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Chinese bubble tea giant Mixue’s shares surged 40 per cent on their debut on Monday as Hong Kong’s biggest listing of the year to date highlighted investor focus on mainland China’s price-conscious consumers.
Shares rose to HK$283 ($36), compared with an offering price of HK$202.50, in a listing that raised $444mn and attracted a rush of demand from retail investors.
Mixue, with 45,000 stores as of the end of last year, sells ice cream and flavoured teas for less than $1 and is now expanding into the country’s ultra-competitive coffee industry and overseas.
Well known in China for its distinctive snowman mascot and cheap products, including an ice cream cone priced at just Rmb3 ($0.40), the company has debuted in Hong Kong just as mainland consumers adjust to an era of slower economic growth.
“It’s about how you address the current consumer demand,” said Jason Yu, managing director at CTR Market Research. Companies doing well are “all providing relatively value-for-money alternatives to premium options”, he added, citing Xiaomi’s budget smartphones as another example.
Launched in 1997 with a single shop in the central Chinese city of Zhengzhou, Mixue has quadrupled the number of its stores since 2020. It makes the bulk of its revenue by selling ingredients and equipment to franchisees, a common business model in the sector.
China’s market for freshly made non-alcoholic drinks was worth Rmb517.5bn ($71bn) in 2023 and is forecast to surpass Rmb1bn by 2027, according to Mixue’s prospectus. The sector is fiercely competitive, with global brands such as Starbucks struggling to respond to the low prices offered by domestic rivals.
Mixue has focused heavily on growth in China’s smaller cities, where consumer markets are less developed. The company said it had 17,000 stores in so-called third-tier cities and below, surpassing the combined total of its four biggest competitors.
It also has a presence in 11 overseas markets, including Australia and Japan.
The initial public offering is the latest to come from mainland China’s bubble tea market, in which multiple chains often vie for customers on the same street.
Guming, another bubble tea chain, raised $232mn last month in Hong Kong, which is experiencing a rush of listings from mainland China.
At a Mixue franchise inside a subway station in Shanghai, three staff were working frantically to supply delivery drivers waiting to whisk away the drinks and ice cream to nearby offices. The shopfront displayed prices of Rmb3, Rmb6 and Rmb7.
“Skimp and save,” said one middle-aged man asked about the Chinese consumer’s current mindset. He was waiting for his daily cup of bubble tea, which he added was “so-so”.
Alvin Cheung, associate director of Hong Kong-based Prudential Brokerage, said Mixue was “not just a beverage brand”, pointing to its model of charging fees to franchisees.
But he also warned of a possible slower pace of expansion, given its already huge presence in mainland China, as well as limited room to raise prices.
Cornerstone investors in Mixue include HongShan Group, previously known as Sequoia China, and London-based M&G Investments.
