updated prospectuses with the stock exchange.

This marks Mixue’s third attempt at going public, following a bid to list in Shenzhen that failed for undisclosed reasons. The company pivoted to Hong Kong a year ago for its second attempt, joining a wave of bubble tea chains seeking public listings early last year.

Among these, only Chabaidao (2555.HK), also known as ChaPanda, managed to complete its IPO last April. But that listing has been disastrous, starting with a 30% plunge for Chabaidao’s shares on their first trading day. The stock continued to fall after that, at one point losing about three-quarters of its value. But it has bounced back somewhat recently, prompting regulators to resume allowing new bubble tea chain listings.

Mixue’s updated prospectus shows a company that’s still expanding aggressively, even as some of its peers have slowed their expansion. Before delving into these latest figures, we’ll quickly retrace the company’s historical journey and core business model that laid the foundation for it to become China’s undisputed bubble tea leader.

Mixue boasts a much longer heritage than most of its peers, tracing its roots back to 1997 in Central China’s Henan province. The chain’s most dramatic expansion has occurred more recently, with an aggressive growth strategy that added over 8,000 stores annually in 2022 and 2023 to reach its current network of more than 45,000 stores globally by last September.

While primarily known for bubble tea, Mixue’s portfolio extends beyond this category. The company offers a diverse range of freshly made beverages, including fruit drinks and tea beverages, which form the core of its business. Its products also include ice cream, and the company has ventured into the coffee segment through its Luck Cup subsidiary.

Expansion on steroids

Mixue has continued its aggressive expansion despite intense competition, maintaining a growth pace that significantly outstrips its rivals. The chain added 7,737 stores in the first nine months of 2024, putting it on pace to open more than 10,000 stores for the year. That would outpace its previous annual expansions of 8,582 stores in 2023 and 8,982 in 2022. Such growth dramatically outpaces competitors like Guming, which opened just 777 new outlets in the first nine months of last year, and Auntea Jenny, which added 648 new locations in the first half of 2024, according to their own recently filed new Hong Kong listing documents.

Mixue’s more than 45,000 outlets make it China’s undisputed bubble tea leader by store count, far head of Guming’s 9,778 stores as of September 2024 and Auntea Jenny’s 8,437 locations as of June 2024. Of the 45,000 outlets, the vast majority, about 40,000, are in China, with the rest in other global markets – another factor that also sets Mixue apart from its rivals that are mostly confined to their home market so far.

Mixue’s rapid expansion has been facilitated by its franchising business model combined with a low-price strategy that includes beverages typically priced under 10 yuan, or about $1.40. Third-party industry data cited in Mixue’s prospectus underscores its market dominance, saying the company controlled 6.5% of China’s bubble tea market last year based on stores and an impressive 20.2% share of gross merchandise value (GMV).

As it opened new stores at a breakneck pace, the company’s revenue surged 49.6% in 2023 after growing 31.2% in 2022. According to its updated prospectus, revenue for the first nine months of last year reached 18.7 billion yuan ($2.55 billion), up another 21.2% year-over-year.

Mixue’s revenue growth rate outperforms its mid-market competitors, including Guming and Auntea Jenny, which price their beverages between 10 yuan and 20 yuan. While Guming reported a 15.6% revenue increase in the first nine months of last year, Auntea Jenny’s growth was more modest at 5.7% for the first half of 2024.

The contrast is even starker when compared to listed competitors in higher price segments. Mid-range player Chabaidao and premium chains like Nayuki (2150.HK) and Heytea, which price their beverages above 20 yuan, experienced revenue declines in the first half of 2024.

Mixue’s profits also continue to grow sharply, even as many of its rivals moved in the other direction. Its net profit rose 58.3% to 3.2 billion yuan in 2023, followed by a 42.3% year-on-year increase to 3.5 billion yuan in the first nine months of 2024. By comparison, Guming managed only 12% year-on-year profit growth in the nine months through September 2024, while Auntea Jenny and Chabaidao reported profit declines in the first half of 2024. Premium chain Nayuki faced even greater challenges, slipping into the red in the first half of last year.

Mixue’s recent success, even as many of its peers falter, partly reflects Chinese consumers shifting toward more affordable options in the current economic climate. Still, the company faces emerging challenges as mid-range competitors aggressively lower their prices. Guming has introduced promotional campaigns on short video platforms in recent weeks, offering bubble tea products for as little as 1.9 yuan, while Chabaidao is running social media promotions featuring a selection of fruit teas and pure teas at 5.9 yuan.

At the end of the day, Mixue has a compelling story for investors to set itself apart in the new wave of bubble tea IPOs in Hong Kong, showing it can leverage its strong position in the value segment of the market to maintain strong growth even in the face of intense competition. That said, the company could also come under increasing attack as competitors target its price-sensitive customer base through their own aggressive promotions in a race to the bottom of China’s bubble tea market.

To subscribe to Bamboo Works free weekly newsletter, click here