On January 2, 2024, MIXUE Group Co., Ltd. (“Michelle Ice City”) from Zhengzhou, Henan, submitted a prospectus on the Hong Kong Stock Exchange to be listed in the Hong Kong IPO.

Michelle Ice City submitted an A-share listing application to the Shanghai Stock Exchange in September 2022, and the application later became invalid.

Link to the Michelle Ice City prospectus:

https://www1.hkexnews.hk/app/sehk/2024/106124/documents/sehk24010203324_c.pdf

Main business

As a leading global beverage company, Michelle Ice City focuses on providing consumers with high-quality and affordable products such as fresh fruit drinks, tea, ice cream, and coffee with a unit price of about RMB 6. It owns the ready-made tea brand “Michelle Ice City” and the freshly ground coffee brand “Lucky Coffee”. Mr. Zhang Hongchao, the founder of Michelle Ice City, opened a small store called “Cold Wave Shaved Ice” in Zhengzhou in 1997 using a homemade ice shaver to start a business. The “Snow Ice City” brand was officially launched in 1999, the “Lucky Coffee” brand was founded in 2017, and the “Snow King” super IP and lifetime spokesperson “Snow King” was created in 2018.

As of September 30, 2023, the number of members of “Michelle Ice City” reached about 215 million; monthly active members reached about 38 million in September 2023. As of the last practical date, “Snow Ice City” had about 43 million followers on the six major social platforms including WeChat, Douyin, Kuaishou, Xiaohongshu, Weibo, and Bilibili, the largest number in China's ready-to-drink industry.

As of September 30, 2023, the Michelle Ice City store network has more than 36,000 stores in China and 11 overseas countries (about 32,000 in China and 4,000 overseas). More than 99.8% of the stores are franchise stores, and the others are self-operated stores. In the first nine months of 2023, the Michelle Ice City store network produced a total of 5.8 billion cups.

According to Insight Consulting's report, in the first nine months of 2023, in terms of terminal retail sales, drink volume, and number of stores (as of September 30, 2023), Michelle Ice City was the largest ready-to-drink company in China. The number of drinks served in the company's store network exceeded the sum of the second to fifth place drinks in the industry; in terms of drink volume, Michelle Ice City was also the second largest ready-to-drink company in the world.

The large-scale and extremely efficient supply chain system of Michelle Ice City provides franchisees with a competitive one-stop solution. According to Insight Consulting's report, Michelle Ice City has the largest and most complete end-to-end supply chain system in the Chinese beverage industry. Michelle Ice City's highly digital and large-scale supply chain covers core components such as procurement, production, logistics, R&D, and quality control.

Michelle Ice City has five major production bases in Henan, Hainan, Guangxi, Chongqing and Anhui, covering a total area of 670,000 square meters and a comprehensive annual production capacity of about 1.43 million tons. Through a self-developed and self-produced system, the company provides one-stop beverage food solutions for all categories including sugar, milk, tea, coffee, fruit, grain, and ingredients.

The main storage system and exclusive distribution network operated by Michelle Ice City supports the most extensive store layout in the Chinese beverage industry, and more than 90% of the country's county-level administrative divisions can be reached within 12 hours. The company's warehousing system consists of 26 warehouses with a total area of more than 300,000 square meters, making it the largest in the industry. The distribution network covers 31 provinces, autonomous regions, and municipalities directly under the Central Government in China, about 300 prefecture-level cities, 1,700 counties, and 3,100 townships. The breadth of coverage and depth of decline is the highest in the industry.

Michelle Ice City mainly operates through the franchise model. The vast majority of revenue comes from selling products and equipment to franchise stores, and a small amount comes from franchise fees and related service fees. Michelle Ice City authorizes franchisees to use the company's brand to set up franchise stores and sell ready-made drinks. Franchisees purchase store materials and equipment from the company for their daily operations. As the owner of the franchise store, the franchisee is responsible for the store's operating performance, and must also follow the comprehensive and standardized operating procedures and requirements of Michelle Ice City. Michelle Ice City does not use franchise fees and related service fees as its main revenue. During the performance recording period, only 2% of revenue came from franchise fees and related service fees. Michelle Ice City is the only enterprise in the Chinese beverage industry that also implements free logistics fees, free space design fees, and free promotional materials for franchisees.

Shareholder structure

According to the prospectus, in the pre-listing shareholder structure of Michelle Ice City,

Mr. Zhang Hongchao holds 42.78% of the shares;

Zhang Hongchao holds 0.45% of the shares on the employee shareholding platform Youth Daredevil as GP;

*Young and Fearless LPs include: Executive Director Ms. Zhao Hongguo; Mr. Qiu Yong, Supervisor of Big Star International Foods; Ms. Yan Yahui, Director of Xuewang Smart Supply Chain (Guangdong); and Ms. Jin Ruirui, Director of Xuewang Smart Supply Chain (Sichuan)

Mr. Zhang Hongfu holds 42.78% of the shares;

Zhang Hongfu's employee shareholding platform as GP began by holding 0.45% of the shares;

* LPs that started at the beginning include: Supervisors Ms. Cui Haijing and Ms. Yu Min

Brothers Zhang Hongchao and Zhang Hongfu, as concerted actors, can control a total of about 86.46% of the above shares.

Wandian Investment (Chen Zhiqiang 85%, Zhang Xiaoming 15%, external consultants), holding 0.90% of shares;

Mr. Shi Peng (executive), holds 0.88% of the shares;

Mr. Sun Jiantao (Supervisor) holds 0.88% of the shares;

Ms. Luo Jing holds 0.71% of the shares;

Ms. Cai Weimiao (Executive Director), holding 0.18% of the shares;

Dragon Ball Meicheng (GP is 0.001% Ningbo Xuezhu wholly-owned by Meixing Private Equity Fund; LP is Shenzhen Dragon Ball 99.999%), holding 4.00% of the shares;

Shenzhen Yunqi (GP is Gaolin Tiancheng Phase III, LP is Zhuhai Linxue), holding 4.00% of the shares;

Tianjin Panxue (GP is Shanghai Pannuo, a subsidiary of CITIC Industrial Fund; LPs are Xiamen Yuanfeng and Shanghai Panmao), which holds 2.00% of the shares.

Management

The board of directors of Michelle Ice City consists of 7 directors, including 4 executive directors (Mr. Zhang Hongchao, Mr. Zhang Hongfu, Ms. Cai Weimiao, and Ms. Zhao Hongguo) and 3 independent non-executive directors (Ms. Pan Huiyan, Mr. Zhu Xi, and Mr. Huang Xuande).

In addition to the executive director, executives include Mr. Shi Peng, head of operations of “Michelle Ice City” in China, and Mr. Zhang Yuan, chief financial officer.

The board of supervisors consists of 3 supervisors (Ms. Cui Haijing, Ms. Yu Min, Mr. Sun Jiantao)

Company performance

According to the prospectus, in the past nine months of 2021, 2022, and 2023, Michelle Ice City's revenue was 10.351 billion yuan, 13.576 billion yuan, and 15.393 billion yuan respectively, with corresponding net profit of 1,912 billion yuan, 2,013 billion yuan and 2,453 billion yuan respectively.

Intermediary team

The intermediary team of Michelle Ice City's IPO mainly includes: Merrill Lynch, Goldman Sachs, and UBS as co-sponsors; EY as its auditors; Zhong Lun and Dawei are the company's Chinese lawyers and the company's Hong Kong and US lawyers respectively; Jingtian Gongcheng and Fuerde are their respective lawyers; and Insight Consulting is their industry advisors.