University of Languages and International Studies

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English for Economics

Final assignment
Case 2. Market Competition

Instrocter: Nguyen Thanh Thuy

Student’s name: Do Phuong Anh

Student ID: 18010306

Ha Noi - 2022

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 CASE 2. MARKET COMPETITION

Increasingly, the market share of bubble tea is expanding, it becomes a new culture in
Vietnamese society, so bubble tea market research is becoming a fever with no sign of cooling
down.

After a period of being snubbed, bubble tea quickly returned to its heyday in 2013. Milk
tea the market is becoming hotter than ever with the participation of a series of big and small
brands, from domestic to foreign brands. Brands such as Dingtea, Koi, Royal Tea and Gong's
father are the most powerful brands in the Vietnamese market. Because of seeing the potential
of a "gold mine" for business, but the audience focuses mainly on young people, a series of
Vietnamese brands such as Chevy, Bobapop ... also participate in this potential market.

According to the current study of the milk tea market, Grinded stones are taking up more
than 36% of users. Ranked No. 3 is Vietnamese iced milk coffee - a typical drink of
Vietnamese people, Cappuccino and Latte coffee account for 4% and 1% of favored people
respectively. Surprisingly in this study, Milk Tea is ranked second in favor of people using
23%, and most focus on women (53%) and young people aged 15-22 (35%). As a result, the
bubble tea market in Vietnam is rising dramatically. So let's see why the market is so
developed.

Firstly, the nature of the milk tea market in Vietnam is a monopolistic competition that
contains a variety of products, number of firms, barriers to entry, and control over prices.

The bubble tea market structure is described in which there are many firms selling
products that are similar but not identical. The milk tea stores have sprung up like mushrooms.
It is estimated that there are more than 1,500 bubble tea shops in Vietnam, belonging to over
100 brands. For example, Ding tea is probably the current "boss" brand in the Vietnamese
market, although it only covers Hanoi, the number of stores is very large up to 89 stores
nationwide. Reverse after Dingtea is a series of brands such as Toco Toco (61 stores), Gong

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Cha (15 stores), Tra Tien Huong (47 stores). That is an outstanding number about bubble tea’s
spectacular growth.

However, the tastes of each kind of milk tea on the menu of shops are quite similar
together. For instance, the ToCoToCo menu has pink milk tea, black sugar bubble tea, three
brothers milk tea, and so on…, but all of them have also appeared in other shops. The
differences probably are the quality of ingredients, the topping added to the milk tea, and the
names that producers gave. Each store has a different supply of ingredients, so each brand will
import premium ingredients to the mode or vice versa. On another side, instead of adding
black pearls to 3 brothers milk tea like black sugar pearl milk tea in ToCoToCo, the bartender
will add cheese pudding and other types of threaded pearls and call it a new name such as
Royal pearl milk tea in Royal tea shop to increase the difference between the two drinks. This
is the basic characteristic of the variety of products and number of firms in the milk tea
industry.

In the bubble tea world, barriers to entry are relatively low compared to some other
industries. However, that does not mean they don’t exist. The primary barriers include startup
capital, economies of scale, location, marketing, consumer behavior, and regulations.

As with most businesses, a new bubble tea store will need a certain amount of funding to
cover the startup expenses as well as the first few months of operations. Whether you plan on
opening a luxury milk tea chain or a bubble tea truck, people need money to start their
business. Many restaurants begin making money on variable costs as soon as they open. Thus,
coming up with sufficient startup capital is one of the most significant barriers to entry into
the milk tea industry.

“Economies of scale” refers to the cost advantages that a business derives due to high
levels of production. Increased levels of production enable businesses to reduce the per-unit
cost of their products. While variable costs will grow with sales, fixed costs will grow at a
much slower rate. Therefore, larger companies benefit from their ability to spread their fixed
costs over much higher volumes.

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 This enables them to still be profitable even at much lower prices than their smaller
competitors. It takes time for new entrants to develop a customer base and increase their
production levels. Therefore, these economies of scale are not available for a brand-new shop.
As a result, new stores will either have to have higher prices than their larger competitors or
be comfortable with a financial loss until enough volume is built up to increase economies of
scale.

A restaurant’s location is one of the most crucial factors in its success or failure. For
example, a street full of high-end bubble tea stores may not be the best place to open a pocket-
friendly milk tea shop.

Another the major challenge that startup restaurants face is difficulty in attracting
customers. People can be wary of trying new things. These customers also already have a large
number of restaurant options to choose from. Making a name for a bubble tea shop takes a lot
of time and effort. Building a brand is not an easy job. With a ton of competition, it is difficult
for a bubble tea store to perform well without its brand.

This barrier is specific to the food industry. Bubble tea shops will need to follow several
regulations related to health standards. There are strict guidelines related to what foods they
can serve and how they can serve them. Some investors have said that opening bubble tea
shops in Vietnam now is like the fad of opening cafes and selling other refreshments in the
past which shows that a person in Vietnam can open a new milk tea shop easily. Some legal
documents to open a milk tea shop include a rental contract (if any), business registration
certificate and tax, and certificate of food safety and hygiene,...What are some barriers to entry
bubble tea market in Vietnam that each business has to face?

Milk tea business owners can control product prices without being dominated by the
market. Bubble tea models are diverse in Vietnam. There are small shops or homemade milk
tea which sell take-away and have a small investment capital of several million dongs. There
are large shops with an investment of hundreds of millions or billions of dong. The Alley is a

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luxury milk tea shop, for example, with great investment when it is located in a beautiful
location (a populated area, opposite the street, a large area).

Furthermore, the bubble tea chains also have decorated with politeness and courtesy, so
the average price of drinks is over 50,000 VND which is higher than other small shops such
as Đô Đô, Te-Amo, etc, that only rents a very small space just enough to prepare drinks and
sell to customers to take home. Hence, the price of milk tea in shops with little capital
investment also ranges from 15,000 to 30,000 VND. Most of the subjects surveyed in the
study of Vietnam's milk tea market fall in the age range of 18-39, this is the age with the
highest frequency of using this type of product. For high-cost milk tea products, customers are
mainly people with good financial income or students with good economic and financial
conditions.

Secondly, a significant shift in consumer taste affected the bubble tea market. Most of
the respondents stated that bubble tea is good, refreshing, and suitable for younger people: it
is a product of joy because it is both a food and beverage that consumers can drink while
chewing enjoyably, making it a favorite amongst young people which causes an increase in
the demand for milk tea. Another reason is consumer expectations. The expectation that
consumers have about future changes in prices and their incomes affects their current
purchase. The division in beverage choice is also based on personal income level. High-
income people often choose milk teas at higher prices than the rest.

Finally, drinking bubble tea is widely considered a social activity. When we look at
bubble tea shops, we can find many commonalities and notice a trend that they are designed
to accommodate and promote social gatherings. Bubble tea shops want to create an experience
that brings in their customers (young people) over and over again. The the experience begins
with waiting in line. Popular shops always have a line out the door and customers would wait
for upwards of twenty minutes before reaching the counter. Whether the line is artificially
created or necessitated by the crazy demand, having lines out the door is. Having these long
lines may deter some customers, but it ends up being a net positive as it signals to potential
customers the popularity and worth of the product. For people new to bubble tea lines, their
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first thoughts may be ‘why is the line so long,’ ‘what are they buying.’ These are the ideal
questions to drive interest and ultimately sales.

Bubble tea shops provide employment opportunities for young people, but the tea shops
have a lot to gain as younger workers tend to open a more welcoming atmosphere for younger
customers. There are always seating arrangements for groups of people. Small tables and seats
are placed in a seating area. You can often find games such as Uno and Jenga to play. This
encourages social behaviors, and conversation, and again, adds to the vibe of the shop. What
separates a lot of the successful bubble tea shops from the not-as-successful ones is its
Instagrammability. Shops will purposefully design the shop to have proper lighting and decor
for Instagram photos. Bigger stores will have attractions that pull in crowds such as neon signs
and plant walls. Being posted on Instagram is the free marketing to the shop and will lure more
people to come.

That is the overview of the bubble tea market in VietNam background. Analysts
confirmed that the bubble tea shop market which was sizzling three years ago is on the decline.
Nhip Cau Dau Tu cited reports about the food and beverage (F&B) the sector is showing that
the market is cooling down with a modest growth rate of 5.7 percent, which is just a quarter
of that in the hot development period. So many bubble tea shops joined the market in recent
years that many of them have had to give up the game. It is estimated that 20 bubble tea brands
are struggling to scramble for pieces of the market.

Three years ago, bubble tea was considered the hottest segment of the F&B sector with
brands available in the market including KOI Thé, Gong Cha, Royal Tea, Ten Ren, The Alley,
TocoToco and Bobapop. There were over 1,500 bubble tea shops across the country.

However, the market is cooling down with the departure of many big names. Two months
ago, Ten Ren, a brand managed by The Coffee House, stopped operation. The Coffee House
planned to invest VND 100 billion in the chain to develop 30-40 shops in 2018. Meanwhile,
TP Tea, from the establishment to the closing day, did not leave a good impression among
consumers. Domestic bubble tea models have a franchise fee of VND300-500 million, while

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foreign brands are VND1-5 billion. With a high franchise fee, plus high rent, VND30-50
million a month, many shops take a loss. Meanwhile, the competition is getting fierce as many
F&B chains such as Thai, Japanese and Korean restaurants and KFC now also serves bubble
tea.

The issue of food safety in the milk tea industry is also notable in Vietnam. Many milk
tea businesses for profit import poor-quality ingredients for making. Regardless of the health
of consumers, tons of powder of unknown origin are still used by some milk tea shops. In just
6 months, the market management force and the Hanoi Police discovered 4 cases and seized
2 warehouses containing a large volume of ingredients for making milk tea of unknown origin
with many tons of goods chemical.

Facing the proliferation of milk tea shops and the decline of this drink in the market, the
government will need many solutions to balance this economic activity to bring good profits
to businesses. industry and society. Some paperwork should be decreased, because barriers to
entry into the market may experience a lot of forms and bureaucracy to get licenses to operate
that is can be hard for private businesses. Therefore, food safety inspection measures need to
be stepped up and penalties for violators of tax evasion or consumer health should also be
stronger.

In conclusion, milk tea is always a good opportunity for businesses that know how to be
creative and seize the opportunity, but it also has many potential risks due to fierce competition
in the market. A market is full of promise and a very high rate of profit-making. It can be seen
that this is not a trend, but it will be a trend in the next few years, businesses need to capture
this trend to create their profits.

 Reference list:
1. https://www.lengjai.com/articles/the-popularitea-of-bubble-tea/
2. https://vietcetera.com/en/vietnam-is-third-largest-market-for-bubble-tea-in-
southeast-asia
3. https://bizfluent.com/info-8083460-barriers-entry-restaurant-industry.html

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 4. https://finrefs.com/barriers-to-entry-restaurant-industry/
5. https://vietnamnet.vn/en/is-the-bubble-tea-craze-in-vietnam-over-590611.html
6. https://diendandoanhnghiep.vn/thay-gi-qua-quy-mo-thi-truong-tra-sua-viet-
nam-229279.html
7. https://vneconomy.vn/so-tien-nguoi-viet-chi-tieu-cho-tra-sua-dung-hang-top-
trong-khu-vuc.htm