Once upon a time, when grabbing a coffee was still a staple of any office life, my favourite activity was to take colleagues to a bubble tea shop nearby. The ensuing eclectic collection of responses never failed to amuse me: first timers were always inquisitive about those blackish-looking “bubbles”; the regulars tended to go straight to Okinawa brown sugar milk tea; fitness junkies invariably opted for fresh fruit tea with 50% sugar after much agonising; and the polite English gentlemen, more used to earl grey laced with milk, usually murmured “interesting” when their opinion was sought on the taste.
Despite a wide-ranging reaction, most were awed by the rapid ascent of this rather novel drink, which appears to have conquered central London from nowhere. Oh well, I grew up drinking bubble teas, so to me there is really nothing new about it. But what did strike me is how much the business of bubble teas has evolved over time. If you are as curious as I am, here is the metamorphosis of the bubble teas, from its humble origin to a global addiction.
Bubble Tea 1.0 (1990 – 1995): a humble origin from Taiwan
That the bubble tea (also known as pearl milk tea, 珍珠奶茶) originates from Taiwan (台湾) is a well-known fact. But the picture gets a little murkier when it comes to who invented the drink. There are generally two popular versions of the story:
- The first concerns Mr. Tu Tsong (涂宗) and his Hanlin Tea Room (翰林茶馆) in Tainan (台南). Mr. Tu claimed that he had his epiphany when visiting the local Yamuliao wet market that had stalls selling tapioca balls. He first experimented with mixing white translucent tapioca balls and green tea in his shop in 1986, naming the new beverage “pearl green tea” (珍珠绿茶) for its shimmering resemblance with his mother’s pearl necklace. To optimise taste and texture, he later upgraded his creation to milk tea with bigger, more chewy black tapioca balls, which became a prototype of today’s classic bubble tea.
- The person who disputed Mr. Tu’s claim is Ms. Lin Hsiu Hui (林秀慧), product manager of Chun Shui Tang Teahouse (春水堂) based in Taichung (台中). According to Ms Lin’s interview with CNN Travel, she accidentally made the concoction during a team meeting in 1988, as she dumped a pack of tapioca balls into her iced Assam tea but was pleasantly surprised by how tasty it was.
In a firm attestation to the lucrativeness of the trade, neither side was willing to give up the title without a fight. But unfortunately, despite a decade-long lawsuit, we still don’t have a definite answer today. The judge, perhaps as baffled as we are, ruled in 2019 that the bubble tea is a beverage that everyone can make at home, so it is pointless debating who created it.
Bubble Tea 2.0 (1996 – 2015): Wild Wild West
As Hanlin and Chun Shui Tang were busy fighting each other in the court, the somewhat unconventional milk tea with tapioca balls turned out to be a massive hit in other parts of Asia, including China. Since the mid 90s, bubble tea shops in all shapes and sizes started mushrooming in the Chinese cities.
I think I can speak for a generation of Chinese kids growing up during that time: one of my fondest childhood memories is to sip away a cup of bubble tea with friends after school, from ubiquitous takeaway kiosks like Happy Lemon (快乐柠檬) or Quickly (快可立). Occasionally, a Taiwanese grilled sausage was an added bonus when I had some extra pocket money.
I was certainly not alone in my craving. The consensus among fans is that Jay Chou (周杰伦), the Asian pop legend, has been indulging in one too many cups of bubble teas, as suggested by his expanding size and chubbier face. He vowed to quit the addiction in 2018 but apparently soon caved in to the temptation.
Meanwhile, the bubble tea craze also spread to the Chinatowns around the world like a wild fire. It rose to become a quintessential Asian beverage that pays homage to one’s root and identity. Funnily enough, shrewd politicians such as Hilary Clinton even learnt to ingratiate herself with the Asian-American community by stopping for a cup of bubble tea in Flushing. She allegedly professed her love for the drink, although neither she or I knew back then that the milk tea we were drinking most likely had neither milk or tea in it.
As a matter of fact, during this period of aggressive expansion, bubble tea drinks were largely made up of creamer, artificial colourings and flavoured syrups. And creamer is the most crucial ingredient among all, because it gives the drink an attractive milky look and smell. It also enjoys the added benefit of being much cheaper than fresh milk.
However, it does have one annoying drawback: the creamer and tea tend to separate after a while so another food additive called clouding agent is needed to create a visually appealing drink. Given the cloud agent’s short shelf life, some unscrupulous merchants started to secretly replace it with toxic industrial plasticisers. Sure enough, a food scandal involving such plasticisers erupted across Taiwan in 2011. The bubble tea’s once glowing reputation sank to rock bottom.
Bubble tea 3.0 (2016 – present): Revolution instead of evolution
As the saying goes, the folly of one man is the fortune of another. Traditional bubble tea’s fall from grace propels a crop of brand new premium teahouses to the centre stage. To set the scene for what is to come, I would like to highlight that, while both are commonly referred to as bubble tea shops, their products and business models are miles apart.
Take China’s HeyTea (喜茶) and Nayuki (奈雪的茶), the two clear market leaders in this new category, as an example. Gone are the takeaways of tea powders, canned fruits and creamer from tacky stalls. Here come freshly brewed tea from high-grade tea leaves, infused with seasonal hand-cut fruits, fresh milk and served up in sleek, comfortable social spaces that invite the sharing of the experience with family and friends.
Sometimes, there is also an icing on the cake: a finishing touch of a light and creamy cheese foam topping, which gives the drink another dimension of a tangy savoury taste. (I know cheese and tea feel like an unlikely combination to any cheese lovers, but trust me, it actually tastes much better than it sounds!).
- To have a concrete idea of what the new-age bubble tea is like, look no further than one of Nayuki’s signature products – Supreme Cheese Grape Tea (霸气芝士葡萄), a bright-coloured purple blend that combines premium oolong tea with fresh grapes and then topped with a layer of whipped cheese.
Of course, a tip-to-toe treat like this does not come cheap. An average price of about RMB 30 (or USD 4.6) dwarfs that of the traditional players, which usually charge somewhere between RMB 10-20 per cup. But that by no means deter countless office workers or generation-Z fans, who prefer to sipping these cheese-topped teas in grand shopping malls, making both HeyTea and Nayuki a nationwide sensation.
When Guangdong-based HeyTea opened its first store in Shanghai in 2017, it was reported that many of the young and fashionable queued up to six hours to grab a cup. The sense of scarcity in turn fed back to the loop of demand. Since then, crazy anecdotes, such as getting paid to stand in line or trading a cup for multiple times of its cost on a black market, get frequently picked up by the news. Alas, the last time I recall such madness is when Apple launched its new iPhone!
While I may be getting too old to appreciate people’s determination for a fancy drink, such insatiable demand certainly has not gone unnoticed by astute investors. Notably, Nayuki went public on the Hong Kong Stock Exchange in June this year. Despite a disappointing share performance after listing, today its valuation still stands at HKD 17.1 billion (USD 2.2 billion). Likewise, HeyTea, the number one player with a larger market share, was reportedly valued at a whopping RMB 60 billion (USD 9.3 billion) in its latest funding round.
Bubble tea 4.0: Starbucks of China?
As China’s bubble tea unicorns race to raise capital and populate cities with new stores, here comes the million-dollar question: will any of them become the “Starbucks of China” in the next iteration?
Not long ago, a similar excitement was whipped up about Luckin Coffee (瑞幸咖啡), once China’s largest domestic coffee chain. It did not end pretty, with the company collapsing shortly after admitting accounting fraud. However, to apply a linear extrapolation here would be unfair. In stark contrast to Luckin Coffee’s discount driven, delivery/pick-up focused model, the upscale bubble tea operators actually do share many commonalities with Starbucks in terms of price points, business model and social function.
On top of that, it fills a genuine gap in the market, where consumers demand an alternative premium tea drinking experience. And not to mention the merit of scalability. Despite China’s well-known reputation for its tea products, it has been notoriously difficult to build any premium tea businesses at scale. The challenge lies in the fact that savouring premium tea, not so dissimilar to dining in a Michelin-star restaurant, offers a very subjective experience. It also demands a tailored approach in production, processing, sales and marketing, which are hard to replicate.
Avant-garde bubble tea shops, such as HeyTea and Nayuki, are the keys to unlock this huge potential of industrialising premium tea drinking experience in a modern age. This is because the addition of milk, sugar, sometimes fruits and cheese, dilute the tea taste, removing the necessity of labelling grade, origin and colour of leaves which used to characterise premium tea drinking and made it hard to reach the mass market.
Another compelling argument in favour of the re-invented bubble teas, according to 36Kr, China’s TechCrunch, is the potential breath of its offerings. Browsing through HeyTea’s menu, and as categorised by 36Kr below, one can easily visualise a tea plus everything business, rather than a simple drink business:
- Milk tea + desserts (e.g. cakes, cheese toppings): comfort food for office workers
- Milk tea + fresh fruits: refreshing drinks for the health-conscious
- Milk tea + ice-cream: an answer to Starbuck’s Frappuccino
- Milk tea + baked products (e.g. biscuits, sandwiches, breads): the ultimate calorie indulgence
- Milk tea + rice (yes, apparently bubble teas not only go well with cheese but also with yummy mango glutinous rice!): alternative to the traditional Chinese mango desserts
As you can see, the mild taste of tea makes it a perfect base to virtually everything. And all permutations nail the holy grail of addiction: sugar, fat and caffeine. So this is the secret weapon of the modern day bubble tea businesses: not only do they capture a generation of bubble tea fans, but also dessert, fruit, ice-cream and cake lovers. I think many would nod in agreement with 36Kr’s iPhone analogy. Apple’s invention made standalone cameras, MP3 players and VCD discs obsolete. Today the same dynamics have accelerated the decline of many traditional dessert chains, including Hui Lau Shan (许留山) and Honeymoon Desserts (满记).
But potential aside, we probably should not count the chicken before it hatches. Let’s face it – HayTea, Nayuki and their emerging peers, still have a very long way to go before they can claim their place on the podium next to Starbucks. The stubbornly high labour cost is the toughest to solve, as the automation level remains low due to less standardised products compared to that of Starbucks. This drains the cash flows, and explains why despite being profitable at the store level, Nayuki has not been able to finance store expansion through its own cash generation.
The lack of automation also affects quality-control. In August, China’s Xinhua News Agency made shockwaves by publishing a scathing report about food safety issues of two Nayuki stores in Beijing. The article, though disputed by Nayuki, alleged to find cockroaches in the store, mistakes in product labelling, and the use of non-fresh fruits. Given quality and branding are the foundation of the Nayuki’s success, it certainly has its work cut out.
In the shadow of the pandemic, I long to go back to the time when I can hang out with friends and colleagues with a cup of bubble tea in hand, and preaching them about why we Asians can’t live without the bubble teas.
When things get better, I can’t wait to see HeyTea or Nayuki following the footsteps of their restaurant peers, such as Ding Tai Feng (鼎泰丰) and Hai Di Lao (海底捞), to branch out to London. To me, compared to elegant tea ceremonies with delicate white porcelains, this better encapsulates the vibrance and openness of China today.
Well, like Nayuki’s slogan says, it is not our ambition to become the Starbucks of China, but the Nayuki of the world.
