Bubble tea bubble: Why investors discount the popular drink

Bubble tea and boba have come a long way from their origins in Taiwan in the 1980s to today’s global craze.

Ask anyone under the age of 40 anywhere in the world if they’ve ever tried milky tea mixed with tapioca balls, and there’s a good chance they have.

Bubble tea has certainly been well-received by many fans, but it has left some investors feeling bitter.

Two China-based chains have already debuted on the stock market We’re screwed. And at least two more stock sales are planned.

Despite these problems, there’s no denying that boba’s popularity spread from Asia to the West, making boba a global phenomenon.

From London to Helsinki, Buenos Aires to Cape Town, it’s almost impossible to find a major city without a sale going on.

Currently, there are an estimated 500,000 bubble tea shops in China alone, which is a huge market for tapioca drinks, and it is not far from its birthplace of Taiwan.

Lili, a university lecturer in her 30s who lives in Guangzhou, southern China, first started drinking when she was in elementary school.

Now she can’t go long without a touch-up. “I drink bubble tea a lot because it’s something I can enjoy easily,” she says.

Tina, a 30-year-old office worker from Beijing, has a similar story. She first tried boba when she was a child and she now drinks boba several times a week. She often makes group orders from various famous stores with her colleagues and friends.

Thanks to Lili, Tina, and millions of others like them, China’s bubble tea business has grown into a national industry, reaching its peak in the last year, according to estimates from the China Chain Store and Franchise Association. It was valued at around 145 billion yuan ($20 billion, £15.9 billion).

“Innovation is the key to success, with new flavors and recipes being launched all the time,” said Jason Yu of consumer research group Kantar Worldpanel.

It’s a strategy you can relate to. Lily She says “promotional campaigns, brand collaborations and new flavors” keep her coming back.

This approach has also helped the bubble tea chain expand beyond China’s major cities, Yu said.

This success story continues even at a time when China’s economy is slowing and consumers are tightening.

Bubble tea “offers affordable indulgence to Chinese consumers,” Yu said, noting the “wide price range” of products offered by different bubble tea chains.

But some investors aren’t showing the same level of enthusiasm.

Hoping to capitalize on this boom, several Chinese tea chains have considered offering their shares to the public in recent years.

Last month, China’s third-largest tapioca chain, Sichuan Baicha Baidao Industrial (also known as Chabaidao), made its stock market debut.

The stock price plummeted on the first day of trading and has yet to recover.

This was followed by another disappointing debut for Shenzhen-based Nayuki.

The company’s shares have lost more than 80% of its value since it was founded in Hong Kong about three years ago.

Analysts have pointed to a number of reasons for this weakness, including concerns about the Hong Kong stock market as a whole.

Since the beginning of this year, the amount raised in new listings in the city has fallen to the lowest level since 2009, according to consulting firm Deloitte.

However, this did not deter other bubble tea chains from planning their own share sales.

Earlier this year, Mixue Group and Guming Holdings, China’s No. 1 and No. 2 chains by number of stores, applied to list on the Hong Kong Stock Exchange.

Gary Ng, senior economist at Natixis, said the main reason for Chabaidao’s market failure was “the continued weakness in market sentiment in Hong Kong.”

He believes the city will struggle to attract new listings until there are “clear signs that China is pivoting to growth and U.S. interest rates are coming down.”

But some say investors are focused on problems within the bubble tea industry itself.

“There’s a lot of competition because the barriers to entry are relatively low,” said Kenny Ng, securities strategist at Everbright Securities International.

“Many companies rely on new store openings to maintain revenue growth. However, as companies face increased costs associated with operating and managing stores, this expansion strategy has This could lead to lower rates.”

For bubble tea fans, increased competition has its benefits. Han, a regular boba drinker from Beijing, used to avoid certain luxury brands because he felt they were too expensive.

That has changed. She said price has become less important when choosing between different brands because “there are so many discounts and coupons.”

However, low prices and high costs may prove to be an unattractive recipe for bubble tea manufacturers and their potential investors.

“The Chabaidao incident highlights risks and does not bode well for other tapioca chains to go public,” Gary Ng warned.

Lili and Han say there’s another, more important risk of sugary drinks that prevents people from ordering more: weight gain.