With a net profit of 3 billion yuan a year, what is the secret of Mixue Ice City?

Wen| Zebra Consumption Chen Biting

The flavor of milk tea in Hong Kong stocks is getting stronger and stronger. After Naixue’s tea, tea hundreds and ancient tea, Hong Kong stocks are about to usher in the fourth share of new tea drinks. A few days ago, Snow King Mixue Ice City passed the listing hearing on the Hong Kong Stock Exchange and was about to be listed.

With the support of 45,000 stores, Mixue Ice City sells about 9 billion drinks a year and has become the world’s largest freshly made beverage company with an annual net profit of more than 3 billion yuan.

Focusing on sinking the market and relying on selling milk tea for a few yuan a cup, how did the seemingly low-end Mixue Ice City become king step by step? Read its prospectus carefully, which contains all the secrets.

The world’s snow king”

In 1997, Zhang Hongchao, a graduate of Henan University of Finance and Economics (now Henan University of Finance and Economics), opened an ice shaving shop with only two to three square meters in Zhengzhou’s largest urban village. Cold current shaving ice. This is the predecessor of Mixue Ice City.

In the following years, Zhang Hongchao started a business continuously under the brand name Mixue Ice City. He opened Chinese and Western restaurants and home-cooked restaurants. However, whenever the business improved slightly, the store faced the risk of being demolished.

It was not until 2005 that Zhang Hongchao developed an egg cone ice cream that sold for 1 yuan that Mixue Ice City gained a firm foothold in the market with this core item.

Today, Mixue Ice City has stores all over China and even overseas. Almost everyone knows it.

As of the end of September 2024, Mixue Ice City has 45,000 stores in 31 provinces (autonomous regions and municipalities directly under the Central Government) in mainland China, covering more than 300 prefecture-level cities, 1700 counties and 4900 townships. Among them, there are about 4800 stores located in Southeast Asia such as Indonesia and Vietnam.

Based on the number of stores, Mixue Ice City is already the world’s largest freshly made beverage company. According to the cup output volume in 2023, China ranks first and second in the world. Among the existing beverage industry in China, Mixue Ice City ranks first with a terminal retail share of approximately 11.3% and a beverage output share of 32.7%, and the output volume far exceeds the sum of the second to fifth places in the industry. In 2024, Mixue Ice City sold a total of approximately 9 billion cups of drinks, achieving terminal retail sales of approximately 58.3 billion yuan.

The large store network has created Mixue Ice City’s super profitability.

From 2022 to 2023 and the first nine months of 2024, the company achieved operating income of 13.6 billion yuan, 20.3 billion yuan and 18.7 billion yuan, year-on-year increases of 31.2%, 49.6% and 21.2% respectively; in the same period, net profit was 2 billion yuan, 3.2 billion yuan and 3.5 billion yuan respectively, a year-on-year increase of 5.3%, 58.3% and 42.3%.

Based on 2023 results, Mixue Ice City’s revenue is 1.756 billion yuan more than the sum of the top three milk tea stocks, Naixue Tea (5.164 billion yuan), Chabaidao (5.704 billion yuan), and Guming (7.676 billion yuan). The net profit is 1 billion yuan higher than the sum of these three companies.

For franchisees, Mixue Ice City pays first and then delivers goods, and its cash flow is surprisingly good. In the same period mentioned above, the company’s net inflow of continuing operating cash flow was 2.4 billion yuan, 3.8 billion yuan and 5.1 billion yuan respectively. Therefore, Mixue Ice City is not short of money. As of the end of September 2024, the company’s cash and cash equivalents reached nearly 6 billion yuan.

In the development process of more than 20 years, Mixue Ice City has only conducted external financing once. At the end of 2020, three institutions, including Longzhu Meicheng, Shenzhen Yunqi, and Tianjin Panxue, invested 933 million yuan, 933 million yuan and 467 million yuan respectively in shares, and the company’s post-investment valuation reached 23.3 billion yuan.

This time, what valuation will Mixue Ice City use to land in Hong Kong stocks? You can benchmark ancient tea that has just been launched and calculate a relatively reliable answer.

Milk tea is just a coat

Like the vast majority of existing tea brands in China, Mixue Ice City has been able to expand rapidly, mainly relying on franchisees to expand territory on the front line.

New tea brands on the market are divided into high, medium and low-end based on product pricing. Mixue Ice City’s products are concentrated in the price band below 10 yuan. In the low-end market it focuses on, there are few strong opponents.

The terminal price of the product is low. On the premise of ensuring quality, it is necessary to make both franchisees and companies profitable. How can Mixue Ice City achieve a balance?

First of all, Mixue Ice City focuses on sinking the market. Compared with other mid-to-high-end new tea brands, the joining threshold is relatively low, and franchisees can open stores with relatively low upfront investment. The prospectus shows that the franchise fee for Mixue Ice City is usually between 7000 yuan and 11000 yuan, which is much lower than other mainstream new tea brands.

The prospectus shows that during the performance record period, Mixue Ice City received more than 4.2 million franchise inquiries, and in the end, less than 5% of the franchise applications were approved.

Franchise fees account for a very small proportion of Mixue Ice City’s revenue. The core source of income is the sale of equipment and materials to franchisees, which tests the company’s supply chain construction and management capabilities.

As early as 2012, Mixue Ice City began to build its own production capacity, which is the biggest difference between the company and other new tea brands, creating its own core competitiveness.

As of September 2024, the company has built five major production bases in Henan, Hainan, Guangxi, Chongqing and Anhui, covering a total area of approximately 790,000 square meters and an annual comprehensive production capacity of approximately 1.65 million tons. Through its self-developed and self-produced system, the company can provide one-stop beverage and ingredient solutions for all categories including sugar, milk, tea, coffee, fruits, grains, and ingredients. Recently, the company obtained a food production license for liquid milk products, becoming the only existing beverage company in China to hold this license.

According to the Zhuoshi Consulting report, Mixue Ice City has become the enterprise with the most complete production categories and the largest scale in the current beverage supply chain in China.

The huge self-built production capacity allows Mixue Ice City to build a procurement network covering six continents and 38 countries around the world starting from the raw material side. With the advantage of scale of bulk purchases, you can get purchase prices lower than the industry average.

In 2023, the company’s purchases of lemons, milk powder, oranges, tea, and green coffee beans will be approximately 115,000 tons, 51,000 tons, 46,000 tons, 16,000 tons and 16,000 tons respectively. Among them, only milk powder and lemons are of the same type and quality. The purchase cost is about 10% and more than 20% lower than the average level of the same industry respectively.

Mixue Ice City not only produces its own beverage raw materials, but also independently produces some core packaging materials and equipment. In the first nine months of 2024, the company’s self-produced honey and fruit honey packaging bottles are about 50% lower than the external purchase price.

The cost savings on the production side are ultimately transformed into profits in the company’s financial statements.

Wearing the guise of a new tea brand, opening the most stores and becoming the largest supplier of beverage raw materials are all the secrets of Mixue Ice City’s great profits.

Even so, Mixue Ice City does not rest easy. At a time when corruption in the new tea and beverage industry is becoming increasingly serious, the company’s terminal stores are also experiencing operating pressure.