TMTPOST -- In 1997, Zhang Hongchao arrived in Zhengzhou, the capital of central China's Henan province, with 3,000 yuan given by his grandmother and opened his first small "Cold Wave Shaved Ice" shop. Little did he know that this street stall brand, later renamed "Mixue Bingcheng," would become a darling of the capital market 28 years later.

On March 3, Mixue Group was listed on the Hong Kong Stock Exchange. By 9:35 am, Mixue's stock price had risen over 30% from its issue price, with a market value exceeding HK$99 billion, approximately twice the combined market value of Nayuki, Gu Ming, and Cha Baidao, which are also listed on the Hong Kong Stock Exchange. Previously, these three companies closed below their issue prices on their first day of trading.

While brands like Heytea are competing for white-collar wallets in first-tier cities with 30-yuan cheese grape drinks, Mixueis creating a parallel universe on county town commercial streets with 2-yuan ice cream, 4-yuan lemonade, and 6-yuan milk tea.

Today, Mixuehas 45,302 stores worldwide, surpassing Starbucks, and has become the largest freshly-made beverage company in China and globally. By the number of drinks sold, Mixueholds a 52.8% share of the domestic freshly-made tea beverage market (first nine months of 2024). This means that on average, one out of every two freshly-made tea beverages sold in China is from Mixue Bingcheng.

What truly drives the capital market frenzy is the magical combination of "6-yuan pricing, 32% gross margin" in their financial reports, along with sustained high growth in revenue and net profit at a large scale. In 2022, 2023, and the first nine months of 2024, Mixue'srevenue growth rates were 31%, 50%, and 21% respectively, while net profit growth rates were 5%, 58%, and 42% respectively.

During the public offering phase, Mixue'sfinancing subscription multiple reached 5,125 times, with a subscription amount of 1.77 trillion HKD, setting a new record for IPOs on the Hong Kong Stock Exchange.

Amidst all the accolades, this "supply chain company" selling beverages has entered a moment of glory right upon its listing.

Not Short on Cash, Yet Preparing for the Future

From a financial standpoint, Mixueis not short on cash.

In the first three quarters of 2022, 2023, and 2024, Mixueachieved revenues of 13.6 billion RMB, 20.3 billion RMB, and 18.7 billion RMB respectively, with net profits of 2 billion RMB, 3.2 billion RMB, and 3.5 billion RMB.

The company enjoys substantial revenue, impressive profits, and robust cash flow. By the end of the third quarter of 2024, Mixue'snet current assets amounted to 7.218 billion RMB, with cash and cash equivalents reaching 5.98 billion RMB, marking a 59% year-over-year increase.

According to the prospectus, Mixue'sIPO aims to raise a net amount of approximately 3.291 billion HKD, equivalent to about 3.08 billion RMB. Considering the nearly 6 billion RMB in cash on its balance sheet, this fundraising amount is not particularly high.

The urgency of Mixue'spush to go public is evident.

In 2021, shortly after Nayuki's Tea went public, Mixueplanned to list on the A-share market and submitted an application to the China Securities Regulatory Commission in September 2022, targeting the main board of the Shenzhen Stock Exchange. After the plan stalled, they submitted a prospectus to the Hong Kong Stock Exchange in January 2024, but it did not reach the hearing stage, and the application expired in July of that year. In January 2025, Mixueupdated its listing application, and its third attempt to enter the capital market finally succeeded.

The Snow King, despite not lacking funds, is eager to go public, with one explanation being the push from investors.

An article from Wu Xiaobo's channel suggests that a leading brand like Mixuehas a mature profit model and currently enjoys a high valuation. This high valuation is based on expectations of high growth. In an increasingly competitive future environment, listing now to secure a "good price" might be the best choice.

Mixue'sfirst and only public financing occurred in December 2020, with investors Longzhu Meicheng, Shenzhen Yunqi, and Tianjin Panxue contributing 933 million RMB, 933 million RMB, and 467 million RMB, holding 4%, 4%, and 2% of shares respectively.

Longzhu Meicheng is an investment fund under Meituan, while Shenzhen Yunqi and Tianjin Panxue are backed by Hillhouse Capital and CITIC Industrial Investment Fund.

Although institutional investors have an exit demand, it has been just over four years since the December 2020 investment. Considering the typical 5-8 year investment cycle of funds, the notion of being "eager to cash out" seems somewhat forced. Moreover, Mixue'sIPO has attracted five cornerstone investors, collectively subscribing for approximately 1.558 billion HKD, with Meituan Longzhu and Hillhouse Capital among them. According to the Hong Kong Stock Exchange's regulations, shares subscribed by cornerstone investors have a lock-up period of at least six months.

From the equity structure of Mixue Bingcheng, prior to its listing, the founders Zhang Hongchao and Zhang Hongfu each held 42.78% of the shares, and through an employee stock ownership platform, each held an additional 0.45%, bringing their total shareholding to over 86%. After the listing, including the employee stock ownership platform, each brother's shareholding slightly diluted to 41.27%, totaling over 82%.

Under the founder-controlled structure, Mixue'slisting is more inclined towards raising additional funds rather than allowing investors to cash out existing shares. Some analysts believe the purpose of the listing might be to provide the company with a potential financing channel.

The overseas market has become a strategic focus for Mixue Bingcheng. The funds raised from the listing can help Mixuebuild a local supply chain with more resources to tackle competition from local low-cost brands, as well as challenges from local policy changes and religious customs.

The Supply Chain Secret Behind the Six-Yuan Drink

With a hefty purse, the first thing Mixueplans to do is to enhance its supply chain.

According to the prospectus, approximately 66% of the funds raised from this listing will be used to enhance the breadth and depth of the company's end-to-end supply chain.

Dubbed the "shovel seller" in the tea beverage track, Mixue Bingcheng, despite having over 99% of its stores as franchises, does not participate in operational commissions. In the first nine months of 2024, only 2.4% of its revenue came from franchise fees and related service fees, while 94.3% came from the sale of food, packaging materials, and other goods, with an additional 3.3% from equipment sales.

As a de facto supply chain company, Mixuemust maintain a delicate balance with its franchisees. They are both a community of shared interests and have a mutually exclusive relationship in terms of profit distribution.

Looking at past changes in gross profit margins, Mixuehas occasionally ceded some profits to franchisees. For instance, in 2022, Mixueproactively reduced the prices of 69 materials and equipment by 15% to help franchisees alleviate operational pressures during special periods.

Mixue Ice Cream & Tea follows a value-for-money strategy, with core product prices ranging from 2 to 8 yuan, averaging around 6 yuan. To cover store rent, utilities, labor, equipment depreciation, and renovation costs while leaving room for franchisee profits, Mixue Ice Cream & Tea must maintain a gross profit margin of over 30%, which requires minimizing the cost of each beverage to the extreme.

Image Source: Mixue Ice Cream & Tea Prospectus

Therefore, Mixue Ice Cream & Tea has been tirelessly deepening its supply chain, establishing central factories, building its own logistics system, and spending 10 years to develop five major production bases. Currently, the self-produced proportion of its beverage ingredients has reached as high as 60%, with core beverage ingredients achieving 100% self-production. The procurement costs are below the industry average, with costs for milk powder and lemons being approximately 10% and 20% lower than industry peers, respectively.

Mixue Ice Cream & Tea has even started producing its own packaging materials, reducing the cost of honey and fruit syrup bottles by 50%. Through smart factories and production lines, it has reduced the production loss rate of beverage ingredients to 0.71%, significantly lower than the industry average.

Even for external procurement, Mixue Ice Cream & Tea can leverage its scale advantage to secure better prices. For instance, with cups, the supplier Xintianli's revenue exceeded 1 billion yuan in 2023, and Mixue Ice Cream & Tea, as its second-largest customer alongside the largest customer Xiangpiaopiao, consistently accounts for over 60% of Xintianli's sales. The 2022 prospectus shows that the average procurement price for a cup by Mixue Ice Cream & Tea was only 0.18 yuan.

Enhancing the supply chain is not only about squeezing more profit margins but also about expanding production capacity through various initiatives.

Currently, it seems that Mixue Ice Cream & Tea does not lack production capacity, as there is still room for capacity utilization at its five major production bases, with some production lines still in the ramp-up phase.

Currently, the supply chain center for Mixue'soverseas operations remains in China. According to a previous article by The Economist, about 90% of the raw materials for Mixue'sIndonesian stores are produced in Chinese factories and imported. However, as Mixueexpands its overseas operations and develops localized products, localizing the supply chain is an inevitable trend. The company is planning to establish a multifunctional supply chain center in Southeast Asia.

After 40,000 Stores, How Can Expansion Continue?

In 2017, a person who had just started a business for two years asked Zhang Hongfu, "How can you open more than 1,000 stores?" Zhang seriously replied, "We only opened one store in the first 10 years."

It took Mixueanother seven years to grow from one store to over 1,000, and just six more years to expand from over 1,000 to more than 40,000 stores.

In comparison, it took Starbucks 26 years and McDonald's 54 years to grow from 1,000 to 40,000 stores.

In its early days, Mixueexperimented repeatedly with market positioning, product direction, franchising strategy, and operational management, eventually discovering a business model that suited them. This allowed for rapid replication and expansion. As of the end of September 2024, Mixuehad opened a total of 40,510 stores in China.

However, the increase in store density is also affecting the average performance of individual Mixuestores.

In the first nine months of 2024, the average daily terminal retail sales per store at Mixuedecreased by 5% year-on-year, the average number of drinks sold per store dropped by over 6,400 cups, and the average daily order volume per store decreased by nine orders.

Mixueno longer sets regional protection zones for franchise stores. As long as "the consumer traffic at the proposed store location is high and the demand for freshly made drinks is unmet," Mixuewill approve a "proposed store location that is 200 meters away from existing stores."

The risk warning in the prospectus states: "As we continue to open new stores in existing markets, we cannot guarantee that new stores will not cannibalize the business of existing stores."

According to data from Guozheng International, 42% of Mixue'sfranchisees operate two or more stores. Although there are policy incentives for existing franchisees to open new stores, the disappearance of regional protection has led some franchisees to complain: “(New stores at nearby locations) must be taken up, otherwise the traffic will be snatched away by others.”

Mixuehas also noticed this trend, and becoming a franchisee of the brand is increasingly challenging. On social media platforms, various guides for franchise interviews have even emerged.

However, this does not mean that Mixueis slowing down its pace of opening new stores. According to a report by LatePost, Zhang Hongfu once boldly declared at an executive meeting, “We want to open one million stores,” although it was a joke made in the heat of the moment, the ambition of the Zhang brothers is genuine.

To achieve greater scale, Mixueis consciously making its stores “sink down” and “go out.”

With its high cost-effectiveness, Mixue'spenetration rate in lower-tier markets is unmatched, surpassing the combined total of the second to fifth places. By the end of the third quarter of 2024, 57.2% of Mixue'sstores were located in third-tier cities and below, while only 4.8% were in first-tier cities.

Mixuealso sees its opportunities there. According to data cited in its prospectus, the compound annual growth rate of the ready-made tea beverage market in third-tier cities and below is the fastest among all city tiers, and by 2028, it will account for 51.6% of the total market size.

In March 2024, Huachuang Securities conducted an estimation, assuming the density of Mixuestores in new first-tier cities is one store per 29,000 people, the total number of stores in third-tier cities and below would approach 50,000.

The greater opportunity lies overseas.

In 2018, Mixuebegan its globalization strategy by entering the Southeast Asian market, starting with Vietnam. In 2021, Zhang Hongchao internally proposed the goal of “letting people around the world eat and drink well for two dollars.” By September 2023, based on the number of stores at the time, Mixuehad already become the top ready-made tea beverage brand in the Southeast Asian market.

As of the end of September 2024, Mixuehad opened 4,792 overseas stores in 11 countries, including 2,667 in Indonesia and 1,304 in Vietnam, all following the domestic franchise model.

Zhang Hongfu once serialized a 100,000-word entrepreneurial diary on JianShu, documenting the challenging development journey of Mixuefrom 1997 to 2017. Although the diary content has now been cleared, fragments left on the internet include such records: On Christmas in 2016, Zhang Hongfu reflected on the past year's experiences, feeling "as if I had ridden a roller coaster ten thousand times." He acknowledged the hard work of his partners and expressed his dream: to have at least 1 billion people share in the sweetness in 10 years.

Today, with Mixueselling 7.1 billion cups in just 9 months, it is clear that the company is no longer content with a customer base of 1 billion people. The goal was not set at the finish line from the start; ambition gradually expands it.