MIXUE Ice City: How to tell the story after 40,000 stores?

Source: Snow Leopard Finance

■ Introduction

1. While Heytea competes for white-collar wallets with cheese grape drinks priced at 30 yuan in first-tier cities, MIXUE ICE CITY builds another parallel world in county commercial streets with ice cream at 2 yuan, lemonade at 4 yuan, and milk tea at 6 yuan.

2. Not lacking in funds but needing to stockpile reserves, not lacking in production capacity but needing to strengthen the supply chain, MIXUE ICE CITY aims to continue its story of 40,000 stores in overseas markets and cities at the third tier and below.

3. Some institutions estimate that if we assume a density standard of one MIXUE ICE CITY store for every 29,000 people in new first-tier cities, the total number of stores for the brand in third-tier cities and below will approach 50,000.

In 1997, Zhang Hongchao arrived in Zhengzhou with 3,000 yuan given by his grandmother and opened the first "Cold Wave Shaved Ice" shop, probably not imagining that this street stall brand, later renamed "MIXUE ICE CITY," would become a darling of the capital market 28 years later.

On March 3, MIXUE GROUP (hereinafter referred to as "MIXUE ICE CITY") debuted on the Hong Kong Stock Exchange. As of 9:35 AM, the stock price of MIXUE ICE CITY had risen over 30% from the issue price, with a market value exceeding HKD 99 billion, approximately twice the combined market value of Nayuki, Gu Ming, and Cha Bai Dao, which are also listed on the Hong Kong Stock Exchange. Previously, all three companies closed their first trading day below the issue price.

While Heytea competes for white-collar wallets with cheese grape drinks priced at 30 yuan in first-tier cities, MIXUE ICE CITY builds another parallel world in county commercial streets with ice cream at 2 yuan, lemonade at 4 yuan, and milk tea at 6 yuan.

Today, MIXUE ICE CITY has reached 45,302 stores globally, surpassing Starbucks, becoming the largest ready-to-drink beverage company in China and even globally. In terms of beverage output, MIXUE ICE CITY holds a 52.8% market share in the domestic ready-to-drink tea market _ (for the first nine months of 2024) _. This means that on average, for every two cups of ready-to-drink tea sold in the country, one cup is from MIXUE ICE CITY.

However, what truly drives the capital market crazy is the magical data combination of "6 yuan pricing, 32% gross profit margin," along with sustained high growth in revenue and net profit under substantial scale. In 2022, 2023, and the first nine months of 2024, MIXUE ICE CITY's revenue growth rates were 31%, 50%, and 21% year-on-year, while net profit growth rates were 5%, 58%, and 42%, respectively.

During the public offering phase, MIXUE ICE CITY's financing subscription multiple reached 5,125 times, with a subscription amount of HKD 17.7 trillion, setting a historical record for Hong Kong stock IPOs.

Under the heavy halo, this "supply chain company" selling water entered its moment of glory as soon as it was listed.

01

Not lacking in funds, but still needing to stockpile reserves

On the surface, MIXUE ICE CITY does not lack funds. In 2022, 2023, and the first three quarters of 2024, MIXUE ICE CITY achieved revenues of 13.6 billion yuan, 20.3 billion yuan, and 18.7 billion yuan, with net profits of 2 billion yuan, 3.2 billion yuan, and 3.5 billion yuan, respectively.

With considerable revenue, substantial profits, and ample cash flow, by the end of the third quarter of 2024, MIXUE ICE CITY's net current assets amounted to 7.218 billion yuan, with cash and cash equivalents at 5.98 billion yuan, a year-on-year increase of 59% According to the prospectus, MIXUE ICE CITY aims to raise a net amount of approximately HKD 3.291 billion through this IPO, equivalent to about RMB 3.08 billion. Considering the nearly RMB 6 billion cash on its balance sheet, this fundraising amount is not high.

The urgency of MIXUE ICE CITY's listing is evident.

In 2021, shortly after Nayuki's Tea went public, MIXUE ICE CITY had plans for an A-share listing and submitted its A-share listing application to the China Securities Regulatory Commission in September 2022, targeting the main board of the Shenzhen Stock Exchange. After the plan was shelved, it submitted a prospectus to the Hong Kong Stock Exchange in January 2024, but did not enter the hearing stage, and the application materials expired in July of that year. In January 2025, MIXUE ICE CITY updated its listing application and successfully made its third attempt to enter the capital market.

The cash-rich "Snow King" is eager to go public, with one theory suggesting that there are investors pushing from behind.

An article from Wu Xiaobo Channel suggests that leading brands like MIXUE ICE CITY have a mature profit model, and the current valuation level is relatively high. Behind the high valuation is an expectation of high growth. In an increasingly competitive environment, going public now to sell at a "good price" may be the best choice.

MIXUE ICE CITY's first and only public financing occurred in December 2020, with investors including Longzhu Meicheng, Shenzhen Yunqi, and Tianjin Panxue, who invested RMB 933 million, RMB 933 million, and RMB 467 million respectively, holding 4%, 4%, and 2% of the shares.

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 exit demands, it has only been a little over four years since the investment in December 2020. According to the conventional fund investment cycle of 5-8 years, the notion of "eager to cash out" seems somewhat forced. Moreover, MIXUE ICE CITY's IPO has introduced five cornerstone investors, collectively subscribing for approximately HKD 1.558 billion, including Meituan Longzhu and Hillhouse Capital. According to Hong Kong Stock Exchange regulations, the shares subscribed by cornerstone investors must have a lock-up period of at least six months.

From the perspective of MIXUE ICE CITY's equity structure, prior to the listing, founders Zhang Hongchao and Zhang Hongfu each held 42.78% of the shares and each held an additional 0.45% through employee stock ownership platforms, totaling over 86% ownership. After the listing, including the employee stock ownership platform's portion, their respective shareholding ratios were slightly diluted to 41.27%, totaling over 82%.

Under the structure controlled by the founders, MIXUE ICE CITY's listing appears to lean more towards incremental financing rather than allowing investors to cash out their existing holdings. Some analysts believe the purpose of the listing may be to provide the company with a potential financing channel.

The overseas market has become a strategic focus for MIXUE ICE CITY. Listing financing can help MIXUE ICE CITY build a local supply chain with more ample resources to cope with competition from local low-cost brands in various markets, as well as challenges from local policy changes, religious customs, and other factors.

02

The Supply Chain Code within 6 Yuan

With a bulging wallet, the first thing MIXUE ICE CITY plans to do is to strengthen 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 Known as the "shovel seller" in the tea beverage sector, MIXUE Ice City has over 99% of its stores as franchise stores, but it 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% of its revenue came from the sale of food, packaging materials, and other products, with an additional 3.3% from equipment sales.

As a de facto supply chain company, MIXUE Ice City must maintain a delicate balance with its franchisees. Both parties are a community of shared interests, yet there exists a relationship of mutual benefit and trade-offs in profit distribution.

From past gross margin fluctuations, MIXUE Ice City has timely transferred some profits to franchisees. For example, in 2022, MIXUE Ice City proactively reduced the prices of 69 materials and equipment by 15%, helping franchisees alleviate operational pressure during special periods.

Data source: MIXUE Ice City 2022 and 2025 prospectus

Chart: Snow Leopard Finance

A win-win solution is naturally to lower procurement costs, making the cake easier to share.

MIXUE Ice City follows a cost-performance route, with core product prices ranging from 2 to 8 yuan, averaging just 6 yuan. To cover store rent, utilities, labor, depreciation of equipment and renovations, while also leaving profit margins for franchisees, if MIXUE Ice City wants to maintain a gross margin of over 30%, it must minimize the cost per cup of beverage to the extreme.

Image source: MIXUE Ice City prospectus

Therefore, MIXUE Ice City has been tirelessly deepening its supply chain, establishing central factories, building its own logistics system, and spending 10 years to establish five major production bases. Currently, the self-sourcing ratio of MIXUE Ice City's beverage ingredients has reached 60%, with core beverage ingredients achieving 100% self-sourcing, and procurement costs lower than the industry average, such as milk powder and lemon procurement costs being approximately 10% and over 20% lower than peers, respectively.

MIXUE Ice City has even started producing its own packaging materials, reducing the cost of packaging bottles for honey and fruit syrup by 50%, and has lowered the production loss rate of beverage ingredients to 0.71% through smart factories and production lines, far below the industry average.

Even for external procurement, MIXUE Ice City can secure better prices due to its scale advantages. For example, for cups, the supplier Xintianli's revenue exceeded 1 billion yuan in 2023, and MIXUE Ice City, as its second-largest customer, along with 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 at MIXUE Ice City is only 0.18 yuan.

In addition to further squeezing profit margins, MIXUE Ice City plans to expand production capacity through various measures.

Currently, it seems that MIXUE Ice City does not lack production capacity, as the utilization rate of the five major production bases still has room for improvement, and some production lines are still in the ramp-up phase

Image source: MIXUE Ice City prospectus

However, at this stage, the supply chain center for MIXUE Ice City’s overseas business is still located in China. According to a previous article by The Economist, about 90% of the raw materials for MIXUE Ice City’s stores in Indonesia are produced and imported from Chinese factories. As MIXUE Ice City expands its overseas business and develops localized products, localizing the supply chain is an inevitable trend, and MIXUE Ice City is also planning to establish a multifunctional supply chain center in Southeast Asia.

03

After 40,000 stores, how else can it expand?

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

From one store to more than 1,000 stores, MIXUE Ice City took another 7 years, while it took only 6 years to grow from over 1,000 to more than 40,000.

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

In its early days, MIXUE Ice City repeatedly experimented with market positioning, product direction, franchise strategies, and operational management, eventually finding a business model that suited itself, which was then rapidly replicated and expanded. As of the end of September 2024, MIXUE Ice City had opened a total of 40,510 stores in China.

However, the increase in store density is also affecting the average performance of MIXUE Ice City’s stores.

In the first nine months of 2024, the average daily retail sales per store for MIXUE Ice City decreased by 5% year-on-year, the average beverage output per store decreased by more than 6,400 cups, and the average daily order volume per store also decreased by 9 orders.

MIXUE Ice City no longer sets regional protection for franchise stores; as long as “the consumer traffic at the store location is high and the demand for freshly made beverages is unmet,” MIXUE Ice City will approve “proposed store locations that are 200 meters away from existing stores.”

In the risk warning of the prospectus, it states: “As we continue to open new stores in existing markets, we cannot guarantee that new stores will not encroach on the business of existing stores.”

According to data from Guozheng International, 42% of MIXUE Ice City’s franchisees operate two or more stores. Although there are policy preferences for old franchisees opening new stores, the disappearance of regional protection has led some franchisees to complain: “(New stores near existing locations) must be opened, otherwise the traffic will be taken away by others.”

MIXUE Ice City has also noticed this, and it is becoming increasingly difficult to franchise as a “Snow King.” Various franchise interview strategies have even appeared on social media platforms.

But this does not mean that MIXUE Ice City intends to slow down its pace of opening stores. According to a report by "Late Point," Zhang Hongfu once boldly declared at an executive meeting, “We want to open 1 million stores.” Although it was a momentary joke, the ambition of the Zhang brothers is real.

To achieve a larger scale, MIXUE Ice City is consciously allowing stores to “sink down” and “go out.”

With its high cost-performance ratio, MIXUE Ice City has a penetration rate in lower-tier markets that far exceeds the combined total of the second to fifth places. By the end of the third quarter of 2024, 57.2% of MIXUE Ice City’s stores were located in third-tier cities and below, while only 4.8% were in first-tier cities MIXUE Ice City also believes its opportunities lie there. According to data cited in its prospectus, the compound annual growth rate of the ready-to-drink tea shop 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 overall market size.

Huachuang Securities conducted a calculation in March 2024, assuming that the density standard of one MIXUE Ice City store for every 29,000 people in new first-tier cities would apply, the total number of stores for Xue Wang in third-tier cities and below would be close to 50,000.

There is even greater potential overseas.

In 2018, MIXUE Ice City began testing the Southeast Asian market with Vietnam as its first stop, initiating its globalization strategy. In 2021, Zhang Hongchao proposed an internal goal of "two dollars to let people around the world eat and drink well." By September 2023, based on the number of stores at that time, MIXUE Ice City had become the number one ready-to-drink tea brand in the Southeast Asian market.

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

Zhang Hongfu once serialized a 100,000-word entrepreneurial diary on JianShu, documenting the bumpy development journey of MIXUE Ice City from 1997 to 2017. Although the diary content has now been cleared, there are records left on the internet: on Christmas 2016, Zhang Hongfu reflected on the past year's experiences, feeling "like riding a roller coaster a thousand times." He expressed his hardships to his partners and shared his dream: in 10 years, to let at least 1 billion people share sweetness.

Now, with the ability to sell 7.1 billion cups in 9 months, MIXUE Ice City is clearly no longer satisfied with a customer base of 1 billion. The goal is not to be at the finish line from the start; ambition will gradually expand it