Reference no: EM131726315

Since the beginning of European settlement, Australian culture has been shaped by the successive waves of immigration, and our culinary culture is much the richer for it. From the stodgy and predictable Anglo cuisine that dominated our eating habits well into the 1960s, Australians now enjoy some of the most diverse, exotic and interesting food and beverage choices available anywhere in the world — and the options are continually expanding. One of the interesting beverage options available is Asian ‘bubble’ teas (so-called because the fruit- and milk-based drinks are recognizable by the chewy tapioca ‘pearls’ or ‘bubbles’). Originating in Taiwan, the bubble tea craze spread throughout Asia before arriving in Australia. Among the fastest growing of the competing franchises is Chatime. Founded in Taiwan in 2003, Chatime is an international franchise with over 800 stores worldwide. From its launch in Australia in 2009, the chain has grown to over 45 stores across Australia, with further ambitious growth planned. Chatime is not alone in this regard — the market leader in the Asian tea market is EasyWay, but other brands such as GongCha have recently opened stores. Chatime’s local master franchisor Charley Zhao would be happy for the company to emulate the Australian success of Boost Juice and the international success of Starbucks. Chatime’s business model and its success have much in common with the Starbuck’s and Boost approaches: Chatime tea is brewed fresh in-store using the highest quality natural ingredients with no added preservatives. It is against the company’s policy to use pre-made tea or tea powders and we are proud to support Australian Farmers, with fresh milk delivered to Chatime stores daily by Dairy Farmers and Pura. Freshly brewed tea has more flavor and fragrance. Chatime draws from traditional Taiwanese tea concepts to create their delicious fusion of flavors and continuously develop many new and innovative drinks, while keeping true to the delicious Taiwanese tea flavor.24 To date, Chatime has concentrated its marketing on Asian–Australians and focused in geographic locations with high concentrations of Asian residents. The first store opened in the Sydney suburb of Hurstville, which has a population of 47.5 percent Chinese according to the 2011 Census. Chatime’s marketing has focused on Mandarin-language media and sponsoring concerts by Chinese pop stars. Zhao has also targeted Asian franchisees. ‘Obviously, if we were targeting mainstream, in the beginning, it would be a lot harder than targeting Asians. We used the strategy to go that way’, he says.25 For Chatime, however, there are currently limitations and challenges typical of any business that has expanded to the practical limits of its ‘natural’ market niche. Now Zhao wants to open more outlets — but he needs to expand beyond the traditionally Asian suburbs populated by first- and second-generation immigrant families together with international (mostly Chinese) students. He is confident that a ‘mainstream’ audience will embrace the tea brand, but the franchisees are not easily convinced. Many of the 29 franchises are keen to open additional outlets but are not convinced that Anglo–European suburbs and towns are ready for the product. Zhao says: We do all the research to tell them that the other areas may be good but ... they’re maybe not confi- dent in thinking that local mainstream markets will love this drink.26 For Chatime, the current limits to growth are the size?and geographic concentration of the Chinese–Australian population and the issue is whether this niche will provide sufficient revenue and growth to satisfy the aspirations of the parent company, Zhao, and franchisees. To expand beyond the current customer base will inevitably require Chatime to capture a viable share of the ‘mainstream’ (predominantly Anglo–European) Australian market. The challenge is not insurmountable, however. After all, no Australian suburb or town would be complete without its local Chinese restaurant, although this assimilation occurred over decades, which wouldn’t suit Zhao’s ambitious plans. Australian appetites for introduced and exotic cuisines and beverages give encouragement that ‘pearl teas’ will eventually become as much a part of the vernacular as ‘skim caramel mochaccino latté’ (if such a drink exists!). Zhao is confronting three common, and related, problems: First, he needs to ensure Chatime’s product fits the local, mainstream market. Then he needs to focus on an educative marketing campaign that changes consumers’ perceptions about the brand. Finally, he needs to persuade franchisees to open outlets outside the Asian-heavy suburbs.27 In relation to the first issue, the challenge is in recognizing the distinctive characteristics of the local market and in deciding how far the local product should be adapted to local tastes. Zhao says: Just as McDonald’s introduced the Aloo Tikki burger when it expanded to India, catering to locals’ taste for the spiced potato patty snack of the same name, franchises need to be prepared to adjust their products to fit new markets. Chatime has introduced skim and soy milk and also allows consumers to customise their sugar levels.28 Although premium pearl milk tea is Chatime’s bestseller globally, fruit-based teas and smoothies perform more strongly in Australia than they do in Taiwan. This is because of the Australian marketplace likes ‘fresher and more healthy’ products, Zhao says. Of course, modifying mass-market fast foods and beverages to suit the tastes of local markets is both sensible and widely practiced. McDonald’s, Hungry Jack’s (Burger King), KFC and Pizza Hut have all specially developed and marketed ‘Aussie’ versions of their staples, although typically only for brief promotional periods (such as leading up to Australia Day). In a move that is similar to Australian fresh juice providers and taps into a broad-based perception of ‘freshness’, Zhao has overhauled the look of Chatime. A bright, cartoonish purple was the launch colour, but now the store interiors are a pale green with bamboo details. ‘Purple doesn’t give people any feeling of fresh’, he says. Tea leaves are on display to show the ‘natural’ side of the brand. Zhao wants to court a mature customer and leave the teenagers to his competitors, so he avoids the moniker of ‘bubble tea’. He also wants Chatime to be known as the ‘tea experts’. ‘We really want to focus on people who are well educated, who know the benefits of drinking tea’, he says. ‘That’s why our branding and wording is quite mature and serious. We’re trying to tell people, “Yes, we are the experts, trust us, drink our tea, you’ll get healthy”.’ This repositioning should see Chatime better attuned to both its original Chinese and local non- Chinese customers. At the same time, Chatime must be careful not to radically adapt its core ‘bubble tea’ product offering and service experience so that it alienates its core customer groups. After all, these customers have several alternative providers such as EasyWay and GongCha, who can still provide the ‘authentic’ product. It’s a juggling act that often challenges companies seeking to capture more of the mainstream market. Expert marketing opinion, however, is not universally in favour of the logic of broadening and adapting niche products to meet the needs of ever-wider markets. Rod Young, franchise guru and managing director of DC Strategy, has sober advice for such plans. ‘I think that these niche markets are creating terrific opportunities and I would encourage any organisations to not be all things?to all people’, he says. ‘There’s nothing invalid about focusing on a particular ethnic market and maximising the market penetration in those markets.’29 Having resolved the issues of product adaptation, there is clearly also a need to create product awareness, particularly among the new mainstream Australian target customers who may have noticed the new stores at their local shopping malls but are unaware of the pleasures and health benefits of ‘pearl teas’. This suggests the need for a product and brand awareness campaign, which may demand an increased marketing communications budget to capture the attention of the targeted new users. Of course, word of mouth, enhanced by social media, can also play a central role in this campaign. Expanding beyond major Australian cities and suburbs with large Chinese populations will be central to the aspirations of Chatime, who wants to become the ‘Starbucks of tea’. However, the Starbucks experience in Australia, and elsewhere, also demonstrates that such aspirations are?not always enough, and that competition and the diverse tastes of the local market can frustrate ambitious and optimistic plans. The challenge for Chatime and its competitors is to move the product from being a fad and a craze — albeit an exotic and pleasurable one — to being a product of universal appeal and a permanent fixture in the Australian beverage landscape. The keys to success will be the attractive idea, a sufficient budget, excellent execution and patience.

Questions 1. What are the key elements that have contributed to Chatime’s success in Australia to date?

2. What issues might limit the appeal of ‘bubble tea’ to non-Chinese Australians? (You might like to ?sample the product at your local shopping center or mall.)

3. What product should attributes Chatime emphasize in its promotion to maximise its appeal?

4. Beyond their current penetration of Australian suburbs with a high proportion of Chinese residents, ?where might you expect to find additional Chatime outlets?

5. Do you believe Chatime should target ‘non-Chinese’ locations in this stage of its development, ?or should it stick to its existing location strategy? Why/why not?