China’s Milk Tea Tycoons Struggle To Stay Afloat In Over-Brewed Market

ChaPanda shares had a rocky start on the Hong Kong Stock Exchange.

CFOTO/Future Publishing via Getty Images

China’s milk tea industry minted several billionaires, but they are struggling to hold onto their wealth due to extreme competition.

On Tuesday, Wang Xiaokun, chairman of milk tea chain ChaPanda, briefly lost his billionaire status after a rocky IPO. Shares in the Chengdu, Sichuan-based company, which is China’s third-largest freshly made tea drinks firm by sales, plunged as much as 38% in their first day of trading in Hong Kong. The company raised HK$2.6 billion ($330 million) by offering 147.8 million shares for HK$17.5 apiece, which was the largest new share offering in Hong Kong this year.

The 41-year-old Wang’s wealth was $1.4 billion based on his company stake at the time of IPO pricing. Wife Liu Weihong was worth $770 million based on her own stake. But Wang’s net worth dropped to $960 million at one point Tuesday as the stock plunged during trading.

The shares rebounded but investors and analysts are voting with their feet. “In the future I don’t really see any upside,” says Dickie Wong, executive director of research at Hong Kong-based Kingston Securities. “Obviously this isn’t the sector I will pick.”

Chief among Wong’s concerns are cut-throat competition and a lack of customer loyalty. Like competitors Mixue Bingcheng, which is applying for its own IPO in the city, and Hong Kong-listed Nayuki, ChaPanda offers drinks that mix ingredients such as tea, fruit, milk and chewy balls of tapioca.

They are highly popular with China’s young, and ChaPanda and Mixue are still growing — at least for now. In ChaPanda’s case, sales increased 34.8% to 5.7 billion yuan ($788 million) last year. Profit attributable to shareholders was 1.14 billion yuan, up 20% from 2022.

But there is little customer loyalty for the drinks, which typically sell for $2-3 per cup. Wong isn’t optimistic about the company’s prospects. “They can’t maintain growth because most of the teenagers don’t have loyalty to a particular cha yin [milk tea] company,” he says. “They may like this brand today but they may not come anymore the day after.”

ChaPanda didn’t respond to a request for comment. Its stock market flop appears to be similar to that of Nayuki. After raising HK$5.09 billion in a 2021 IPO, the first for a bubble tea chain in the city, Nayuki fell more than 10% on its first day of trading. To date, the stock has lost almost 90% of its value. Cofounders Peng Xin and Zhao Lin, the married couple who started the Shenzhen-based chain in 2014, dropped out of the world’s billionaire ranks two months after the IPO.

Amid the slump, Forbes has revised downward the net worth of the brothers who cofounded Mixue Bingcheng, China’s largest bubble tea chain with 36,000 stores, Zhang Hongchao and Zhang Hongfu. Each now has an estimated wealth of $980 million based on company stakes, down from $1.2 billion in January. Back then, Mixue Bingcheng was valued at $2.9 billion based on higher financial multiples used at the time, according to Forbes estimates.

Like ChaPanda, Mixue Bingcheng, whose name means “sweet snow palace,” uses a franchise model. The companies are responsible for coming up with recipes, and they generate revenues by providing ingredients and equipment to franchised stores.

Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities International, says future growth — if any — will depend on opening more stores. But investors are no longer enthusiastic about the sector because of rising costs and fierce competition over good store locations.

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