Boba giant's bubbling hot

China's biggest ice cream and tea chain Mixue Bingcheng - which rose to become the world's second-largest drinks brand by selling products as cheap as 3 yuan (HK$3.35) - is seeking an initial public offering in Hong Kong,

The drinks giant is reported to be looking at raising up to US$1 billion (HK$7.8 billion) in the city, after its attempt to go public in Shenzhen failed last year.

Its valuation is estimated to be as much as US$10 billion.

Founded in 1997, Mixue mainly offers fresh fruit drinks, tea and ice cream to consumers with two major brands - Mixue and coffee brand Lucky Cup.

Its products are sold at an average price of 6.84 yuan with the cheapest product Fresh Ice Cream for 3 yuan. Lemonade, ice cream and bubble tea are the top three best-sellers in the mainland.

Mixue is China's largest drinks chain and the world's second-largest in terms of both the number of stores and cups sold after the US's Starbucks, with 36,200 stores including 4,000 overseas.

It sold 5.8 billion cups of drinks for 34.6 billion yuan for nine months, taking 11.2 percent of market shares in China in gross merchandise value.

The company's profit increased by 51.1 percent year-on-year to 2.45 million yuan for the nine months ended September 2023, and its revenue amounted to 15.4 billion yuan with a year-on-year growth of 46.0 percent.

MIxue's franchise model is the key to its rapid expansion, as almost all its stores are franchised.

Its highly standardized services, from logistics to store designs, work well especially in third-tier and below cities, where over half of its stores are located and expanded with a 34.15 percent growth rate in 2022.

Sales from goods and equipment to franchisees account for over 98 percent of Mixue's total revenue , with less than 2 percent from franchise and related services.

By owning the largest and most comprehensive end-to-end supply chain in China's fruit and milk tea industry, Mixue can control costs and stick to its low-pricing strategy.

About 60 percent of its ingredients provided to franchisees are self-produced, with core ingredients self-produced, the highest in the industry, according to China Insights Industry Consultancy.

However, this successful formula is being challenged overseas.

Though Mixue is Southeast Asia's largest ice cream and milk tea drinks brand, its Vietnam franchise partners protested last year after it requested them to lower prices by 25 percent, even though the cost of raw material cost was just 8 percent lower.

And its operational costs in Hong Kong, where it made its debut last month - are high.

Mixue needs to sell 22,222 cups of lemonade a month just to cover rent for its store in Mong Kok, estimated at HK$200,000.

Thus, Mixue products cost twice as much in Hong Kong as they do in the mainland.

Nevertheless, the average price of HK$15.77 in the city is still around HK$10 lower than that of its local rival ComeBuyTea.

Overall, Mixue's low prices meet the demand of consumers whose spending power is gradually weakening amid the economic slowdown.

China's consumer prices fell the fastest by 0.5 percent in November since 2020, and food price deflation contributed to the deflationary pressures.

China's fresh drinks market is expected to be worth 201.5 billion yuan in 2028 with an annual growth rate of 12.4 percent, according to a report from the China Chain Store & Franchise Association and Meituan.

The proceeds will be used for improving the supply chain, brand building, digitalization and working capital. BofA Securities, Goldman Sachs and UBS are the sponsors of its IPO.