Daily Management Review

China Produces Six Billionaires As A Result Of The Bubble Tea Boom.


China Produces Six Billionaires As A Result Of The Bubble Tea Boom.
Do you like bubble tea?
Love it or hate it, chances are you know a millennial or Gen Zer who is obsessed with this overly sugary beverage that almost tastes chewy as it slides down your throat because it contains sticky tapioca balls, also known as "boba" or "bubbles." In the last few years, this burgeoning enthusiasm has produced at least six millionaires in China and is the key to numerous other possible fortunes.
China's third-largest bubble tea brand, Sichuan Baicha Baidao Industrial, is set to begin trading on April 23 with the goal of raising around US$300 million in the largest Hong Kong IPO since November.
Based on the 73 percent share they would possess following the initial public offering (IPO), that valuation would give its husband-and-wife founders, Wang Xiaokun and Liu Weihong, a combined net worth of US$2.7 billion, according to the Bloomberg Billionaires Index.
The market debuts of numerous other Chinese bubble tea manufacturers, who have made references to Hong Kong IPOs, are in doubt, notwithstanding Baicha Baidao's assurances. As shares have plummeted in China's economic downturn, Hong Kong, which was previously one of the busiest locations for deals, has lost its allure. Increasing competition also poses a challenge to some of the weaker firms. According to Everbright Securities International strategist Kenny Ng, "the market is not giving this sector as lofty valuations as before."
“There’s been an uneven revival of consumption in mainland China, so the profitability of consumer businesses remains uncertain.”
Bubble tea was invented in Taiwan in the late 1980s, with small stalls selling it near schools and offices. As the trend started to take root in Hong Kong and mainland China in the ‘90s, chains began springing up. Today, thousands of brands vie for the attention of thirsty tea lovers across China, and countless shops have popped up in the US and Europe, though the biggest Chinese providers do not sell there yet.
These chains, like Starbucks, provide practically endless combinations. Your preferred tea (any black, white, green, or pu'er variety, with or without milk) can be paired with different bubbles (the original dark tapioca balls, crystal, cactus, taro, and more), special additions (red beans, chunks of flavor-infused gelatin, a cream cheese foam topping), and fresh fruit (strawberry, grapefruit, strawberry, orange), all at different levels of sweetness and iciness.
Some businesses provide a shot of Moutai, a traditional Chinese grain liquor, for an added kick. According to a survey quoted by Minsheng Securities, the most popular response to the question "Why do you buy tea drinks?" was "Life is tough, and something sweet will make you happier."
Chabaidao ("100 Varieties of Tea"), another name for Baicha Baidao, was founded on catering to the budget-conscious tea connoisseurs. 2008 saw the creators open their first store, a 20-square-meter space in Chengdu that was located close to a middle school. The company's expansion was accelerated in 2018 when they established a franchise model, and as a result, it now has over 8,000 stores throughout China. The first Baicha Baidao store outside of China opened in Seoul in January, and the company also debuted Coffree, its first coffee shop, domestically.
A half-litre serving of bubble tea costs slightly more than $2 at Baicha Baidao's outlets, compared to the industry average of about $5 until recently. According to Baicha Baidao's IPO prospectus, the plan has paid off, with sales rising more than 56% between 2021 and 2023 to 5.7 billion yuan (S$1 billion). For this report, the firm declined to comment.
The brothers Zhang Hongchao and Zhang Hongfu, who established Mixue Bingcheng in the Henan province in 1997, are two more bubble tea billionaires. With more than 32,000 locations in China and 4,000 in 11 other countries, the majority of which are close, Mixue Group—which also owns a coffee brand—claims to be the second-largest drink chain in the world by number of stores, behind Starbucks.
The tea maker was valued at 23.3 billion yuan after an investment in 2020 from investors, which included Hillhouse Investment Management and the venture arm of the massive Chinese food delivery company Meituan. This increased each brother's net worth to US$1.5 billion, according to the Bloomberg Billionaires Index.
More manufacturers are lowering their prices as China's economy slows and customers become weary of inflation and tighten their belts. The current price per cup is less than US$3.50, according to Guming Holdings, the second-largest participant in China with about 9,000 stores, and No 4 Auntea Jenny (Shanghai) Industrial, both of which have filed IPO filings in Hong Kong. Gloria Cao, an analyst at Essence International, stated in a report dated April 16 that "competition has gotten fierce."
Higher-end tea producers have been negatively impacted by the explosive rise of less expensive competitors, like Nayuki Holdings, a 1,800-store chain that went public in Hong Kong three years ago. Concerns about competition have caused Nayuki, which lowered the price of a cup to roughly US$2.50, to see its shares fall over 90% since IPO.
As a result, the company's wealthy founders, Peng Xin and her husband Zhao Lin, are now worth less than US$300 million, down from US$2.2 billion in 2021. "I have hope for the future of the leaders in the industry," Daiwa Capital Markets analyst Steven Nie said. However, the market for fresh tea beverages is becoming overly congested.