Why Chinese fresh-drink firms could leave investors high and dry

A recent thirst among investors for Chinese makers of fresh drinks – after a slew of share offerings including the blockbuster Hong Kong listing of Mixue Group – could mean that too much money is chasing the same growth story, according to S&P Global Ratings.

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“China’s demand for fresh-made drinks is growing fast as marketing, innovation and supply chains strengthen for this segment,” credit analyst Sandy Lim said in a report on Tuesday.

The trend could “ratchet up competitive spending and strains”, pressure margins and even dim the growth prospects of similar categories, Lim said.

The mainland market for fresh-made beverages – which includes juices, tea, milk, ice cream and coffee – could expand by close to 18 per cent a year between 2023 and 2028, the rating agency said, adding that the segment could reach 1 trillion yuan (US$139 billion) in sales by 2027.

Investor interest in the booming but increasingly competitive sector has been reflected in four initial public offerings (IPOs) by fresh-drink companies this year: Good Me operator Guming, Mixue, Chagee, and Auntea Jenny. Since 2021, mainland Chinese fresh-drink brands have raised more than US$2.5 billion via IPOs or private-equity funding rounds, according to S&P.

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However, investor confidence quickly tumbled for beverage chains that lacked a clear edge in the fiercely competitive industry, where supply-chain capacity is of paramount importance. Shares in Auntea Jenny have lost 21.3 per cent from their May 8 debut. Naixue has plunged more than 92 per cent since its July 2021 listing, and US-listed Chagee is down over 5 per cent since April.

  

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