In Depth: Pressure Builds on Trailblazing Chinese Bubble Tea Brand Mixue

Mixue, a Chinese seller of affordable bubble milk teas, has expanded rapidly across Southeast Asia by leveraging its scale and control over the supply chain to offer lower prices than local competitors [para. 1]. With over 36,000 stores worldwide, Mixue Bingcheng Co. Ltd. offers drinks priced between 2 to 10 yuan, significantly cheaper than competitors like HeyTea and Nayuki, who charge much more [para. 2]. Despite its success, Mixue’s lack of product differentiation might pose future challenges, as highlighted by its difficulty in achieving a successful IPO listing [para. 3][para. 4].

The company began its global expansion in 2016, focusing on Southeast Asia due to factors like lower labor costs and a conducive regulatory framework, with its first international store opening in Vietnam in 2018 [para. 5][para. 6][para. 7]. The choice of Vietnam was strategic, considering its proximity to China and cultural familiarity with milk tea [para. 8]. By September of the previous year, Mixue had around 4,000 stores spread across 11 countries [para. 9]. In Malaysia alone, Mixue had about 300 stores by June, and it attracts franchisees by not charging royalty fees and offering promotional support [para. 10].

Mixue’s aggressive pricing and innovative marketing strategies have significantly impacted local Southeast Asian markets. For instance, a Malaysian franchisee noted how Mixue’s low prices have driven local milk tea brands out of business [para. 11][para. 12]. While the company has halted franchisee recruitment in Indonesia and Singapore, it continues expanding in countries like Thailand, with Indonesia remaining a stronghold with over 2,400 stores [para. 13][para. 14]. The company’s franchise model, capitalizing on partnerships with smartphone distributors, accelerated its growth by leveraging the local market knowledge of these tech entrepreneurs [para. 15][para. 16]. This model inspired new competitors like MOMOYO in Indonesia, founded by a former smartphone distributor, which quickly became the second-largest chain in the country [para. 17].

Mixue’s success abroad set a precedent for other Chinese beverage brands like Heytea and Luckin Coffee to expand internationally [para. 18]. The company operates 11 overseas warehouses serving around 300 cities in Southeast Asia, using tailored import strategies to keep costs low [para. 19]. The franchising model generates over 90% of Mixue’s revenue from the sale of ingredients and equipment to franchise stores, with 99.8% of its stores being franchises as of September [para. 20][para. 21]. Despite being profitable, with net profits of 2.4 billion yuan for the first nine months of 2023, investors remain skeptical about its long-term profitability [para. 22].

Challenges from rising local competitors and market saturation are increasing, notably in Indonesia, where many new tea brands have emerged [para. 23][para. 24]. Analysts point out issues like product homogeneity and low consumer switching costs, which undermine brand loyalty and intensify competition, leading to market saturation [para. 25]. These factors have caused valuation challenges, evident in the poor stock performance of companies like Chabadao and Nayuki in Hong Kong [para. 26].

Mixue’s failed IPO underscores industry-wide challenges, attributed to a lower-than-expected valuation and unmet financing goals [para. 27]. The market's rapid saturation has slowed Mixue’s growth, particularly in Indonesia, where quick profitability is no longer assured [para. 28]. Hence, Mixue’s future in the competitive and evolving milk tea market remains uncertain [para. 29].