How two Chinese brothers became billionaires from $1 bubble teas

When he was just 21, Zhang Hongchao borrowed money from his grandmother to open a small stall selling shaved ice treats in the central Chinese city of Zhengzhou. That first store didn’t make it, but two years later he tried again with a second shaved ice stall, this time named Mixue Bingcheng, meaning “sweet snow palace. ” Over time the business took off as he shifted to selling ice cream and later bubble tea, lemonade and coffee drinks at dirt-cheap prices.

Now Mixue Bingcheng, which has roughly 36,000 stores and is China’s biggest bubble tea maker, is on the verge of going public, and Zhang, now 47, and his younger brother Hongfu, 39, are billionaires, according to Forbes’ estimates. Mixue filed for an initial public offering in Hong Kong last Tuesday, revealing the ownership details of the company: each brother currently holds a 42. 8% stake in the business.

Forbes conservatively estimates that Mixue—whose revenue and net profits jumped 46% and 48% in the first nine months of 2023 to $2. 2 billion and $338 million, respectively—is worth $2. 9 billion.

That puts the Zhangs’ net worths at an estimated $1. 2 billion apiece. The privately-held bubble tea maker last raised money in January 2021, during the funding bubble, pulling in $329 million at a $3.

3 billion valuation from investors including billionaire Lei Zhang’s Hillhouse Capital and Dragonball Capital, the venture arm of billionaire Wang Xing’s Meituan. Mixue filed for a $915 million IPO in Shenzhen back in 2022, but it never materialized. There is always the chance that this IPO will fail too.

The Hang Seng Index is down roughly 25% in the past year, and local stocks have had their worst start to a year in nearly two decades. Mixue, which has 32,000 nearly all-franchised stores in China and another 4,000 in 11 other mostly Asian countries, didn’t respond to a request for comment on the company’s valuation or the brothers’ net worths. According to the prospectus, its stores sold about 5.

8 billion drinks worldwide during the first nine months of 2023, making it the second biggest global seller of freshly-made drinks by cups sold, according to China Insights Industry Consultancy. (The number one seller is Starbucks. ) The company stands out in the crowded bubble tea market for its bargain prices, earning the nickname “Pinduoduo of bubble tea,” after billionaire Colin Huang’s popular Chinese discount e-commerce platform (Pinduoduo’s U.

S. shopping site Temu launched in 2022). Mixue’s products, which also include freshly-made lemonade, soft-serve ice cream, fruit tea and coffee, cost between three cents (roughly the price of a can of Coke in China) and $1.

That compares with the average price of $3. 80 that Nayuki, another popular Chinese bubble tea chain listed in Hong Kong, charges for its drinks. Mixue has said it is able to keep its prices low because of its end-to-end supply chain covering everything from procurement and ingredient production to logistics, research and development and quality control.

Nearly all of its revenue and profits, meanwhile, come from sales of supplies such as kitchen appliances and food ingredients to franchisees. Hongchao was a student at Henan Economics and Finance College (now known as Henan University of Economics and Law) in 1997 when he got a part-time job one summer at a drinks kiosk. It was while working there that he had the idea to build his own handmade ice machine and open a shop selling shaved ice treats, something that was popular in neighboring Shangqiu but hadn’t reached Zhengzhou.

According to local Chinese media reports, he borrowed 3,000 yuan ($422) from his grandmother to open Coldsnap Shaved Ice, the predecessor of Mixue. Hongchao quickly learned cold, hard business lessons when he struggled to sell shaved ice treats during winter, forcing him to sell mandarin oranges for extra income, according to Chinese media. He had to shut down that business but tried again in 1999 with new products such as sugary drinks and later soft-serve ice cream.

His younger brother Hongfu, who now serves as Mixue’s CEO, joined the company in 2007 to standardize operations and management. (Hongchao is Mixue’s chairman. ) That later became the company’s successful franchise model.

Today 99. 8% of its 36,000 stores are operated by 16,000 franchisees, making it one of the largest franchise operators in the world. (It has more than double the number of Dunkin’ locations and nearly double the total of Burger Kings.

) Mixue, which has 84 Chinese patents and operates its own factories, sells everything from kitchen appliances to ingredients including syrups, milk, tea, coffee and fruit to its franchisees. The two brothers have continued to innovate over the years. They opened their first Lucky Cup coffee store in 2017; it now has 2,900 locations.

They exported the Mixue brand to Hanoi, Vietnam in 2018; today there are also shops in such countries as Canada, Indonesia, Japan and South Korea. In recent years, they introduced their now well-known “Snow King” mascot and began piping in music videos and audio featuring him into stores. Mixue’s theme song, “I Love You, You Love Me, Mixue Ice Cream & Tea,” which features the Snow King, has garnered more than 24 million views on former billionaire Rui Chen’s Bilibili, China’s equivalent to YouTube; Snow King has also been featured in an animated TV series and played a key role at the company’s Ice Cream Music festivals.

The Zhangs are the latest to make their fortune from bubble tea, which is popular among millennials and Gen Z in Asia and the U. S. Other bubble tea tycoons include Wang Xiaokun , the founder and chairman of Cha Panda , which is also waiting to go public.

Peng Xin and Zhao Lin , the husband-and-wife team behind Mixue’s rival Nayuki, became billionaires after the company’s Hong Kong IPO in 2021. But the pair has since dropped out of the billionaire ranks following an 80% plunge in the share price triggered by food safety issues. —With assistance by John Kang This article was first published on forbes.

com . More from Forbes Australia By Forbes Wealth Team By Zachary Folk By Zachary Folk.