This is an English adaptation of a FoodBud historical article originally published on October 16, 2021.
For Mixue Bingcheng, external investment had become a necessary tool if it wanted to keep growing beyond its existing store network.
In 2021, the company was already moving on several fronts. It was receiving listing guidance from GF Securities for a planned A-share IPO, and it completed a strategic investment in Hui Tea, taking a 19% stake.
Key corporate moves that year included:
Mixue did not disclose the investment ratio at first, but based on Hui Tea information released in August, the deal was described as a strategic investment at the RMB10 million-plus level.
Investment by tea-drink chains was no longer unusual. Chayan Yuese had invested in Guoyaya; Heytea had invested in Seesaw and, more recently, plant-based brand YePlant. Hui Tea was Mixue’s first external investment, and Xuewang entering investment was broadly expected.
Hui Tea was founded in early 2015 and is headquartered in Dongguan, Guangdong. According to Narrow Door Dining Eye data cited in the article, Hui Tea had 77 stores, mainly in Dongguan and Shenzhen in Guangdong, and in Haikou and Sanya in Hainan. In its own brand introduction, Hui Tea said it planned to become a 1,000-store chain within three years.
Hui Tea’s core product is pearl milk tea. It had 36 SKUs across milk tea, fruit tea, cheese tea and other tea-drink lines, with an average ticket of about RMB10. Its signature product was “Golden Caramel Pearl Milk Tea.” With that hero SKU, Hui Tea said stores of only about 12 square meters could reach maximum monthly revenue of RMB500,000.
According to Hui Tea’s franchise recruitment materials, the brand’s blended gross margin was 68%. Its store models included:
Estimated investment for one Hui Tea store was RMB200,000-300,000, excluding rent and transfer fees. This included a RMB30,000 brand authorization fee, RMB10,000 store preparation and training fee, RMB10,000 deposit, RMB10,000 management fee, RMB75,000 equipment cost, and RMB60,000-80,000 decoration cost.
Hui Tea positioned itself as the first domestic brand to focus on pearl milk tea for seven consecutive years. The article noted that while China had strong pearl milk tea brands and strong grass-jelly brands, few stayed focused on one single hero product.
Around 2015, pearl milk tea’s reputation declined after online claims that tapioca pearls contained industrial gelatin and that drinking pearl milk tea was equivalent to eating plastic. Hui Tea founder Chen Zhihai spent about half a year researching suppliers and ultimately selected a Guangzhou food company to co-develop pearls made with natural tapioca starch and caramel flavor. The result was a translucent golden pearl that visually differed from the traditional black pearls in the market.
Hui Tea displayed traditional black pearls and its golden caramel pearls side by side in stores, with quality inspection reports placed below the jars. It also set up an in-store pearl experience area, where staff used a standard script explaining that the pearls were co-developed by the company, made from natural tapioca starch, and were positioned as healthier and chewier than ordinary pearls. Staff also guided customers to crush the pearls to see the tapioca-starch texture.
At Hui Tea’s Mission Hills New Town store, Golden Caramel Pearl Milk Tea sold up to 15,000 cups in a single month, accounting for more than 30% of product sales.
After establishing itself in Dongguan, Hui Tea began expanding outward. In 2016, Chen Zhihai traveled in Hainan and found that although milk tea stores were already common across local cities and counties, the operating standard lagged first-tier mainland cities by at least three years. While others saw a market still needing cultivation, he saw an opportunity to move early.
Hui Tea’s first Hainan store generated RMB180,000 in sales in its first month. The brand then replicated that model and opened more Hainan stores, with an expectation that it would reach 100 stores in Hainan that year.
Hui Tea also planned to build its own pearl production line, accelerate franchising, and introduce subsidy programs. For franchisees doing online promotion, headquarters would match spending at a 1:1 ratio. For store managers with chain-restaurant experience starting their own business, Hui Tea offered a franchise-fee waiver, and it also offered store decoration subsidies of up to RMB60,000.
The brand also pushed group orders through direct building-by-building outreach. Its operations team included a three-person special unit responsible not only for operations but also group-meal development. According to Chen Zhihai, the team visited buildings twice a week, carrying work badges, business cards, flyers and A4 clipboards to record customer needs and appear professional. Through hotel business channels, they learned about upcoming meetings and then contacted potential customers; typical order demand was more than 200 cups.
Mixue was also active in group orders. On delivery platforms, it launched a “large orders are better value” offer priced from RMB350 to RMB5,000, with the largest order at 1,000 cups. The campaign copy said: “For party bulk orders, Mixue is better value.” Cup-count options ranged from 50 and 66 cups to 500 and 1,000 cups, with combinations covering different order tiers.
Mixue had expanded nationwide through an extreme-value pricing model, store economics and franchising. But once store scale reached a certain level, maintaining stable growth became the next challenge.
The article estimated Mixue could reach 19,000 stores by the end of 2021. Wallace, a comparable large-scale chain, had reached a similar store count and had already penetrated towns below county level, approaching a ceiling for store-count expansion. For Mixue, external investment was becoming necessary for continued growth.
One direction was investment around categories and geography.
The article interpreted Hui Tea’s RMB10 million-plus investment as likely around RMB10 million. For a company like Hui Tea, it estimated that the equity sold could have been 10%-15%, assuming the founder still held close to 65% and an internal incentive equity pool of 20%-25% would be reasonable.
The Hui Tea deal was a trial investment in a similar milk-tea category. Through Hui Tea, Mixue could gain experience in southern China store expansion, store densification and investment execution.
As a tea-drink brand founded in Zhengzhou, Henan, Mixue was denser in northern markets. It had nearly 2,000 stores in Henan, and more than 1,000 stores each in Shandong and Hebei. In southern markets with many tea-drink brands, it was less dominant: Guangzhou and Shenzhen each had only slightly more than 100 Mixue stores.
Beyond tea drinks, Mixue had already entered coffee and ice cream. Its coffee brand was Lucky Cup, and its ice cream brand was Jilato; both were open for franchising. Their expansion speed, however, was much slower than the core tea-drink business.
If coffee and ice cream did not gain enough traction, investing in those categories would be a reasonable option for Mixue. Heytea had invested in Seesaw in coffee and entered plant-based products, an example of category-extension investment.
Another direction was geographic expansion, especially international markets.
Mixue had opened more than 200 stores in Vietnam under the MIXUE brand, though Vietnam’s severe pandemic conditions that year had slowed development. From an internationalization perspective, acquiring or investing in a tea-drink brand to extend physical market coverage overseas could offer broader growth space.
The article noted that brands such as Happy Lemon and The Alley had weakened in China but remained active in North American and European markets.
Mixue’s newly established supply chain, agriculture and trading companies were part of its supply chain buildout. Other tea-drink companies, including Heytea and Nayuki, also had supply-chain layouts. Agriculture could mean tea gardens or control over planting bases for specific fruits.
For example, exclusive tea garden control could support proprietary tea formulas. For fruit, the priority was raw-material quality control and stable supply; Heytea and Nayuki both had layouts around strawberries.
As tea-drink brands scale, they must control more of the chain from raw materials to in-store finished products. Long-tail products may be hard to scale, but raw materials for core products can be controlled from planting base through final store sale. The benefits are stable supply and the ability to capture upstream supply-chain profit.
Beyond ingredients, food-and-beverage companies have heavy demand for packaging materials, and packaging companies can also have capital-market value.
Examples cited included Jiamei Packaging, whose largest customer was Yangshengtang. Jiamei was listed, had a market value of RMB5.5 billion, and generated RMB1.4 billion in revenue in the first half of 2021. Another example was Nanwang Technology, a company connected to Wallace.
Nayuki’s prospectus showed that from 2018 to 2020, its largest supplier was Dongguan Zundao Environmental Packaging Industrial Co., Ltd. Nayuki founders Peng Xin and Zhao Lin indirectly held 50% of that company, while Luo Liangshan and Zhao Xingmin held the remaining 50%.
In 2020, Nayuki’s packaging-material cost was RMB280 million. Its packaging purchases from Zundao were RMB94 million, meaning Zundao supplied about 34% of that cost category.
For Wallace, its supply-chain company Huashi Foods listed Fujian Nanwang Environmental Technology Co., Ltd. as its fifth-largest supplier in 2020, with annual procurement of RMB130 million, equal to 3.57% of annual procurement cost.
On June 10, 2021, the Shenzhen Stock Exchange disclosed Nanwang Technology’s IPO prospectus filing, and its IPO materials were formally accepted. Nanwang planned to list on ChiNext.
Wallace family members appeared among Nanwang Technology shareholders, with a combined 27.74% stake, second only to Nanwang’s controlling shareholder and related parties. Nanwang’s second-largest shareholder was Huian Huaying Investment Center; its executive partner Huang Yanfei was the wife of Hua Huaiyu, Wallace’s actual controller and chairman. Nanwang’s third-largest shareholder, Huian Chuanghui Investment Center, included Hua Pengcheng as a limited partner; he was the son of Ling Shubing, another Wallace actual controller.
In addition, Huang Rong, who held 2.32% of Nanwang, was Hua Huaiyu’s niece. Chen Xiaofang, who held 1.96%, was the daughter-in-law of Hua Huaiyu’s uncle Hua Yungong.
Nanwang Technology sold 900 million paper bags per year, with an ex-factory price of RMB0.50 per bag. Its main customers included well-known consumer and restaurant brands such as KFC, McDonald’s, Starbucks, Meituan, Wallace, Uniqlo, Nike, Adidas, Anta, Xtep and Yishion.
The prospectus showed that in 2020, Nanwang’s top five customers were KFC, Wallace, Uniqlo, McDonald’s and Heytea, with sales of RMB178 million, RMB136 million, RMB71.5037 million, RMB46.9249 million and RMB29.8526 million respectively. The top five customers accounted for about 55% of revenue, indicating relatively high customer concentration.
Nanwang’s financials showed revenue of RMB513 million, RMB692 million and RMB848 million in 2018, 2019 and 2020 respectively, with year-on-year growth of 34.72% in 2019 and 22.66% in 2020. Net profit was RMB56.6257 million, RMB63.9901 million and RMB66.0464 million respectively.
For a large tea-drink brand, incubating a packaging-materials company gradually was plausible. It did not necessarily need to list, but it could still be a good business. The article also pointed to Coca-Cola’s plan to list its African bottling operation and raise USD8 billion.
Note: IPO, investment, valuation, store-count and forward-looking figures in this article are historical, from the 2021 source context.