ChaPanda (also known as Chabaidao) is poised to become the next Chinese tea brand to go public. The company recently submitted its prospectus to the Hong Kong Stock Exchange, aiming to secure the position of China’s second largest listed tea company. This move comes shortly after completing its first round of financing in June this year, leaving little room for market speculation.
According to the prospectus, ChaPanda’s revenue has surged from RMB 10.8 billion (USD 1.52 billion) in 2020 to RMB 42.3 billion (USD 5.96 billion) in 2022, accompanied by a net profit of RMB 9.65 billion (USD 1.36 billion) and a net profit margin of 22.8% last year.
ChaPanda’s listing application appears to have a sense of “cutting in line,” particularly in light of Mixue Bingcheng’s previous IPO attempt in September of the previous year. There are also rumors circulating about other brands, including Goodme, Auntea Jenny, Chagee, Xinshiqi, and Tianlala, contemplating their own listings.
Despite the active IPO queue, Mixue Bingcheng’s undecided listing prospects and the burst of the Nayuki capital bubble have undoubtedly dampened the enthusiasm of these brands. Nevertheless, the IPO battle has seemingly commenced.
From school gates to the stock exchange
In 2008, adjacent to a high school in Chengdu, 25-year-old Wang Xiaokun and his 27-year-old wife, Liu Weihong, jointly launched a milk tea shop. The shop, spanning only around 20 square meters, achieved success by attracting a substantial customer base, primarily students, with its affordably priced pearl milk tea.
Soon, they inaugurated a second branch within the Liulin campus of the Southwestern University of Finance and Economics. In the subsequent years, ChaPanda experienced gradual growth. Although its new products occasionally gained popularity, the brand remained largely confined to serving the student population in Chengdu.
In 2016, as the new tea beverage sector started to become crowded, Wang Xiaokun and his wife took two crucial actions: branding and franchising. Although these moves did not immediately create a significant impact, subsequent developments proved that ChaPanda was at least not lagging behind.
In the same year, Nie Yunchen, the founder of Hey Tea (formerly known as Royaltea), invested RMB 700,000 (USD 98,700) to acquire the “Hey Tea” trademark, solving the problem of counterfeit brands and subsequently securing over RMB 100 million (USD 14.1 million) in financing after a revival.
At the time, Nayuki, only a year old, also received its first round of financing and gained influence with its novel concept combining tea with European bread. Other new tea beverage brands like Goodme, Auntea Jenny, and Shuyi Shaoxiangcao also almost simultaneously prepared for market entry.
ChaPanda’s rapid growth began after it actively embraced the franchise model. In 2018, the company opened up nationwide franchise opportunities. According to the prospectus, ChaPanda had 2,242 stores in 2020, exceeding 5,000 in 2021. As of August 8, 2023, it had a total of 7,117 stores nationwide, establishing a strong market presence.
The rapid increase in stores also brought significant returns to ChaPanda. According to Frost & Sullivan, ChaPanda’s retail sales reached approximately RMB 13.3 billion (USD 1.87 billion) in 2022, with a compound annual growth rate (CAGR) of 139.7% from 2020 to 2022, ranking first among the top ten “new tea beverage” brands in China.
With just one product, mango pomelo sago, ChaPanda sold about 66.8 million cups in 2022, contributing nearly RMB 1.3 billion (USD 183.4 million) in revenue.
After years of dormancy, the past three years have seen explosive growth for ChaPanda. From 2020 to 2022, the CAGR of ChaPanda’s net profit reached 101.3%. In 2022, ChaPanda claimed the position of the third largest new tea beverage brand in China, occupying approximately 6.6% of the market share.
The positive momentum continued into the first quarter of 2023, with ChaPanda’s revenue reaching RMB 12.46 billion (USD 1.75 billion), a year-on-year increase of 52%, and net profit reaching RMB 2.85 billion (USD 402.1 million), a year-on-year increase of 50.7%.
In addition to the franchise model, ChaPanda’s expansion also benefited from the recovery of the tea beverage delivery market. CNNIC statistics show that the penetration rate of takeaway users dipped by 42.3% in 2020 but rebounded by 52.7% toward the end of 2021. This aligns with ChaPanda’s growth curve in online delivery, as its fulfillment of online orders through third-party platforms increased from 86.0% in January 2020 to 97.5% in March 2023. The percentage of online sales in ChaPanda’s retail revenue also increased from 47.6% in January 2020 to 58.0% in March 2023.
ChaPanda is also known as the “takeaway king,” with data from Meituan showing that several of ChaPanda’s stores fulfill over 10,000 takeaway orders per month.
The strong performance enabled ChaPanda to raise RMB 1 billion (USD 141.1 million) in its first fundraising round in June, valuing the company at RMB 18 billion (USD 2.53 billion). This amount is equivalent to what other tea beverage brands could only accumulate over several fundraising rounds.
Seizing this momentum, ChaPanda promptly submitted its listing application to the Hong Kong Stock Exchange, firing the first shot for the listing of new tea beverage brands.
The co-founders of ChaPanda, who have been selling milk tea for 15 years, may soon join the billion-dollar wealthy club. Forbes estimated that Wang Xiaokun, who owns nearly 60% of the company’s shares, has a net worth of approximately RMB 10.8 billion (USD 1.52 billion), while Liu Weihong, with a 33% stake, sees her wealth rise to nearly RMB 6 billion (USD 846.6 million).
Two faces to the franchise model
Similar to its formidable competitor Mixue Bingcheng, ChaPanda also operates under the guise of selling milk tea, earning revenue from franchisees and engaging in B-side business activities. However, there are significant differences between the two. Since 2012, Mixue Bingcheng has been cultivating its own supply chain, pushing low prices to the extreme and outpacing its competitors.
In contrast, ChaPanda sources various raw materials from external suppliers and then sells them to franchisees at a markup. In simple terms, ChaPanda functions essentially as a “middleman” or “scalper.” Revenue from the sale of goods and equipment to franchisees has consistently accounted for the absolute majority, around 95% from 2020 to the first quarter of 2023, among the three main sources of revenue—sales of goods and equipment, privileged franchise fees, and other income. Privileged franchise fee revenue has never exceeded 5%. Almost entirely supported by franchisees, ChaPanda’s franchise store proportion is as high as 99.9%.
The success of the franchise model has been validated in the new tea beverage industry, and tea beverage companies seeking rapid expansion tend to adopt a “more is better” attitude toward franchisees. ChaPanda, relatively unknown for a long time, has gained attention in a short period, which is also related to its expansion speed.
ChaPanda, highly dependent on the franchise model, is aware that it has a symbiotic relationship with franchisees. They prosper together, and they suffer losses together. The more capable the franchisee, the more money ChaPanda makes. If a franchisee encounters problems, ChaPanda’s brand is also damaged. However, ChaPanda’s management appears somewhat overwhelmed by the scale of expansion, and the brand has been repeatedly exposed to food safety issues, ranging from foreign objects in the food to expired ingredients and improper food storage.
In response, ChaPanda pointed out in the prospectus that the selection criteria for franchisees are strict. It takes about 60–100 days for a new store to go through the process from screening new franchisees to officially opening, and only about 4% of franchisee candidates are ultimately selected. To join ChaPanda, one not only needs to invest time and effort but also requires a thick wallet. Based on relevant data, opening a ChaPanda store requires a minimum investment of RMB 280,000 (USD 39,500), higher than most mid-tier tea beverage brands.
While ChaPanda is thriving on its own, franchisees are finding it challenging to make ends meet. According to a ChaPanda franchisee, the payback period for opening a store has extended to two years. Moreover, a high proportion of takeaway orders means it is more difficult to make money. After deducting platform fees, discounts, and packaging costs, the gross profit margin for a takeaway order is 35–40% lower than dining in-store.
In the current fierce competition for thousands of stores, many new tea beverage brands have announced plans for thousands of stores. Even leading players like Hey Tea and Nayuki, which initially focused on self-operation, have adopted the franchise model. While ChaPanda’s expansion speed is slowing down, with the number of new store openings decreasing from 2,843 in 2021 to 1,358 in 2022, other new tea beverages are becoming more attractive. For example, within half a year of opening the franchise model, Hey Tea surpassed 1,000 franchise stores.
The world of tea beverages
Mixue Bingcheng and Hey Tea are often regarded as benchmarks in the industry. The former’s unmatched low prices, coupled with its extensive network of over 20,000 stores, secure its position as the dominant brand, challenging any contender. The latter, positioned as high-end, has elevated milk tea to the status of Starbucks, leading the “consumption upgrade” trend in the new tea beverage industry.
ChaPanda has carved out a differentiated space, pricing its products between RMB 8–26 (USD 1.1–3.6), squarely in the mid-tier position. However, high-end brands are continually descending into the price range of RMB 10–20 (USD 1.4–2.8). The mid-tier segment, already saturated with competitors, cannot compete with the low prices offered by Mixue Bingcheng. Without a unique selling proposition, they find themselves locked in a competitive “cage.”
According to iResearch Consulting Group’s estimates, the market growth rates for the new tea beverage industry from 2023–2025 are 13.4%, 6.4%, and 5.7%, respectively. This suggests a gradual decline in the overall industry growth rate in the future. With no room for further price reductions, continued competition may lead to mutual harm. Opening more stores and competing in close proximity amounts to another form of internal competition—with no guaranteed victor.
The success of Mixue Bingcheng underscores a crucial fact: control over the supply chain is key. With its own production and processing capabilities, Mixue Bingcheng can control costs and confidently navigate low-price competition. This happens to be ChaPanda’s weakness. Its control over the supply chain is relatively weak, making it somewhat vulnerable. Data reveals that raw material costs account for about 50% of ChaPanda’s total revenue. Any fluctuations in raw material prices would immediately impact ChaPanda’s revenue and profit margins.
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The supply chain has also limited the distribution of ChaPanda’s stores. Unlike Mixue Bingcheng, which boasts a relatively even nationwide distribution, ChaPanda is mainly concentrated in the Southwest, East China, and South China markets, with fewer stores in the affluent North China region.
Currently, various new tea beverage brands are actively expanding their supply chains. For instance, Mixue Bingcheng is building a self-owned 100,000-ton plant-based cream production line. Hey Tea announced its plan to conduct independent R&D on its tea leaf formula. Goodme has invested RMB 1 billion (USD 141.1 million) to establish a raw material production base in Zhuji.
The raw materials for new tea beverages have stringent requirements for the cold chain and warehouse distribution of the supply chain, and the construction of relevant infrastructure is not something that can be accomplished overnight. Perhaps, considering this reason, ChaPanda is also exploring other potential growth points.
In the prospectus, when discussing future plans, it’s worth noting that the financing will be used to launch and promote a self-operated coffee brand and establish a network of coffee shops across China. Beyond the intense competition in the tea beverage market, ChaPanda aims to make coffee its second growth curve. Whether it is building a supply chain or selling coffee, ChaPanda needs money. Taking the lead over other brands could provide them with a significant advantage.
However, for ChaPanda, going public does not guarantee reaching the shore. Transforming capital into real competitive and combat power is a question that all new tea beverage brands preparing for an IPO must consider. Moreover, the failures of the two major players in the capital market have cast a shadow over the prospects of other brands going public.
The glory of being the second largest new tea beverage stock may not last long. Nayuki, the “new tea beverage leader,” has entered a long period of decline since its highly anticipated listing. Its stock price plummeted at the opening, reaching a low of HKD 3.6 (USD 0.4) per share, later fluctuating around HKD 4–6 (USD 0.5–0.7) per share, far below the issue price of HKD 19.8 (USD 2.5) per share. Mixue Bingcheng’s path to listing has also been quite bumpy. Its prospectus has been submitted for a year, and there is still no further news.
Which company will rise to become the second largest new tea beverage stock remains uncertain. Nonetheless, the tea beverage industry appears to have progressed beyond the early, brutal land-grabbing phase, and whichever player can raise more capital in the market will undoubtedly gain an advantage.
This article was adapted based on a feature originally written by and published on Dongcaidi (WeChat ID: znfinance). KrASIA is authorized to translate, adapt, and publish its contents.