Perspective丨Mixue shatters “IPO spell” on tea drinks. What’s next?

Hello! Welcome to CBN Perspective. I’m Stephanie Li.Two decades ago, a modest restaurant in the middle of Northern China’s Henan province saw its business take off after selling cut-price soft serve for just 1 yuan per cone. Today, it has overtaken McDonald’s and Starbucks with over 45,000 stores worldwide, becoming the world’s largest food and beverage chain by store count.Mixue Ice Cream & Tea has turned the tea game into a global phenomenon—and their recent stock market debut is just the tip of the iceberg. Let’s dive into the story of how this budget-friendly beverage empire is shaking things up. With its signature drinks priced between 2 to 8 yuan, a catchy theme song and a chubby snowman mascot, Mixue has attracted a massive customer base across China.While other bubble tea brands have been focusing on premium positioning with prices above 20 yuan, Mixue successfully established its presence in lower-tier cities where competition is less intense.Born into an impoverished family, Zhang Hongchao, the founder of Mixue, has said his strategy is simple: “Let people around the world eat well and drink well for just two American dollars.” The capital market went wild with Mixue. Retail investors were so eager to get their hands on Mixue shares that the IPO was oversubscribed by a staggering 5,258 times. It’s no wonder people are calling it the “Pinduoduo of bubble tea,” after the popular Chinese discount e-commerce platform.On its first day of trading on the Hong Kong Stock Exchange, Mixue’s stock price surged by a whopping 43.2%, closing at HKD290 per share. The company raised HKD3.45 billion in its IPO, making it the biggest listing in Hong Kong so far this year, and the fifth-largest over the past year.Zhang Hongchao and his younger brother, Zhang Hongfu, the chain's CEO, have now a combined net worth of USD8.1 billion after the share sale. Following the surge on Monday, Mixue continued to rise over 77% throughout the first week of listing, with a market cap surpassing HKD130 billion.Mixue truly deserves its crown of being “King of Snow.” Its net profit jumped 42% to 3.49 billion yuan in the first nine months of 2024 from the same period in the previous year, according to the prospectus. Its revenue increased 21% to 18.7 billion yuan in the period.For comparison, Chinese premium tea chain Nayuki has been in the red except for 2023 since its listing in 2021. The brand has accumulated a loss of HKD5.6 billion as of the first half of 2024. But Mixue’s story didn’t start with a bang; it started with a lemon. Yes, you heard that right—a lemon! Imagine this: you’re walking down the street, and you see a store selling lemon water for just 2 yuan. You think it’s a typo, but nope, it’s Mixue’s magic. They’ve turned lemons into gold.How did they do it? The answer is actually as simple as it is: they grew their own lemons and tea leaves, and built a cold-chain logistics network that covers 97% of their stores. By cutting costs to the bone, they can offer drinks at prices that make your wallet smile. And with over 45,000 stores worldwide, they’ve pretty much cornered the market on affordable tea drinks.Being more like a raw materials supplier than a traditional brand, Mixue’s money game involves a big chunk of franchising. With over 99% of Mixue’s stores being franchise, its model is indeed a “lemon-squeezing machine.” They make 97% of their revenue from selling equipment and raw materials to franchisees.But let’s not forget the control freak side of Mixue. They’ve got cameras, standardized trash cans, and a 48-hour turnover requirement for ingredients to ensure every sip tastes the same, no matter where you are. So, here’s the million-dollar question: can Mixue go the distance? They’ve got the supply chain down pat and a franchise system that’s hard to beat. But there are some hurdles ahead.First, there’s the issue of scale. With over 40,000 stores in China alone, they’re pretty much maxed out. Competition in smaller cities is getting fiercer with more used-to-be premium brands joining the battle.Then there’s the profitability problem. In 2024, their average daily sales per store dropped by 5%, and some franchisees are jumping ship.And there’s Mixue’s global expedition. Mixue have set sights on Southeast Asia, with over 4,800 stores in countries like Indonesia and Vietnam. But the market is a real jungle out there. Coffee heavyweights like Starbucks, with their super-high brand recognition and a global army of loyal fans, are now in the tea game too, making it a tough battle for Mixue to carve out a piece of the pie. Then there’s the supply chain. Mixue's got a great setup at home, but overseas, finding the right ingredients can be a mission, either they're hard to come by or cost a fortune. And brand recognition is a whole different ball game. Mixue's known for being down-to-earth in China, but overseas, that might not click right away. Mixue's got to figure out how to show off its unique charm while still keeping prices reasonable to win over international customers.So it seems like Mixue’s future depends on how well they can juggle a few tricky challenges. Balancing expansion with rising costs would be one of the priorities, and not to forget adapting their model to different cultures while going global, to prove that low prices don’t mean low quality. It’s a tall order, but with their recent stock market success, they’ve got the capital to make some bold moves.Mixue’s story is a rollercoaster ride, from humble beginnings to global domination, with a few bumps along the way. They’ve literally turned lemons into lemonade and shown that affordability can be a powerful weapon. But can they keep the momentum going? Only time will tell.So, the next time you sip on a Mixue drink, remember: you’re part of a hundreds-of-billions business! And who knows? Maybe one day, Mixue will be as iconic as Starbucks. Until then, keep sipping, and let’s see where this lemon water adventure takes us next!