This humble boba chain has more outlets than McDonald's

CNN

03-03-2025

Two decades ago, a modest restaurant in the middle of one of China's poorest provinces saw its business take off after selling cut-price soft serve for just 1 yuan (15 cents) per cone. Today, it has overtaken McDonald's and Starbucks as the world's largest food and beverage chain by number of stores.
Mixue Bingcheng, which means honey snow ice city, now boasts over 45,000 outlets worldwide as of last September. The budget-friendly drinks giant, which is now better known for its bubble tea offerings, saw its shares jump more than 40% on Monday in its first day of trading in Hong Kong, after having raised $444 million last week in an initial public offering, according to the Hong Kong Stock Exchange.
'The demand from retail and institutional investors have been strong, as was expected,' said Devi Subhakesan, co-founder at equity research firm Investory Pte.
It was the biggest listing in Hong Kong so far this year, and the fifth-largest over the past year, according to the stock exchange.
With its signature drinks priced between 2 to 8 yuan (30 cents to $1.20), a catchy theme song and a snowman mascot, Mixue has attracted a massive customer base across China since its founding in Henan province nearly three decades ago.
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,' he has previously told Chinese state media.
That affordability remains Mixue's biggest draw, especially as its home market struggles with an economic downturn. At its outlet in Hong Kong's Causeway Bay neighborhood on Monday, Wang Li, a 42-year-old retail worker told CNN she loves its wallet-friendly items.
'I don't even bother checking the price,' she said with a chuckle, adding that she wished she had known about the IPO.
Over 99% of Mixue's stores are franchised, according to its prospectus, and most of its revenue comes from selling food materials, equipment and packaging to its franchisees.
Mixue's net profit jumped 42% to 3.49 billion yuan ($479 million) 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 ($2.6 billion) in the first nine months of 2024 from the same period in 2023.
CNN has reached out to Mixue for comment.
Founded in Zhengzhou, the capital of Henan province, originally as a shaved ice shop in 1997, Mixue was not an immediate success.
Zhang and his brothers came from a farming family, according to financial news outlet Caijing. As a college student struggling to make ends meet, Zhang built a shaved ice machine and started selling his creations under the name Coldsnap.
That venture was unsuccessful, and he later pivoted to opening a restaurant called Mixue. In 2005, he set up a snack counter at the front of the restaurant, selling 1-yuan ice cream cones.
The cheap soft serve was a homerun for Zhang. People flocked to his shop, and soon, he expanded to 20 outlets. Its pricing strategy enabled it to win customers among students as well as other people living on lower incomes in China's relatively underdeveloped cities.
Mixue eventually added boba as the drink's popularity skyrocketed across the country. In 2017, Zhang added a coffee brand called Lucky Cup.
Mixue expanded rapidly, growing from fewer than 10,000 shops in 2019, according to Momentum Works, a market research firm based in Singapore.
Zhang's younger brother, Zhang Hongfu, joined Mixue in 2007, becoming its co-founder. He is now the CEO of the company. An older brother is no longer involved in the day-to-day running of the business.
According to the Bloomberg Billionaire's Index, the share sale has given Hongchao and Hongfu a combined fortune of $8.1 billion. That makes the duo richer than Howard Schultz, the former chief executive officer of Starbucks, who is worth more than $6 billion.
Mixue's IPO follows in the footsteps of smaller competitors that went public in Hong Kong in the past year. But despite the initial fanfare around the stocks of Guming and Sichuan Baicha Baidao, they have struggled to sustain their momentum as relentless competition pressured their margins and tempered investor enthusiasm.
June Zhao, a 29-year-old investor relations manager in Beijing, tried to buy Mixue shares without success due to high demand. Reuters reported it was more than 5,200 times oversubscribed by retail investors. Even if Zhao had managed to secure some, she was planning to be cautious, citing the underwhelming performance of Hong Kong's milk tea stocks.
'Mixue's future growth will largely depend on its overseas expansion. Investors are betting on Mixue with the broader hope of seeing Chinese companies succeed abroad, especially given the sluggish domestic demand,' she said.
Against intense competition among bubble tea shops in China, Mixue has 'essentially taken the value-for-money proposition to the extreme,' which helped it ramp up its scale beyond its competitors, according to Jianggan Li, CEO of Momentum Works.
Franchise fees make up only a small portion of Mixue's revenue, according to the prospectus.
'If executed well, this could be a relatively long-term business model, as profitability mainly depends on how much franchisees can sell,' Li said.
By leveraging its vast scale, the company aims to outmaneuver rivals in China's fiercely competitive tea market, which is expected to balloon to $66.5 billion by 2027, according to the state-owned Securities Times.
Nearly 90% of Mixue's shops and sub-brands are within China. Its overseas outlets are in the Asia Pacific region, including Indonesia, Vietnam, and Malaysia.
While the company has more outlets than McDonald's, Starbucks and Subway globally, Mixue's sales still trails Starbucks, Inspire Brands, owner of Dunkin' and Baskin Robbins, and Canada's Tim Hortons, according to Momentum Works.