Bubble tea lovers in Việt Nam spent US$360 million on bubble tea and similar "new tea" drinks in 2021, making Việt Nam the third largest market for bubble tea in Southeast Asia. — VNA/VNS Photo

HÀ NỘI — Việt Nam is a huge potential market for the bubble tea business. This drink is gradually becoming a favourite and popular drink among generations Y and Z.

Bubble tea lovers in Việt Nam currently spend US$360 million a year on bubble tea and similar "new tea" drinks, making Việt Nam the third largest market for bubble tea in Southeast Asia, after Indonesia and Thailand, according to a recent study jointly conducted by Singapore-headquartered venture outfit Momentum Works and digital payments solution provider qlub.

The "Bubble Tea in Southeast Asia" report revealed that Southeast Asia's bubble tea market reached $3.66 billion in 2021.

Indonesia was the largest market in the region, with an estimated $1.6 billion annual turnover. Thailand was the second-largest market with a yearly turnover of $749 million.

Singapore, which ranked fourth in annual turnover, had the highest spending power, with the average price of bubble tea double that of other countries in the region.

The report said that the bubble tea landscape in Southeast Asia was very competitive, adding that besides Taiwanese and homegrown brands that had long dominated the market, many Chinese brands entered the game in the region, such as Mixue, Chagee and HEYTEA.

Trần Ngọc Ẩn from bubble tea brand Gong Cha said that bubble tea was not a "soon to bloom' trend like spicy noodles or mango shakes, and it seemed to have become a familiar drink for generations Y and X.

Big companies also entered the game with massive investments in bubble tea brands.

Masan Group has invested three times in the Phúc Long tea and coffee chain in over a year and currently holds 85 per cent of the chain.

According to the semi-annual financial report of Masan, its subsidy SHERPA Company Limited on August 1 bought 10.8 million shares of Phúc Long Heritage in a deal worth more than VNĐ3.6 trillion.

Masan first invested in Phúc Long in May 2021 in a deal worth VNĐ346 billion for a 20 per cent stake. Masan poured another VNĐ2.49 trillion early this year to raise its stake at Phúc Long to 51 per cent.

KIDO Group recently launched Chuk Tea & Coffe8 chain to open 300-400 shops in Việt Nam by the end of this year while cooperating with strategic partners to expand in Southeast Asia, Thailand and the Republic of Korea.

"The market is fragmented, and unlike internet companies, there is enough room for larger and smaller bubble tea players to co-exist and flourish," said Jianggan Li, Founder and CEO of Momentum Works.

"The emergence of Chinese players who are good at branding, product/supply chain and cost management could pose an increasing challenge to existing local players. It's not difficult to observe and learn their play and strategy, but what's more important is to ensure positive unit economics and good return on investment."

However, the report pointed out that few bubble tea stores were profitable despite high margins.

"The bubble tea industry has a good product gross margin of 60-70 per cent. Yet, few players have managed continuous profitability at a large scale. There is also an industry saying that nine out of ten bubble tea stores lose money," the report wrote.

According to Sik Hoe Yong, Chief Operating Officer of qlub, though there are high margins, bubble tea was a low-differentiation game with easily replicable products and a challenging supply chain.

"The pandemic was a natural selection process as many stores shut down. However, consumers' love for bubble tea won't change anytime soon, but they will vote for their favourite brands with their wallets," he said.

Pricing was not the only factor that affected purchasing decisions. The report pointed out that consumers also decided based on the product selection at stores and the ease of access which meant the number of stores a brand had.

Hoàng Tùng, the founder of Pizza Home and Cloud Cook, said that the bubble tea market was gradually settling after a strong boom. The market had gone through the period when weak brands with poor quality were purged, he said,

Tùng added that bubble tea became a popular drink rather than a trendy drink, stressing that the bubble tea market retained huge potential.

Although bubble tea was introduced to Việt Nam in 2002 with the original main ingredients of just tea, milk and topping, it was not until 2012, when Taiwanese brands entered with an established chain model with a modern design that the bubble tea market become robust.

A study by market research company Euromonitor showed that Việt Nam's bubble tea market has been expanding at around 20 per cent per year.

It was estimated that there were about 100 bubble tea brands in Việt Nam, with around 1,500 shops across the country. — VNS