Bubble tea bubble? MXBC seeks Shenzhen IPO

Until 2019, MXBC customers were middle school students in second and third-tier cities, buying 3-yuan ice-cream. Last year, it received more than 2 billion yuan from venture capitalists.

Photo by Kuang Da

Photo by Kuang Da

By LU Yibei


Bubble tea chain MXBC’s Shenzhen IPO plans to raise 6.5 billion yuan (US$910 million) through 400 million shares was approved Thursday. According to the prospectus, 2.9 billion yuan will go on building new factories, 1.1 billion on logistics, 1.9 billion on cash flow, and the rest on marketing and R&D.

Until 2019, MXBC was popular exclusively among middle school students in second and third-tier cities, selling 3-yuan ice cream and 5-yuan bubble tea. Venture capital had zero in a bumpkin beverage chain. But then, MXBC became the first tea chain open 10,000 outlets in China and the money followed. Last year, it received more than 2 billion yuan from Meituan’s Longzhu Capital and Hillhouse.

Clutching at straws

With such fast expansion and low prices, people are skeptical about whether MXBC is making any money at all. With the prospectus revealing its financial condition, we can now have a glimpse of how it grew from a hole-in-the-wall operation to a global franchise.

MXBC’s founder ZHANG Hongchao went to Zhengzhou, capital of Henan Province, in 1996 and opened an ice cream shop called Mixue Bingcheng (sweet snowing city). it didn’t work out well, so he then tried restaurants – both Chinese and western– which ended up badly too.

In 2005, MXBC started selling ice cream at only 2 yuan, a huge hit. The business started to pick up and Zhang opened five stores in a year. In 2007, his little brother ZHANG Hongfu joined him in the first franchise of MXBC. Today, an MXBC ice cream still costs only 3 yuan.

MXBC’s revenue has grown from 2.6 billion yuan in 2019, to 10.3 billion yuan last year. Net profit rose from 450 million yuan to 1.9 billion yuan last year.  The revenue of Nayuki – another bubble tea outfit that went public in Hong Kong in June – last year, was only 4.3 billion yuan, with a net loss of 145 million yuan.

Unlike Hey Tea and Nayuki in which most of the stores are directly controlled by the brands, MXBC is a franchising business. Its main income comes from selling materials and equipment to franchisers. Among all 22,276 MXBC stores across the globe, only 47 are directly operated by the company.

All ingredients, including fruit pulp, tea powder and jams, are made in MXBC factories. In the first three months of this year, the company made 1.8 billion yuan selling to franchisees, accounting for 72 percent of total income. Even the straws each store use are from an in-house factory. MXBC made 300 million yuan last year from straws.

Selling to yourself

Supplements to bubble tea chains seem to be a better business than selling tea. Tianye Group which supplies ingredients for Nayuki filed for an IPO in June.

But managing franchises is never easy. In its prospectus, MXBC said quality control is a major risk as the company’s business covers a wide range and quality issues can happen due to unforeseeable incidents.

MXBC put itself top of the trending list on social media because of quality issues. In April, a market watchdog in Guilin fined an MXBC store 2,000 for it using out-of-date coffee powder. In June, an MXBC store in Hunan Province was fined 12,000 for a bug in its lemon tea.