Bubble tea bubble: Why investors are snubbing the popular drink

From its roots in 1980s Taiwan to today’s world trend, bubble tea or dessert, has come a long way.

Question people under the age of 40 anywhere in the world if they have ever tried the watery tea and cornstarch game mix, and there is a pretty good chance they have.

Bubble tea has undoubtedly found a loyal following among its many supporters, but some owners still have a bitter flavor.

Stock market debuts of two China-based chains have already flopped. And there are at least two more share sales in the pipeline.

Despite these flaws, it is undisputed that boba has become a worldwide sensation as its popularity spreads from Asia to the West.

It’s nearly impossible to find a major city where it is n’t on sale, from London to Helsinki and Buenos Aires to Cape Town.

A half-million bubble tea stores are currently operating in China only, which is a significant expansion of the beverage’s industry and a long way from where Taiwan’s roots were.

Lili, a 30-something college professor who grew up in Guangzhou, southern China, second started drinking it while still in primary school.

She is currently in need of her repair for a long time. ” Bubble drink is an simple- to- getting pleasure so I drink it really often”, she says.

Tina, an department employee from Beijing even in her 30s, tells a similar story. She initially tried dessert when she was a child, and she now drinks it frequently today. She frequently places commands in groups of friends and coworkers from a wide range of well-known stores.

Lili, Tina and millions of others like them have helped China’s bubble tea businesses grow into a nationwide industry that last year was worth about 145 billion yuan ($ 20bn, £15.9bn ), according to estimates by the China Chain Store &amp, Franchise Association.

According to Jason Yu of the consumer research team Kantar Worldpanel, technology has been a major to its success because “new flavors and recipes are continually being released.”

It’s a strategy that resonates with Lili who says “promotion campaigns, brand collaborations and new flavours” have kept her going back for more.

That method has also helped balloon drink chains expand beyond China’s big towns, Mr Yu says.

Yet as China’s economy is sluggish and customers are stooping their belts, this success story has persisted.

Mr. Yu cited the “wide cost variety” of products being offered by various bubble tea chains as evidence that “bumper tea provides pretty much an economical pleasure to consumers in China.”

Some buyers, however, have not shown the exact level of enthusiasm.

In recent years, some Chinese tea stores have looked to buy shares to the public in an effort to capitalize on the craze.

Next month, China’s second largest bubble tea network, Sichuan Baicha Baidao Industrial, known as Chabaidao, made its property sector debut.

The stocks fell on their first day of trading but have not yet recovered.

That came after another subpar comeback from Shenzhen-based Nayuki.

Since their start in Hong Kong about three years ago, its stocks have lost more than 80 % of their price.

Experts attribute these subpar performances to a number of factors, including fears for the Hong Kong stock marketplace as a whole.

According to advisory firm Deloitte, the volume raised from new entries in the area since the start of this year has dropped to levels not seen since 2009.

Other bubble tea chains have n’t, however, stopped planning their own share sales.

Mixue Group and Guming Holdings, China’s first and second-largest chains in terms of number of stores, submitted applications for listing on the Hong Kong Stock Exchange earlier this year.

” Persisting weak market sentiment in Hong Kong is the primary reason” for Chabaidao’s market blunder, said Gary Ng, a senior economist at Natixis.

He predicts the city wo n’t be able to find new listings until there are” clear indications of China’s pivot to growth and US interest rates.”

Others, however, say investors are focusing on problems within the bubble tea industry itself.

It “has relatively low barriers to entry, leading to increased competition”, said Kenny Ng, Securities Strategist of Everbright Securities International.

” Many businesses rely on opening new stores to maintain revenue growth. However, this expansion strategy may cause companies to experience lower gross profit margins as they have to pay more for store maintenance and management.

For bubble tea fans, growing competition has its advantages. Han, a regular boba drinker from Beijing, used to avoid particular high-end brands because she thought they were too pricey.

That has changed. She claims that because” they have a lot of discounts and vouchers,” price has decreased as a factor when choosing between different brands.

Lower prices and higher costs may turn out to be a less attractive recipe for bubble tea makers and their potential investors.

Gary Ng remarked,” The Chabaidao case highlights the risks and does not bode well for the listing of other bubble tea chains.”

Lili and Han claim that there is a far more significant risk connected to the frequently sugar-packed beverage that is keeping them from ordering more and that is preventing them from putting on weight.