Hanoi (VNS/VNA) - Vietnam is a huge potential marketfor the bubble tea business as it is gradually becoming a favourite and populardrink among generations Y and Z.

Bubble tea lovers in Vietnam currently spend 360 million USD ayear on bubble tea and similar "new tea" drinks, making Vietnam thethird largest market for bubble tea in Southeast Asia, after Indonesia andThailand, according to a recent study jointly conducted bySingapore-headquartered venture outfit Momentum Works and digital paymentssolution provider qlub.

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

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

Singapore, which ranked fourth in annual turnover, had the highestspending power, with the average price of bubble tea double that of othercountries in the region.

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

Tran Ngoc An from bubble tea brand Gong Cha said that bubble teawas not a "soon to bloom' trend like spicy noodles or mango shakes, and itseemed to have become a familiar drink for generations Y and X.

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

Masan Group has invested three times in the Phuc Long tea andcoffee chain in over a year and currently holds 85% of the chain.

According to the semi-annual financial report of Masan, itssubsidy SHERPA Company Limited on August 1 bought 10.8 million shares of PhucLong Heritage in a deal worth more than 3.6 trillion VND.

Masan first invested in Phuc Long in May 2021 in a deal worth 346billion VND for a 20% stake. Masan poured another 2.49 trillion VND early thisyear to raise its stake at Phuc Long to 51%.

KIDO Group recently launched Chuk Tea & Coffe chain to open300-400 shops in Vietnam by the end of this year while cooperating withstrategic partners to expand in Southeast Asia, Thailand and the Republic ofKorea.

"The market is fragmented, and unlike internet companies,there is enough room for larger and smaller bubble tea players to co-exist andflourish," 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 toexisting local players. It's not difficult to observe and learn their play andstrategy, but what's more important is to ensure positive unit economics andgood return on investment."

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

"The bubble tea industry has a good product gross margin of60-70%. Yet, few players have managed continuous profitability at a largescale. There is also an industry saying that nine out of ten bubble tea storeslose money," the report wrote.

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

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

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

Hoang Tung, the founder of Pizza Home and Cloud Cook, said thatthe bubble tea market was gradually settling after a strong boom. The markethad gone through the period when weak brands with poor quality were purged, hesaid,

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

Although bubble tea was introduced to Vietnam in 2002 with theoriginal main ingredients of just tea, milk and topping, it was not until 2012,when Taiwanese brands entered with an established chain model with a moderndesign that the bubble tea market becomes robust.

A study by market research company Euromonitor showed that Vietnam'sbubble tea market has been expanding at around 20% per year.

It was estimated that there were about 100 bubble tea brands in Vietnam,with around 1,500 shops across the country./.