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The backstory: In China's bustling consumer market, bubble tea has gained popularity, especially among the younger crowd who like trendy drinks. Well-known brands like HeyTea, Nayuki, Coco and Gong Cha have expanded rapidly, introducing new flavors like cheese-topped teas and different toppings such as boba pearls and fruit jellies. The competition is fierce for both local and international brands.
A study by the China Chain Store & Franchise Association found the roughly 486,000 bubble tea stores in the world’s second-largest economy were expecting a 40% increase in yearly sales for 2023, targeting a market size of about 145 billion yuan (US$20.4 billion).
More recently: Last year, China introduced rules preventing certain companies, such as liquor and tutoring businesses, from entering the local stock market. Some of the regulations also made things more difficult for food and beverage companies to list domestically. In July, reports surfaced that at least six bubble tea companies, including China's largest, Mixue, and smaller ones like XSQ Tea, were considering going public overseas through initial public offerings (IPOs).
The development: Now, some key players in the bubble tea industry, Mixue and Guming, have applied for an IPO in Hong Kong. Mixue, with around 36,000 stores, is reportedly hoping to secure US$500 million to US$1 billion in its IPO to help fuel expansion. Simultaneously, Guming, China’s second-largest freshly-made bubble tea chain with 9,000 stores, is eyeing between US$300 million to US$500 million, according to sources familiar with the matter.
"I think there is a big rush to IPO right now, as generally speaking these chains have been expanding aggressively but have had to be willing to lose money to do so," said Ben Cavender, managing director at China Market Research Group. "Whoever can IPO the fastest and get to a stable operating position may be the winner over the long term."
"They're very strong at cost control, but their brand is also very powerful. Their snowman logo is everywhere," said Jason Yu, Greater China managing director of market research firm Kantar Worldpanel. "They are doing really well in terms of building a business with a global scale."
“Chinese food and beverage chains usually rely on quick expansion to achieve a large market share and pitch the story to investors as the exit strategy,” said Gary Ng, senior economist for Natixis in Hong Kong last year. “It also means that the corporate health of these firms may not be very sound with leverage and the chains are usually highly replaceable if there are new, good competitors.”