Question

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 are Asian ‘bubble’ teas (so-called because the fruit- and milk-based drinks are recognisable 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 Charlley 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 Starbucks 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 flavour and fragrance. Chatime draws from Page 5 of 6 traditional Taiwanese tea concepts to create their delicious fusion of flavours and continuously develop many new and innovative drinks, while keeping true to the delicious Taiwanese tea flavour.13 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 per cent 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.14 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 franchisees 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 confident in thinking that local mainstream markets will love this drink.15 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.16 In relation to the first issue, the challenge is in recognising 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.17 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 the Australian marketplace likes ‘more fresh 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 Page 6 of 6 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.’18 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.

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

2.What product attributes should Chatime emphasise in its promotion to maximise its appeal?

3.Describe the Chatime brand and outline what Chatime can do to encourage brand loyalty.

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

Answer 1

1. One of the fundamental and historical factors contributing to the commercial growth and progress of Chatime, as a major soft beverage franchise in Australia is the diversified cultural, demographic, and ethnic composition of the country that can be mainly attributed to the continual and successive waves of immigration that it has experienced. With a considerable presence of the Asian-Australian population and a consistent influx of new Asian immigrants have immensely contributed to the franchise popularity and expanding market share at the initial stages of its operation in Australia. In this regard, the beverages made and sold by Chatime predominantly replicates the authentic flavor, taste, and other qualitative characteristics of the original Taiwanese tea, the brand that it is primarily known, owing to its organization in Taiwan. Furthermore, the particular demographic and ethnic profiling of its target consumers and demographic concentration of the consumer base is also a major factor behind the initial success of the franchise. As mentioned in the report or the case study presented in the question, at its initial operational stages, Chatime has predominantly and majorly emphasized on the Asian-Australian population and the general Asian residents in the suburbs of Sydney to capitalize on or sustain the commercial reputation it has established in the Asian or Taiwanese market by offering identical product taste, flavors and other preferential characteristics. This has initially increased the market share of the franchise in the Australian beverage market and developed it as one of the fastest-growing franchises in the country. Moreover, the authentic and fresh product flavor and quality along with the original recipe of the products in accordance with the erstwhile Asian or Taiwanese taste have also contributed to the market reputation and goodwill especially among the Asian-Australians and Asian immigrant population at its initial operational stages.

2. Now to become a potential market leader in the beverage industry in Australia and enhance its domestic market share mainly encompassing the local Anglo-Australian population and the original residents of the country, Chatime would essentially have to expand and diversify its existing product base and range, simultaneously emphasizing on its main and initial product lines to maintain its prevailing market share especially among the Asian-Australians and other Asian residents. In this pursuit, the franchise can possibly introduce new products and/or modify some of its existing product lines in accordance with the culinary tastes and preferences of the domestic consumer base. This might include some relevant qualitative modifications of the products and introduction of new product lines such as exclusively fruit-based beverages and fresh smoothies which would appropriately and better suit the preferential specifications of the local Australian customers. Furthermore, considering a strong preference for fresh and healthy products Chatime can also consider offering various freshly made health drinks with a suitable mix or composition of cream and milk which would better correspond to the taste buds of the domestic consumers. As mentioned in the case study, the introduction of skim and soy milk-based health drinks and beverages to customize the sugar level of the customers can also expectedly work well among the domestic customers, considering their dominant preference towards health consciousness and healthy lifestyle.

3. The franchise branding of Chatime is mainly associated with its promotional and marketing campaigns and brand visions and values. As stated by the parent company of the franchise, Zhao, the franchise intends to ascertain a positive market and consumer impression by developing consumer trust and loyalty. In this context, the franchise mainly focuses on well-educated consumers and intends to create a genuine impression that all the products offered by the franchise are indeed freshly made and healthy which would enhance the health value of the consumers. Hence, much of the brand value and reputation of the franchise centers on the notion of product freshness and healthiness and the promotional or advertising campaigns and efforts of the franchise also reflect or highlights this underlying brand principle/vision and impression exemplified by its marketing captions and respective store designs. Now, to further enhance the brand reputation and loyalty, Chatime would have to engage in a more rigorous and comprehensive brand awareness campaigns and programs to potentially reach more number of customers and inform or convey to them about their existing and new product range and the central brand vision/principles. This would essentially entail relatively higher and active consumer interaction to attract attention among the new customers and users towards the new and existing product lines and their consumer value through various marketing and promotional strategical mediums such as word-of-mouth campaigns, social media marketing, etc. The key here is to expand the product and brand awareness of the franchise among new and potential users to the maximum possible capacity.

4. Having established a considerable brand and product reputation predominantly among the Asian-Australian population and the Asian residents in the country, the franchise can gradually focus on enhancing its target consumer base and demographic profiling. Considering the extremely vibrant and diversified culinary preferences of the domestic population, consumer base expansion evidently appears to be an immense market opportunity for the franchise to considerably increase its market share and become one of the prominent market leaders in the industry. The current market trend also evidently supports this observational notion as reflected by the expansionary decisions of many of the leading beverage and culinary brands and franchises across the country mainly focusing on the diversified preferential specifications of the local consumers. Hence, it can be practically regarded by Chatime as a major opportunity to enhance its commercial success and brand loyalty provided that it can appropriately cater to the diversified needs and demands of the new customers or users. As explained earlier, it would also require a significant promotional and market effort to comprehensively convey and promote the various existing and new product lines and brand awareness, especially among new consumers or users, which entails considerable financial investment and important budgetary modifications for the franchise. Furthermore, Chatime would also have to be aware of the competitive forces in the market and the consistent product modifications in accordance with the rapidly changing culinary habits, tastes, and preferences of the domestic customers to retain and parallelly expand its consumer base and market share.