Chatime’s Strategic Goal and Potential Challenges

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.

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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.

Chatime’s Sustainable Competitive Advantage

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’.

Challenges in Implementing Chatime’s Expansion Strategy

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’.

References

Adapted from Jessica Gardener, ‘A Taste for Rapid Growth’, BRW, (13 September 2012), www.brw.com.au.

Required:

1. What is Chatime’s strategic goal? What kind of problems could there be with this kind of strategic goal?

2. Define what you think is Chatime’s sustainable competitive advantage in the beverage outlet industry.

3. In industry terms, what are the challenges that Chatime may have in implementing their expansion strategy?

4. Considering their current circumstances, what internal capabilities may Chatime have to develop to achieve their strategic objective?

1. The strategic goal of Chatime according to the case study is that they focused on Chinese customers. They made promotions in mandarin language which conveyed their Chinese customers only. Even after expanding their business in Australia they focused keeping their stores available to place where the Chinese populations are more. Chatimes prime aim was to capture the Asian-Australian market. Now Zhao, the local master franchiser aims to release more outlets. His target is to reach 50 at the year end to which he needs to move out of traditionally Asian border populated by second and first generation immigrant families as well as overseas students.

This kind of strategy is not effective because it targets a particular group of customers and not others. In order to attract customers of different culture it needs to understand the customers need or survey their preference and tastes. Like McDonalds adopted a strategy in India that they introduced potato burger as their Indian customers were mostly vegetarian. The business will have

 Less scope to diversify: following the strategy of targeting a particular group of customers a company cannot diversify it is a disadvantage because diversifying helps in financial gain. Because after acquiring and going for a joint venture a company gets the generate profit from the business and along with it the borrowing power and cash flow also generates (Proctor, 2008).

 Concentrated market: if the market for the company becomes concentrated to only a particular type of customers then the product becomes focus product and the organization gets a tough competition with its customers. Moreover its market share also decreases. While targeting new customers the base of customers also increases (Boone & Kurtz, 2013).

Customers: if the product targets a specific group of customers then it is quite obvious that if the product is introduced to other types of customers then the acceptability will be less for the product. Customers may not prefer to buy the product and a premature evaluation plays its role. If a product is targeted to a particular group of customers then the company misses out to reach those customers who may seem to like the product. Suppose if a chocolate manufacturer aims to target children for that product then it may happen that the teenagers as well as the adults may prefer to have that chocolate this means focusing on the children for that chocolate will make them lose a good number of adult and teenage customers (Ferrell & Hartline, 2010).

Internal Capabilities for Achieving Chatime’s Strategic Objectives

2. The competitive advantage of Chatime can be divided in to three parts:

1. Quality: Chatime uses standard machines for producing coffee and tea machines so as to produce the best quality drinks so as to make the beverage acceptable to its customer. Chatime uses imported tea which is best in their own countries and the ingredients are also highly appreciative minus preservatives and additives. Chatime collects designs and concept from the Japanese producers of teas, and also takes indication from the Japanese concept of quality control (Beall, 2010).

2. Innovation: cha time has a vast availability of teas and coffee, they have many series of tea along with variety of toppings and coffee as well. They have series of fruit teas, fresh teas, mousse series, QQ jelly series, 9 refreshing juice and oriental pop-tea. Apart from the various range of teas, they also use unique ingredients for making their products. They have a product named “White Pearl” which has been their bestseller (ShaolinTiger – Kung-Fu Geekery, 2011). These White Pearl teas are made from the extract of seaweed which has high fiber and low calories and sugar. There are considerably other teas also which are very innovative like the milk tea of red bean pearl.

3. Promotional Strategy: Chatime has a very unique style of promotion. Chatime initially focused on the Asian market specially the Chinese people. They had the idea that Chinese people would prefer tea and their products for which they provided promotions in mandarin language. This is a cultural proximity strategy which was sure to capture the attention of the Chinese people. They have much product promotional strategy in which they provide many facilities for their customers.

Chatime focused in providing healthy teas of fruit flavors to their customers because their customers were more interested on having healthy food. Chatime not only provided healthy products but also stressed on providing their customers fresh products. To this, the sale had been quite well. Through their products they aimed to establish that they are expert in producing teas helps their consumers maintain a healthy life (Cavusgil & Knight, 2009).

3. The problems or the challenges of Chatime are:

• Ensuring that the product would fit the mainstream and the local market
• Focusing on educative campaign for marketing that would change the perception of the consumer
• And persuading the franchisee for opening stores outside the suburbs where only Asian resides.

These three were the main challenge of Chatime for expansion strategy, but in industrial terms Chatime had competitors in the market. Competitors are always a challenge for a company and so did Chatime have its competitors like Ghingcha and the market leading Easy Way. Ghingcha had also newly opened stores along with Chatime therefore a high possibility of competition was there. To this problem and the problem for entering into the market there was a sheer requirement to understand the need of the non-Asian consumers. For any launch of product the company makes a survey of the needs and the preferences of the customers and with the help of the survey the company proceeds in introducing the product into the market (Samli, 2013). What Chatime understood is that the Australian preferred sugarless and healthy beverages. They were tired of the American products which not only had high calories but also increased sugar level that may cause various health issues to the people. Chatime introduced at first skimmed milk and soya milk keeping in mind about their health conscious customers, and this turned out to be a good start for the company (Reviews, 2013).

4. In order to develop for to reach their strategic goal Chatime needs to focus on its internal capability. For this the service plays a key role. A company not only survives for its innovative strategy, product quality and promotions but also with its unique service system. With three prominent differentiated products Chatime has its own demand and group of customers but a strategic goal requires services that would help them to retain their customers. This can be done by creating customer loyalty, and for customer loyalty the employees need to be efficient in their service.  Cha time has a specialized research and management team and they have exceptional product innovation policies along with good quality system of audit (Chatime.com.au, 2015).

The tea testers and the tea developers are professional and the company has a high quality of technology used for its product. Cha time needs to strengthen their customer relations and make their product available to nearby locations. Chatime have to develop their customer service, their number of stores and an ambience for their customers in order to set their mood of having tea. A store location and its environment is significant consideration. It is because a good space a good environment makes the customer stays for a long time (Baines & Fill, 2011). Not only that, a good ambience attracts a good number of customers. In order to do so Chatime required a unique color that would depict their product quality and services. Where a bright purplish color was used for its launch there they needed a good color choice for their store because purple and green seemed to be not suitable.

References

1. Baines, P., & Fill, C. (2011). Marketing (2nd ed., p. 756). Oxford University.

2. Beall, A. (2010). Strategic Market Research: A Guide to Conducting Research That Drives Businesses(p. 122). iUniverse.

3. Boone, L., & Kurtz, D. (2013). Contemporary Marketing (16th ed., p. 784). Cengage Learning.

4. Cavusgil, S., & Knight, G. (2009). Born global firms. [New York, N.Y.] (222 East 46th Street, New York, NY 10017): Business Expert Press.

5. Chatime.com.au,. (2015). Home – Chatime. Retrieved 22 March 2015, from https://chatime.com.au/

6. Ferrell, M., & Hartline, D. (2010). Marketing Strategy (5th ed., p. 768). South-Western.

7. Proctor, T. (2008). Strategic Marketing: An Introduction (2nd ed., p. 352). Routledge.

8. Reviews, C. (2013). Studyguide for effective management by williams, chuck, isbn 9781435462878. [S.l.]: Cram101 Incorporated.

9. Samli, A. (2013). International consumer behavior in the 21st Century. New York, NY: Springer.

10. ShaolinTiger – Kung-Fu Geekery,. (2011). Chatime & Gongcha – The Latest Craze In Malaysia – Pearl Tea – ShaolinTiger – Kung-Fu Geekery. Retrieved 22 March 2015, from https://www.shaolintiger.com/2011/06/06/chatime-gongcha-the-latest-craze-in-malaysia-pearl-tea/