Taiwanese Franchise Chatime
CASE STUDY: Chatime: a taste for rapid growth (Text pp. 231-233) The head office of Taiwanese franchise Chatime wants the chain to become the Starbucks of tea. Local master franchisor Charley Zhao would be happy to emulate the success of Boost juice but marketing and franchising experts reckon the task ahead will be hard to swallow. You see, Zhao has made a splash with Chatime by trying to capture the Asian-Australian market, predominantly those of Chinese ancestry. To do that, he has focused on locations that have a dominant Asian population. His marketing was focused on Mandarin-language media and sponsoring concerts by Chinese pop stars. And he targeted Asian franchisees. ‘Obviously if we were targeting mainstream in the beginning, it would be a lot harder that targeting Asians. We used the strategy to go that way’, he says. In terms of getting early, quick wins, the strategy has worked. Since the first Chatime store opened in September 2009 in the Sydney suburb of Hurstville (47.5 percent Chinese according to the 2011 Census), there are now 43 outlets around the country. The chain turned over $8.5 million in 2011-12. Now Zhao wants to open more outlets, his aim is 50 by the end of the year but he needs to move out of traditionally Asian suburbs populated by first and second generation immigrant families as well as foreign students. Zhao is confident that a mainstream audience will embrace the tea brand, but his franchisees are not so sure. Plenty of his 29 franchisees are keen to open a second outlet, but baulk at opening in a suburb, like, say, Cronulla or a typically Caucasian regional town. ‘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’, he says. The problem is that Zhao has taken a particular route to market and while there’s no doubting his drive, tenacity and desire to make it work, he may have placed his business into an Asian pigeonhole from which it will be hard to emerge. Australia has a broad demographic, and by initially limiting the marketing and brand visibility to certain suburbs and ethnicities, Zhao and his team were ‘limiting their potential customer base’, marketing academic from the Australian School of Business, Paul Patterson, says. ‘At the moment these brands are sending signals that it’s only for an Asian market.’ Zhao’s challenge is not insurmountable, but it should serve as a lesson for foreign brands (especially those with a strong ethnic flavour or product suite) arriving in Australia. Chatime is not alone in this regard. The market leader in the Asian tea market is Easy Way, but other brands such as GingCha have recently opened stores. (The fruit and milk based drinks are recognisable by the chewy tapioca ‘pearls’ or ‘bubbles’ also known as bubble tea). Similarly, an Australian brand moving overseas may need to think twice about its own expansion strategy. Zhao has three problems to solve, the experts say. They are related and flow into each other. 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 outside Asian-heavy suburbs. An hour long chat over grapefruit green tea (hold the pearls, Zhao is on a diet) shows the Chinese-born businessman is aware of these three challenges. In fact, his weight watching choice informs the first problem. Just as McDonald’s introduced the Aloo Tikki burger when it expanded into India, catering to locals’ taste for the spiced potato party 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 customers to customise their sugar levels. ‘I think this is something that the mainstream market will be quite interested in’, says Zhao. Franchise guru and managing director of DC Strategy, Rod Young, says this is a good start. He notes that the failure of sugar-heavy American brands, such as Cinnabon, to proper in Australia was because they ‘gave us a heart attack’. ‘American food has more sugar than an Australian palate demands’, he says. ‘Your teeth feel like they’re going to fall out.’ To address this problem, Young advocates talking to your target customers. ‘Focus groups will really come to the fore in telling you what your menu lines are like’, he says. Although premium pearl milk tea is Chatime’s best seller 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, ‘To tap into this sentiment, Zhao has overhauled the design 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 a 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, leaving the teenagers to his competitors, so he avoids the moniker of ‘bubble tea’ and 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. 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’. When a Chatime outlet opened in Sydney’s QVB shopping centre, Zhao says giving out free samples from the flagship location introduced the product to a more diverse audience. He is also embarking on a fresh marketing drive, which he hopes will persuade current and potential franchisees of the brand’s potential to catch the attention of non-Asian customers. ‘We really want to be like Boost Juice’, the Shanghai-born Zhao says. The 33-year-old first arrived in Australia as a student in 2001. He completed two masters degrees and worked in banking and finance roles to accumulate enough wealth to back a master franchise agreement. After a six-month reconnaissance mission in Taiwan in late 2008 to meet potential partners, he was impressed by the desire of Chatime’s head office to ‘become a kind of a tea Starbucks’. But DC Strategy’s Rod Young has sober advice for such plans. ‘I think that these niche markets are creating terrific opportunities and I would encourage any organisation to not to 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’.