Auntea Jenny steeped by rivals in flood of bubble tea IPOs 

The folksy-named company is the latest chain from an increasingly crowded and cut-throat Chinese premium tea industry to seek investor dollars in Hong Kong 

Key Takeaways:

• Premium tea chain Auntea Jenny has filed to list in Hong Kong, reporting its profit nearly tripled in the first three quarters of last year to 320 million yuan 
• The company uses a franchise business model, similar to many of its peers that have also filed for similar recent listings 

By Lau Chi Hang

“Today is cruel, tomorrow will be even crueler. The day after tomorrow is beautiful, but most people will die tomorrow night,” once said Jack Ma, Chinese internet legend and founder of Alibaba.

While Ma may have been talking about Alibaba’s core e-commerce business, his words could also apply to China’s overheated premium tea market these days. And his words may not even be strong enough for a turbulent sector that has produced at least four Hong Kong IPO candidates since the start of the year alone.

Instead, a more apt modification of Ma’s words for this frothy sector might be: “Today is very cruel, tomorrow will be even crueler. The day after tomorrow may not be beautiful either, but that doesn’t matter because most premium tea chains will be dead by then.”

The past decade has seen China’s premium tea market explode, with hundreds of thousands of stores popping up selling a wide range of products to just about anyone with money to spare in this nation of 1.4 billion. As companies tap out investors for new money to fund their expansions, many are now turning to Hong Kong’s stock market for new money to keep growing.

Nayuki (2150.HK) was the lone Hong Kong-listed company from the group for several years, but Mixue Bingcheng and Guming have all recently filed to join it. Now, the folksy-named Auntea Jenny (Shanghai) Industrial Co. Ltd. has also jumped on the bandwagon, formally applying for a Hong Kong IPO earlier this month.

A good story is a must for the crowded field of premium tea chains. Nayuki’s started with a blind date, while Auntea Jenny is the business child of Shan Weijun and Zhou Rongrong, a former pair of big company middle and senior managers. After moving to Shanghai from Shandong province in 2011, they one day noticed people crowded in a small store to buy milk tea with red glutinous rice. In that single bright flash, they realized that this business could become something big.

Shan went on to visit Taiwan to study its thriving milk tea industry. He found it had 20,000 tea stores in a place with only 23 million people, and realized that meant the Mainland could probably support millions of such shops. Not long afterwards in 2013 he opened his first Auntea Jenny, a brand originally known for its signature grainy-textured milk tea. He later expanded by adding fresh fruit teas to the menu in 2019.

As of the third quarter of last year, the company had 7,297 stores covering more than 300 cities across China, according to its prospectusfiled earlier this month. Nearly all of those – 99.3% to be exact – are franchised, meaning its revenues mostly come from the sale of goods and provision of services to its franchisees.

The company’s revenue rose from 1.64 billion yuan ($228 million) in 2021 to 2.2 billion yuan in 2022, with profits of 83.4 million yuan and 150 million yuan in those two years, respectively. Revenue for the first three quarters of last year rose 54% year-on-year to 2.54 billion yuan, while its profit nearly tripled to 324 million yuan. Its gross margin of 31.2% is similar to Mixue Bingcheng’s 30% and GoodMe’s 31%, showing how difficult it is to differentiate these companies.

No clear advantage

Auntea Jenny made a name for itself across China in just 10 years, but so have many others. In addition to Mixue Bingcheng and GoodMe, others lining up to list include Modern China Tea, Chagee, Chabaidao, Shuyi Shaoxiancao, Xinshiqi and Chabaidao, which filed a new prospectus just last week. In such a crowd, how can Auntea Jenny swim to the top in an ocean of tea?

In its listing application, the company emphasizes its large network in China’s smaller cities, its deep understanding of consumers and its ability to provide high-quality and diversified products. It also spouts about its comprehensive franchisee platform and win-win franchising model, strong supply chain management capabilities, integrated membership rewards program, and experienced senior management team.

But none of these selling points really differentiate it from its peers. In fact, Auntea Jenny is far smaller than Mixue Bingcheng in terms of business size, and inferior to the more premium quality of higher-end brands like HeyTea and Nayuki. There’s no shortage of rivals in the middle of the market where the company currently floats.

Complaint leader

The franchise model that Auntea Jenny claims as one of its strong selling points is also nothing special among its peers. The only question is who is doing best in managing their vast franchisee networks. In that regard, Auntea Jenny only seems to lead its rivals in the number of customer complaints it gets, which often reflects poor management of franchisees.

On the Heimao complaint platform of the popular Sina web portal, Auntea Jenny has accumulated 2,200 complaints as of February this year. While that’s far less than the 6,000-plus complaints for Mixue Bingcheng, we should also note that Mixue Bingcheng has 36,000 outlets, roughly five times those of Auntea Jenny. And Auntea Jenny leads Chabaidao’s 1,300 complaints and GoodMe’s 1,200.

Some complaints even snowballed into scandals, including one last year where the company was blasted for allegedly backtracking on its promise to distribute free coupons. Such scandals reflect management problems on the one hand, and also insufficient supervision, guidance and training for franchisees in recent years as it races to open more stores.

Lower popularity

Auntea Jenny also seems to lag behind some of its peers in terms of brand awareness. A recent report on the market from iMedia Research show that Auntea Jenny only ranked ninth among consumers’ 10 favorite brands of new-style teas, with only a 15.3% favorable rating.

Auntea Jenny is also losing ground in products. The niche-product nature of its signature grainy-textured milk tea led the company to try to reach a bigger audience with its addition of more mainstream fresh fruit tea products five years ago. But it was quite late to that game, having to compete with more established products like HeyTea’s “succulent grapes” and Nayuki’s “domineering series.” 

Overall, we have yet to see any qualities that make Auntea Jenny a standout in this homogenized market, which will be critical for it to stay afloat and keep growing until the market finally starts to cool.

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