Milk Bubble Tea with Tapioca Pearls
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Wang Xiaokun, the founder and chairman of Cha Panda, has joined the world’s billionaire ranks after a recent funding round valued his Chinese tea chain at $2.1 billion.
Wang, 40, currently has a net worth of $1.1 billion, according to Forbes estimates. His fortune is based on a nearly 60% stake in the Chengdu-based beverage chain, which has expanded rapidly over the past three years to where it now has a network of more than 7,000 stores. The chain’s signature beverages include mango pomelo sago, taro bubble tea and jasmine milk green tea, most of which are priced at $3.60 or less.
Wang’s wife, Liu Weihong, has also amassed a sizable fortune of $700 million based on her 33% stake in the company. Liu chairs a supervisory committee and is responsible for supervising Cha Panda’s daily operations, according to a preliminary prospectus filed with the Hong Kong Stock Exchange. The company didn’t respond to an emailed request seeking comment.
Cha Panda’s funding round, which closed in June, saw its shares sell for 13.2 yuan ($1.8) apiece to investors that included CICC, Orchid Asia and Shanghai Loyal Valley Investments, according to the prospectus.
The company has not yet revealed any further details of its initial public offering, including its timeline and size. Analysts say Cha Panda needs fresh funding to open more stores to keep pace in China’s fiercely competitive tea-beverage market.
“When it comes to drinking milk tea, people aren’t loyal at all and always choose from multiple brands,” says Jason Yu, a Shanghai-based managing director of Kantar Worldpanel Greater China. “So whoever has more stores has a better chance of being seen by consumers, as well as getting a larger share of their spending.”
The origins of Cha Panda can be traced back to 2008, when Wang began selling fruit and bubble tea from a small shop near a school in China’s southwestern city of Chengdu, which is known for its spicy cuisine and also for being the home of giant pandas.
Over the next decade or so, Wang managed to grow Cha Panda’s network of stores to 531 as of 2020, but the business really took off when he adopted a franchising model.
Cha Panda’s strategy now is to develop the recipes for its beverages, and then sell the ingredients, such as fruit and tea leaves, to Cha Panda-branded beverage shops. And by doing so, Wang can keep the chain’s costs lower than rivals like Hong Kong-listed Nayuki Holdings, which has to spend more on employee salaries and rental expenses for its directly operated stores.
The total number of Cha Panda-branded stores has grown to a whopping 7,117 as of August this year, and the company’s prospectus says it only had six of those stores under its direct management in the first quarter.
Last year, Cha Panda managed to generate $580.3 million in revenue, 16% more than the previous year. The company’s profit jumped 24% to $132.3 million. It was the third-largest tea shop by retail sales in China, according to Frost & Sullivan’s research that was cited in the prospectus.
To increase its brand awareness among younger consumers, the company also sponsors music festivals and other offline culture events to supplement its online promotional campaigns. In June, Cha Panda showed its support for the Chengdu Research Base of Giant Panda Breeding by adopting one of the giant pandas at the facility, according to a press release the center issued.
But ultimately, success comes down to controlling costs and offering value-for-money products, says Kantar Worldpanel’s Yu. “Consumers pay more attention to costs as the milk tea brands don’t really differentiate from one another,” he says. “The products are similar as they are all a mixture of tea with other ingredients, such as fruit. ”