Bubble tea, also known as milk tea, is wildly popular in Vietnam with 100 competing brands and more than 700 independents and small chain outlets earning more than $300 million in 2018.
The Vietnamese franchise owners of Ten Ren, one of the most accomplished of the international tea chains, are nonetheless pulling the plug on operations Aug. 15. The franchise operated 23 outlets at the time of the announcement with ambitions to establish 40 by the end of 2018 and 400 by 2022.
Spokesman for Vietnam Coffee Trading Service, the Ten Ren franchise owner, said that after two years seeking a foothold in the milk tea segment, the company will instead concentrate its resources on fast-growing The Coffee House chain. Ten Ren’s local CEO was replaced and its locations (many adjacent to The Coffee House), were sold to Toocha, a rival milk tea brand.
Seedcom, owners of The Coffee House, told Inside Retail Asia Ten Ren’s current business model does not conform to the needs of the customer.
Retail consultant Dr. Dao Duy Khuong, explained to Vietnam Moi, that milk tea is focused too much on young people in urban areas. “Buying behavior of this group of customers often follows the trend, so milk tea brands are always faced with constant pressure to match promotions from competitors.” While the best shops generated VND700-800 million ($35,000) per month Ten Ren regularly discounted tea 40% on sales by app.
He said chains that pair tea orders with food such as Met Fresh, outsell stand-alone drink shops.
In 2018 Nielsen Vietnam found that 81% of those aged 14-23 (Z generation) and 85% of their immediate elders (24-39 years of age) named milk tea shops as their favorite gathering place.
Growth has since slowed from 20% per year in 2017 to 5.7%, according to Ms. Pham Quynh Trang – Insight Director at market research firm Worldpanel, Kantar Vietnam,
She said the milk tea market still has opportunities to develop since milk tea remains the most popular drink after coffee. On average, 1 in 5 Vietnamese people visit a milk tea store every 2 weeks.
Ten Ren, founded in 1953 by Tiān Rén Cháyè (Ray Ho Lee), has broadened its offerings to include a greater selection of black tea blends and western-inspired iced teas. Packaged and prepared teas are available for delivery. The company operates globally with 2,000 shops including locations in the U.S. and Canada. There are 20 stores in North America, including six Ten Ren outlets in New York and several wholly-owned Cha for Tea outlets in Southern California. It is the largest tea chain in the Far East with shops in Australia, Malaysia, Japan, and Singapore.
The decision will not dampen Vietnam’s enthusiasm for milk tea, but it clearly suggests “peak” saturation in the market. The Ten Ren shops were rebranded within the past week as rival Toocha liquidated the Ten Ren inventory at discount. The buy makes Toocha the largest milk tea chain in Ho Chi Minh City. Operated by Janus Holdings, Toocha calls itself “the father of the milk tea industry.”
The top remaining Vietnamese milk tea chains include: Gong Cha (50% share), KOI Thé, Toocha, Royal Tea, Phuc Long, TocoToco and Bobapop. Most are locally based.