Five-year-old cafe chain The Coffee House recently announced halting the operation of its 23 Ten Ren bubble tea stores.

“Ten Ren has been on the market for two years but has yet to find the appropriate business model. It seems like our products are not suitable for Vietnamese consumers’ taste,” said Vo Duy Phu, The Coffee House’s marketing and commerce director.

Accordingly, the golden era of bubble tea in Vietnam may be arriving in its dusk as growth speeds are falling from the 20 per cent in 2016 (cited by Euromonitor International) to the 5.7 per cent now.

As the market has reached the saturation point, the increasing appearance of new brands has been increasing pressure on all bubble tea players.

As of the end of 2016, Vietnam had 1,500 bubble tea stores with more than 100 brands.

The number was forecast to keep rising in the next years by Lozi – a company specialised in providing sales tools.

In addition, the battle for business space among bubble tea players has become fierce. This is really a big challenge for the brands because store areas have to be large enough to house eye-catching display and decoration for young people to check-in and take selfies.

VIR’s source revealed that the leasing price for what is considered a golden spot in Ho Chi Minh City and Hanoi is about $15,000-16,000 per month.

Thus, stores’ monthly minimum revenue has to be VND2 billion ($87,000) to stay in business.

In dynamic cities with high population density and an already saturated market finding good space for business has been increasingly difficult.

Furthermore, the competition among food delivery brands like GrabFood and Now also had an impact on bubble tea stores. Specifically, the race among these platforms has brought about heavy promotion programmes, adding to vendors' burdens.

Jollibee shares fall after spending $350 million to buy Coffee Bean & Tea Leaf

The Philippine’s biggest restaurant chain, Jollibee Foods Corporation has spent $350 million acquiring Coffee Bean & Tea Leaf, however, after the deal, its share fell 8 per cent, the largest drop in more than two years.

Jollibee will invest $100 million for an 80 per cent stake in a Singapore venture set up with Vietnamese partners to acquire Coffee Bean & Tea Leaf, it said in a stock exchange disclosure. The rest of the amount will be in the form of advances, according to Bloomberg.

In addition, the remaining 20 per cent of the Singaporean venture will be bought by Jollibee’s partner in Highlands Coffee and Pho 24, owners of Viet Thai International JSC.

In the statement, Jollibee also announced spending $250 million to pay part of Coffee Bean & Tea Leaf’s debt.

Jollibee investors seem to be unsatisfied with this decision. The company's stock has dropped by 8 per cent right after the move was announced. The falling stock has blown away $200 million of Jollibee chairman Tony Tan Caktiong's asset value.

Los Angeles-based Coffee Bean & Tea Leaf will add 14 per cent to Jollibee’s global sales and expand its store network by more than a quarter, said chairman Tony Tan Caktiong. In 2018, the coffee chain with 1,189 stores reported a net loss of $21 million on revenue of $313 million.

Coffee Bean & Tea Leaf currently owns 15 stores in Vietnam, including 13 in Ho Chi Minh City and two in Hanoi. The coffee chain is one of the top 10 coffee shops with the highest revenue in the market.

In 2018, Coffee Bean & Tea Leaf earned VND108 billion ($4.7 million) in Vietnam but reported a loss of VND29 billion ($1.26 million).

Highlands Coffee's IPO scheduled for this month has also been delayed and was put under review. Under the plan, after the IPO, Jollibee will raise its ownership to 60 per cent in Highlands Coffee, while Viet Thai International will reduce its ownership to 40 per cent. With Jollibee owning more than 51 per cent of the capital, the owner of Highlands Coffee will officially become a subsidiary of Jollibee.

Jollibee opened its first store in Vietnam in 2005, as of February 2016, there have been 116 Jollibee stores in Vietnam. In addition, Jollibee Food Corporations also operates 278 Highlands Coffee stores, 18 Pho 24 stores, and two Hard Rock Cafe shops in Vietnam. VIR

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