Bubble tea craze leads to a flurry of stores opening in Klang Valley

SOME might just ask what is so special about bubble tea, but the fact remains that Malaysians have been going gaga over the drink, and kiosks are sprouting like mushrooms.

Over the past two years, consumers have seen a variety of brands popping up, with more than five companies entering the market, and setting up cafes as if from a production line.

Bubble tea drinks first became popular in the late 1990s, only to fade into near-oblivion due to health concerns over the chemicals said to be used in the black starchy pearls that are a major component of the tea.

So why has the drink become so popular again and is there that much profit to be made by selling it? The Star takes a closer look at three companies to explore the bubble tea franchise business. Brisk business: Customers queuing up in front of Gong Cha in KLCC


Chatime Malaysia managing director Bryan Loo always wanted to have his own business. He was travelling with his father in Taiwan when the idea of opening a bubble tea company came to mind.

His rationale for bringing in the brand is that it is an establised tea company in Taiwan, which is listed on the Taiwan Stock Exchange. Passionate about the food and beverage industry, Loo seized the opportunity to bring the brand home.

He said, “There is a big market for tea, but there is no tea business established in Malaysia, whereas in the coffee market, the country already has many players with the likes of Old Town White Coffee and Starbucks.”

Gong Cha is another brand from Taiwan. Gong Cha’s master franchisor Billy Koh and his partner Tan Han Yin brought the brand to Malaysian shores early last year.

“Gong Cha was founded to bring the best tea to consumers,” Koh said.

The Taiwanese bubble tea brand started in Kaohsiung in 2006 and expanded to Hong Kong, China and Macau. Within the span of two years, 50 outlets in Hong Kong were in operation. Soon after that, it opened in South-East Asian countries such as Singapore and Malaysia.

According to Koh, it is currently the No. 1 bubble tea brand in Hong Kong and Singapore.

Unlike Chatime and Gong Cha which were already established tea brands in Taiwan, Ochado started in Singapore.

Ochado business director Desmond Chui and his partner Clark Tan bought the brand and recipes from their creator, Singaporean James Chia.

“Ochado is the only tea company that serves green tea-based products,” Chui said.

Chia embarked on a journey to Taiwan, Hong Kong and Japan to discover teas. What he discovered was that the firmly established tea concepts in Taiwan and Hong Kong were not that different.

Wanting something more unusual, he turned to Japan where he found tea to be of great cultural significance, with ceremonies dedicated to the drink.

As a result of his travels, he decided to merge Taiwanese and Hong Kong tea concepts with Japan’s tea culture. Popular: Gong Cha operation manager Alexander Tay with Gong Cha tea.

Business model

Gong Cha said what separated it from the many other bubble tea brands in the market was its signature tea.

“It is a drink that people have tried to replicate, but they just have not been able to get the taste right.

“The product that they come up with is not as tasty as ours. We use secret ingredients. Some people even go to the extent of trying to take pictures of our production line,” Koh said.

“My selling point is that bubble tea is not a trend,” he added. As a new company in Malaysia, Gong Cha is currently focusing on its drinks instead of marketing. Koh said, “I want to get the quality right first before continuing to expand.”

According to Koh, these days customers are more health conscious and therefore more willing to pay for healthy products. “We invest in really good quality products. Our best sellers are our “white pearls”. They are made from seaweed extract and are low in sugar and calories, and high in fibre,” he said proudly.

Chui said Ochado was also targeting consumers who were more health conscious by serving a range of fresh and healthy teas.

He boasts that Ochado teas’ normal level of sugar is lower than most of its competitors.

After the opening of its first store in late July 2011, there are currently four Ochado outlets. Chatime, on the other hand, has 40 stores as of December 2011. The first shop was launched in September 2010, and the other 39 outlets were opened just over the span of a year. Out of the 40, 16 are franchised.

Gong Cha has only three shops — in Subang Jaya, and The Gardens Mall, which were opened in late April last year and a third in Suria KLCC.

Franchising the business

According to the entrepreneurs that The Star spoke to, the cost to start a bubble tea franchise ranges from RM250,000 to RM500,000, depending on location, size of the shop and renovation costs.

Currently, all franchising opportunities for new Chatime outlets in the Klang Valley have been put on hold as there are already quite a few in town.

However, Loo said he welcomed franchisees seeking to open stores in other states.

Asked about the cost involved in running the business, Loo declined to provide breakdowns for the revenue from each outlet, saying only that it varied depending on the rent for each outlet.

Koh said it was usual for profit margins from shop outlets to be higher than outlets in a shopping mall. Overhead costs are generally much higher in shopping malls compared with shop lots.

“Take the shop in The Gardens for example, the rent is over RM40,000 per month,” Koh said. Spoilt for choice: Chatime offers a wide variety of flavours to choose from.

Gong Cha, however, has not been franchised to outsiders yet. Koh said he wanted to get the quality of Gong Cha right first, before continuing to expand.

On average, he receives between 30 and 50 enquiries per week in the form of calls, text messages, Facebook wall posts and messages, and e-mails to open a Gong Cha franchise. He is currently working on a franchising plan, and aims to begin accepting franchising requests in the second half of the year.

He said that the cost to open a Gong Cha franchise was estimated at RM500,000. This includes the franchisee licence, rent and renovation. “However, it depends on the location. It could be more or less. I always estimate it to be slightly higher. It’s better than having to ask a franchisee to fork out more money.

“They must definitely like Gong Cha and be involved in and dedicated to the business. The suggestion for the outlet location is also very important. It is a two-way discussion, then we will do some market research to see if it is suitable for the business,” Koh said regarding potential franchisees.

“The franchise owner must be involved in the business. He or she does not need to be there 24/7, but definitely needs to know what is going on at the outlet,” he added.

Tan said the profit margin that franchisees would probably see was between 28% and 30% due to the high cost of raw material.

Ochado’s Chui said they did not take into account age when assessing keen franchisees.

“A willingness to commit themselves to the business is a very important factor for Ochado because we want to build our brand and ensure each outlet is stable before going on to open another one.”

Stiff competition

“We don’t compare ourselves to other industry players as everybody has their own specialty. They have their own signature. Chatime has the advantage of market share and strong momentum in terms of expansion. What is left to be taken care of is the quality of our drinks,” Loo said.

“Chatime welcomes competitors as it means that the demand for bubble tea is growing,” he said. Having opened many outlets, he said that accessibility will ultimately drive the demand for tea in the Malaysian market.

Customers of Gong Cha have given feedback that Gong Cha is the bubble tea store with the fastest service. Operations manager Alexander Tay said, “You will get your drink in less than five minutes once your order is taken.”

Koh feels that the competition they face is healthy. “Bubble tea is a trend now. The craze will die down, but it will still be here. It’s an everyday drink. What I am saying is that it (demand) is still picking up now, but probably will slow down in a few years. At the end of the day, the consumer will know what is good,” he said.

Future plans

Loo, on the other hand, is choosing to emphasise Chatime’s lifestyle concept. He is looking to inculcate a modern tea culture among Malaysians. Loo said, “The drinks are 100% healthy. Whatever is not healthy won’t last in this day and age.”

Loo’s aim for Chatime is to create a need for Malaysians to drink tea. He benchmark’s Chatime against Starbucks and aims to bring the brand to that level. He wants to steer consumers towards having a need for tea and then choosing Chatime to satisfy that need.

Loo said that his efforts might not result in replacing coffee culture with a tea culture, but at least he aims to make tea the second choice among consumers.

Koh said, “Everyone should understand that we are here for the long run. Gong Cha is here to stay. That is one of the reaons why the franchisee is very important. We have to choose the right person.”

Gong Cha’s Tay said, “We are going to expand, but it won’t be a radical expansion. It will be slow and steady. We will try our best to maintain Gong Cha’s quality by only expanding when we are ready to.” He added, “We prefer quality over quantity.”

However, Koh said that he and his team are forecast having at least 10 stores in a year’s time. Koh and Tan intend to maintain 30% rate of expansion in the future. Drinking in success: Loo posing in front of one of the Chatime outlets at Sunway Pyramid.

Is it a fad?

Both consumers and potential franchisees alike question the longevity of the bubble tea industry. “We should not share the same vision as consumers,” Loo said, adding that the company has a positive outlook on the industry and how it perceives the brand and the market movement.

“Gong Cha is something I’m very proud of. A lot of people say it is a trend, but I think it is the only bubble tea company in the world that has never had an outlet closed down before,” Koh proudly said.

Chui’s business model for Ochado is to continue developing the brand. As it is still quite new, he feels that it is not a strong brand yet.

He and his partner are trying to turn Ochado into a luxury brand to create differentiation between their brand and the others in the market. They aim to target the medium- to high-level income earners and provide their customers a premium feel.

If the bubble tea entrepreneurs are to be believed, it seems like the bubble tea industry is here to stay, at least for awhile.

At the end of the day, consumers will be the ones who decide who stays and who goes. That in turn will determine how long the “trend” will last.

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