Boom or bust?: Malaysia’s bubble tea scene approaches saturation point

Boom or bust?: Malaysia’s bubble tea scene approaches saturation point

(aw) MAIN PIC - Xing Fu Tang queue in SS15.
A queue outside Xing Fu Tang bubble tea in Subang Jaya. (Photo: Foong Li Mei)

KUALA LUMPUR: The sun climbed higher as the clock ticked towards noon, shining mercilessly on those who were forming a long line outside a shop at the business district of SS15, Subang Jaya. 

The retail outlet has yet to lift its shutters, but the people did not mind. They knew if they persevere, the reward for their patience would come soon - in the form of chilled milky beverage studded with black pearls. 

At a glance, there are more than 15 bubble tea shops within walking distance from each other, vying for dominance. 


Top Taiwanese brands like The Alley, Daboba, Chawanjia, The Black Whale, Xing Fu Tang and JLD Dragon have claimed their presence here, while local establishments also mushroomed to peddle their concoctions to the queueing crowd.  

(aw) Subang Jaya XinFu Tang queue
A queue starts forming outside Xing Fu Tang in SS15, Subang Jaya, before the store is open. (Photo: Foong Li Mei)

Originating from Taiwan, the ice-shaken milk tea with boba – chewy tapioca ‘pearls’ mostly made from starch – has taken much of Asia, the United States and Europe by storm.

READ: Commentary - Want to fight the sugar problem? Start counting calories

READ: Consumption of sugary drinks linked with cancer risk - Study

The craze for the beverage in Malaysia had kicked off back in 2010, when Taiwanese bubble tea behemoth Chatime opened its first outlet in Kuala Lumpur, paving the way for other brands to enter the market.

Bubble tea café operators interviewed by CNA said that the fever-pitch demand these days is fuelled by social media. 

With a premium being placed on marketing and product aesthetics, consumers have been encouraged to post the drinks on social media, thus snowballing the attention.

(aw) bubble tea customers posing with pics
Bubble tea customers posing for pictures with their drinks. (Photo: Foong Li Mei)

How long can this craze last? Are the businesses sustainable?

Those in the industry are bullish about their prospects. Local brands in particular, say that they are in the market for the long haul. 

However, it is important for businesses to monitor consumer behaviour for signs of the interest dying down, so that they are not caught offside.

BOBA BOMBARDMENT

Xing Fu Tang, one of the bubble tea brands that have taken Instagram by storm, opened its first Malaysian outlet at SS15 in March. 

(aw) Xing Fu Tang bubble tea
A Xing Fu Tang staff preparing its signature brown sugar milk boba drink. (Photo: Foong Li Mei)

Mr Derek Cheong, co-owner of Collab Working Lifestyle, which is the Taiwanese brand’s master franchisor in West Malaysia, said that the timing was ripe for its signature brown sugar milk boba drink - fresh milk with caramel-coated tapioca pearls and topped with a torched layer of brown sugar.   

Malaysians were developing a taste for bubble tea, and there were not many cafés offering the beverage at that point, he recounted.

While he expected competition, the mushrooming of shops around Xing Fu Tang within months of its opening caught him by surprise.

He foresees the competition to get stiffer as more bubble tea businesses clamour into the same street, driving up rents along the way. 

“Rental on our street has risen by about 50 per cent since we opened in March,” Mr Cheong pointed out. Other business owners on the street told CNA of a similar hike.

READ: Popular Taiwan bubble tea chain Xing Fu Tang opens in Singapore

Besides SS15, other commercial districts are also seeing the boba invasion. Two examples are the suburb of Mount Austin in Johor Bahru, which packs about 30 bubble tea cafés and Cheras Traders Square in Kuala Lumpur, which has seen the influx of over 10 brands. 

Mr Ng Khai Yong, creator of the bubble tea reviews and directory website www.bubbleteamalaysia.com, believes that the wave of new openings is not receding anytime soon.

(aw) Ng Khai Yong
Mr Ng Khai Yong, creator of the Bubble Tea Malaysia website. (Photo: Foong Li Mei)

“From the keyword research I’ve done, I estimate there are about 1,000 searches for keywords related to bubble tea franchising in Malaysia per month, and the number is growing,” said the 33-year-old bubble tea fan, who was previously the head of growth at a firm that develops search engine optimisation tools.

A bubble tea fan, Mr Michael Low, recalled spending two hours in a queue to enjoy the opening promotion of The Whale Tea at a shopping mall.

“Long queue or not, I’m always willing to wait for brown sugar boba drink, so I wasn’t too miffed by the two-hour wait,” the 35-year-old assistant marketing manager said. 

(aw) Daboba customers
Daboba customers queueing under the afternoon sun for their bubble tea fix. (Photo: Foong Li Mei)

Ms Esther Soh, another bubble tea devotee, however, pointed out that she was starting to get déjà vu – many shops are offering similar drinks with only minor variations in taste. 

The 31-year-old lecturer has tried over 20 brands within the past six months, drinking at least two to three cups a week. “My gym sessions are purely to combat the boba at this rate!” she said.

“While some cafés do add different drinks in the menu to distinguish themselves, the bestsellers remain repetitive,” she added.

‘ALMOST COMEDIC’ COMPETITION

In 2018, the Malaysian bubble tea market was valued at US$49.8 million and is expected to grow at the rate of 6.9 per cent from 2019 to 2026, according to market analysis firm Straits Research. Noting a constant inflow of investment and subsequent adoption of new flavours, it anticipates an increase in demand for the beverage. 

Despite the stiff competition at SS15, Xing Fu Tang has not seen any drop in sales, according to Mr Cheong.

(aw) Derek Cheong
Mr Derek Cheong, executive director and co-owner of Collab Working Lifestyle, which is the master franchisor for Xing Fu Tang in West Malaysia. (Photo: Foong Li Mei)

Sales at the outlet are now up to 4,500 cups a day, which far exceeds his initial expectation of 1,000 cups. He remains optimistic that Xing Fu Tang can keep the numbers up by staying true to its brand identity while introducing new items.

However, Mr See Khai Shen, co-owner of the 2D café, sees a murky future for the bubble tea saturation. The competition, to him, is “almost comedic”. 

Different brands offering almost the same menu and shop design baffled him. Such duplication among players can only persist “for a while”, he said.

Even though 2D’s menu also features bubble tea, Mr See emphasised that his two-month-old café has a different selling point. 

For starters, he has prioritised the shop concept. This resulted in an eye catching interior that seems to put customers right in the middle of a monochrome hand-drawn world – closely resembling another café in South Korea that opened last year.

“If you think about product first, you are limiting yourself. For example, if I’m only selling bubble tea, I’d likely end up copying what other big brands like Xing Fu Tang or Tiger Sugar have already done. That’s why you are seeing so many ‘animals’ out there!” 

Mr See was referring to the usage of animals as logos for many bubble tea brands, such as deer for The Alley, bear for Daboba and tiger for Tiger Sugar. 

For now, 2D's strategy seems to be working. Its two-dimensional style is a hit on social media. 

According to Mr See, sales hit 2,800 cups per day when he first opened, and the business had broken even within nine days of operation.

READ: Taiwanese bubble tea chain The Alley coming to Singapore

LOCAL PLAYERS IN FOR THE LONG HAUL

Homegrown establishments can find themselves at a disadvantage when going up against deep-pocketed international brands, according to Mr Terence Lee, who runs the Malaysian hand-crafted tea bar Chatto with his partner, Ms Yan Gan.

(aw) Chatto owner
Ms Yan Gan, co-owner of Chatto, preparing a bubble tea drink. (Photo: Chatto)

Hence, Chatto differentiates itself by tapping on the growing health-conscious market. “Our advantage is that we are focused on providing healthier beverages, which fewer market players are doing at the moment. One of our bestsellers at Chatto is the organic oolong tea imported from Taiwan,” Mr Lee said.

Established in 2017 in Johor Bahru, all Chatto cafés are styled in Japanese minimalism. “Japan is a country that is famous for its tea. So, we see this as a good differentiation and positioning for Chatto to enter the local tea market,” he reasoned.

Another bubble tea contender, Pin Tea, distinguishes itself by using fruit tea instead of the popular milk tea. Their boba are also seaweed extracted fibre balls instead of the usual starchy tapioca pearls.

(aw) Pin Tea co-owners
Mr Chris Tan (left) and Mr Jeremy Low, co-owners of Pin Tea. (Photo: Foong Li Mei)

Its director Chris Tan said there is a perception among Malaysian customers that overseas brands are better than local. 

“Our aim is to build our reputation and show that local players can offer high-quality beverage and experience too,” said Mr Tan, adding that he wants to “conquer every major city in Malaysia”. 

The first Pin Tea outlet opened last August in SS15 right next to The Alley, a major Taiwanese bubble tea player. It was not a declaration of war, nor a stunt from over-confidence, according to Mr Tan. 

The 24-year-old confessed that he and his two partners were not aware of their neighbour’s popularity.

“We were also not prepared for the intense competition (from other brands) that came into the area so soon after we opened. But I must say that the bubble tea trend is actually supporting our business, because it introduces more people to such drinks, which means more customers for us too.”

Chatime, meanwhile, prides itself as one of the few bubble tea businesses in Malaysia to obtain the halal certification by the federal Islamic Development Department of Malaysia (JAKIM). This may quell doubts among the country’s Muslim majority on whether the beverage violates religious prohibitions. 

(aw) Chatime founders
Widayu Latiff (left) and Aliza Ali, co-founders of Will Group, master licensor of Chatime Malaysia. (Photo: Foong Li Mei)

Will Group, founded by Ms Aliza Ali and Ms Widayu Latiff, took over the rights to run Chatime in Malaysia in 2017. This followed a franchise dispute between the chain’s Taiwanese parent company, La Kaffa International Co Ltd, and former master franchisor Loob Holding Sdn Bhd.

The duo got their start franchising two outlets from Loob Holding in 2011 – during the first wave of the bubble tea craze – at Genting Highlands and the Kuala Lumpur Sentral railway hub.

At that time, they recounted, international brands flooded the local bubble tea space as well. Over the years, however, many have bowed out.

READ: Chatime plans 'return' to Malaysia with new partner Will Group

Currently at 51 stores, Chatime aims to hit 70 outlets by the end of the year. 

“We select store locations and potential franchisees rigorously to ensure the longevity of each outlet,” Ms Widayu said.

TIME TO EXIT THE MARKET?

While most of the operators are positive that the trend will not flat-line soon, smaller businesses may be squeezed out of the competition within a year or two.

Dr Carmelo Ferlito, senior fellow at the Institute for Democracy and Economic Affairs (IDEAS) in Kuala Lumpur, cautioned that the bubble tea bubble will burst when fascination for the beverage loses steam. 

The market is now heading towards the end of a secondary boom, he observed, where groups of imitators and speculators are trying to surf the bubble tea wave after witnessing the success of the first innovators. 

“Next comes the peak and the downturn, when the fever for the product starts to fade and demand stabilises, forcing the supply to restructure accordingly. In this scenario, there will be a struggle for the different players to retain market presence,” said Dr Ferlito. 

(aw) Black Whale bubble tea
Customers at The Black Whale bubble tea studying the menu. (Photo: Foong Li Mei)

The final stage would then be depression, when the readjustment process moves towards the end and only the most suitable players remain in the game. 

For those who do not plan to stay in the bubble tea business for the long run, Dr Ferlito’s advice is to pull out now - or very close to now - while demand is still high and some profit can be reaped. 

“The important thing is to have the ability to smell when the wave is turning, when the interest for bubble tea is fading, or at least cooling down, and to go out before it happens. Those players who are more able to interpret market signals will be the successful ones,” he said. 

For most of the players, however, the bubble tea dream is still very much alive. 

Both Xing Fu Tang and Chatto are each targeting to have 40 cafés by the end of the year, Pin Tea wants to have 10 more outlets within the next 12 months, and 2D has five or six franchise outlets in the cards. 

“Many players in the bubble tea market sees the business as a fad, that the stores will only last five to 10 years. We are trying to change that perception by making our outlets more sustainable, so 20 years from now, you will see the same Chatime at the same location,” Will Group’s managing director Ms Aliza said.

Additional reporting by Tho Xin Yi

Source: CNA/tx(aw)

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