Market researchers forecast continued expansion of the global bubble tea market, but wary investors caution that the bubble may burst.
There are currently six Chinese bubble tea makers separately weighing overseas initial public offerings, reports Bloomberg News.
Hong Kong IPOs include Auntea Jenny, with 6,000 locations; ChaiBaiDao, also with 6,000 locations; GoodMe, with 6,700 locations; Mixue, with 28,000 locations; and XSQ Tea, with 1,600 locations. Chagee, with 1,860 locations, filed for an IPO in the US.
Numerous market reports, priced from $995 to $4,900, project high-octane acceleration globally. Fortune Business Insights estimated the global bubble tea market at $2.46 billion in 2023 and sees it expanding to $2.46 billion in 2024 and reaching $4.78 billion by 2032.
Grand View Research estimates compound annual growth of 8.9% for seven years, increasing market value to $5.42 billion by 2030. Verified Market Research estimates the market will grow to $5.49 billion by 2031. Allied Market Research projects 10-year growth to $5.4 billion, and Future Market Insights anticipates a high of $6.17 billion by 2033.
Straits Research predicts the global market will expand to $6.46 billion in 2032.
China Chain Store & Franchise Association estimates the bubble tea market was worth about 145 billion yuan ($20 billion) in 2023. Unit sales have since slowed, as have share prices.
Bloomberg writes, "Chinese regulators issued guidelines earlier this year discouraging certain companies from listing in the domestic A-share market. Using so-called window guidance, regulators discreetly advised that companies that rely on explosive franchise business models also cannot list locally, according to a person briefed on the matter.”
“Food and beverage chains were reportedly among companies banned from listing in China’s main exchanges, according to Chanson & Co.’s Shen Meng, “especially projects that are burning money in order to surge in scale,” according to the Bloomberg report.
Market saturation, concerns about whether bubble tea is a passing trend, questions about its healthfulness, high operational costs, and steep pricing amid economic uncertainty threaten the viability of franchise retailers that have made the drinks available in major cities worldwide.
The biggest impediment to expansion may be the limits imposed by the build-out rush. Companies that rely on opening new stores to sustain revenue growth often experience a decline in gross profit margins due to higher costs associated with store operations and management. The market may look promising but individual ventures share an inherent weakness.
In May, the BBC in London produced a report examining why investors are wary of fueling the expansion of retail outlets. China has a half million bubble tea shops, the largest market for the sweet, chilled combination of tea, syrups, tapioca pearls, and various toppings, including frothed cheese.
BBC cited the example of Nayuki Holdings, a Chinese bubble tea chain that briefly made its founding couple billionaires after going public in 2021. According to Bloomberg, the company’s stock, issued in Hong Kong, has since declined 90% from its IPO price, lowering the net worth of founders Peng Xin and Zhao Lin from $2.2 billion to $300 million.
A similar fate befell China's third-largest bubble tea chain, Sichuan Baicha Baidao Industrial, known as Chabaidao, which made its stock market debut in April. The shares plunged on their first day of trade and have yet to recover.
Mixue, China’s most significant chain with 25,000 locations in China and 3,000 overseas, announced in January that it would file a $918 million Hong Kong IPO. It then put the offering on hold until this summer, when it revived the filing.
In the BBC report, senior economist Gary Ng at Natixis in Hong Kong explained that “Chinese food and beverage chains usually reply on quick expansion to achieve a large market share and pitch the story to investors as the exit strategy.”
Ng said, “It also means that the corporate health of these firms may not be very sound with leverage, and the chains are usually highly replaceable if there are new, good competitors.”