At the moment La Kaffa International Chairman Henry Wang bangs the drums, he becomes one with the Chio Tian Folk Drums & Art Troupe. A compact yet majestic percussion rhythm emanates from the troupe’s performers, similar to the fierce pounding sounds of war horses galloping off to battle. Each sound cuts through the air, penetrating every corner of the Hsinchu Municipal Gymnasium, filled with people wearing purple T-shirts.  

The hearts of people in the audience thump more rapidly as the pace of the drums picks up, as though about to burst through their chests. Some of those there are Taiwanese but many are representatives from La Kaffa agents in countries around the world, in Taiwan to celebrate the company’s 15th anniversary.   

The Purple Whirlwind of Tea Beverages

The celebration typified the company’s surge to prominence. Over the past 15 years, La Kaffa beverage brand Chatime has spread like a purple whirlwind, sweeping through 41 countries on six continents. It may have fewer stores than rivals CoCo, Gong Cha and Happy Lemon, but unlike those chains, which have concentrated their overseas expansion on China, Chatime is recognized as the Taiwanese bubble tea brand that spans the most countries.

In July 2018, Chatime set up shop at the Louvre, occupying a space in the Carrousel du Louvre shopping center under the glass pyramid in the Louvre’s main courtyard. With a Prada boutique to its left and an Apple store across from it, the Chatime outlet represents the only Asian brand and only the third food brand after Starbucks and McDonald’s at the world-famous tourist attraction.

Source: Chatime

Getting Chatime into the Louvre was a big deal for Henry Wang because it signified that Taiwan’s efforts in the tea beverage market were finally being recognized. (Read: How Taiwanese Bubble Tea Conquered the Taste Buds of The Japanese)

The move into the Louvre symbolizes the company’s strong growth. La Kaffa, the first takeout bubble tea company to go public, has registered 30 percent annual revenue growth for 10 consecutive years and posted consolidated sales of NT$3.86 billion in 2018. It represents or owns eight brands besides Chatime and has 2,500 retail locations around the world, but as the company’s flagship brand, Chatime accounts for 60 percent of La Kaffa’s revenues. 

                               

Staying Hungry 

“When it rains hard, the children without umbrellas always run especially fast,” says La Kaffa Executive Vice President Teresa Wang in analyzing why the company, which entered the market late, has pulled ahead. “We stay hungry every day. It’s what has motivated us to reach out from Taiwan into the world.”

Chatime now has 900 stores, but when first conceived 15 years ago, it was nothing more than a small, inconspicuous beverage shop next to the Hsinchu Industrial Park.

When Henry Wang launched the business, he was determined to expand into international markets and go public, and the choice of the brand’s name alone reflected his strong ambition. “Chatime is about chatting and drinking tea. The hope is that wherever the sun rises, people can drink Chatime beverages,” he says.   

The source of this ambition has puzzled many outside observers, but in fact it has quite a bit to do with Henry Wang’s background. 

He previously served as a sales manager for a tech company in the Hsinchu Science Park and Teresa Wang, his wife, worked at an investment trust company handling offshore funds. Both were making NT$3 million a year, at the upper end of incomes in Taiwan.

But that all changed when Henry Wang attended a lecture in which the speaker said men should set up their own businesses before the age of 35. He convinced his wife to quit her job at the same time he did so that there would be no going back, and in 2004 he and four friends joined together to found La Kaffa and open fresh tea beverage shops.

Henry Wang (right) and Teresa Wang have boldly reached out into international markets. Their many brands surpassed 2,500 outlets around the world in the first half of 2019. (Photo by Ming-Tang Huang/CW)

The couple were not familiar with the fresh tea beverage business, but their experience in the high-tech and financial services sectors told them that if they wanted to go global, they had to standardize their operations.

Before even deciding where their first store location would be, Henry Wang spent a considerable sum to have a supplier develop an automatic tea-brewing machine. He felt that because Taiwanese tea was of a high standard, it was not necessary to use the best tea leaves, but what was paramount was consistency. He was mocked at the time for not knowing how to brew tea, but as it turned out his strategy laid a stable foundation for the company’s international expansion.

Wang was also in a hurry because his competitors had already been in the fresh tea beverage business for 10 to 15 years, and he had to quickly make an impression.

A String of Failures

But Wang’s entrepreneurial road began with a slew of failures.

The year after setting up his business, Wang collected his first licensing fee from abroad and excitedly sent a full container of equipment and raw materials to southern California. Only when the container reached U.S. Customs did Wang realize the goods needed U.S. Food and Drug Administration certification. By the time the certification process was completed, the raw materials had gone bad, costing Wang NT$5 million.

Then in 2008, he used NT$75 million he received from venture capital firms to open more than 30 directly operated shops in Shanghai in a single go. 

“At the time, we really thought we were hot stuff. We had been backed by an angel fund, and we wanted to perform like an angel stock,” recalls Teresa Wang self-mockingly with a laugh.

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Not long after the foray into Shanghai, Teresa Wang realized the company was bleeding cash, and they quickly decided to pull out of that market having lost more than NT$100 million. It was the low point financially for La Kaffa.

The situation domestically was not much better. The couple had left behind their success and affluence of the past to focus on fresh tea beverages, but no matter how hard they worked, they could not overcome their major rivals at the time, 50 Lan (五十嵐) and Ching Shin Fu Chuan (清心福全).

But those many painfully expensive lessons did not beat Henry Wang into submission. Instead, they left him more determined to avoid the fiercely competitive domestic tea beverage “red ocean” market and go global. He now understood, however, that La Kaffa had to find partners familiar with their local market to open stores overseas rather than do it on their own. 

Photo by Ming-Tang Huang/CW

Adopting a Franchise Model to Build Brand Strength

The company also adjusted the way it partners with local agents. As Wang revamped his strategy, he observed the bursting bubbles of rapidly expanding bubble tea chains such as “Easy Way” (休閒小站) and felt it was due to their lack of support for local agents after selling them the necessary equipment, raw materials and technology from Taiwan. He was determined that his company would not make the same mistake. 

Another challenge for La Kaffa was the lack of an established licensing and management model for Taiwanese bubble tea brands that the company could follow. Henry Wang had to poach talent from food chains like McDonald’s and Burger King to learn from other brands’ experience before reshaping it into La Kaffa’s own operating model.

“La Kaffa is a mix of East and West,” Teresa Wang says, pointing to bubble tea being an Eastern beverage while the company’s operations rely on a highly professional American-style franchise system.   

Six years ago, when Chatime had just over 300 stores, Henry Wang was inspired by conferences held by Starbucks and McDonald’s for their global partners, seeing them as perfect opportunities to propagate the brand and consolidate its strength. “Without that, local agents will not believe you are really committed to developing your brand and will not want to follow you.”  

Two years later, he set up International Business Development and International Business Management departments at La Kaffa’s headquarters in Zhubei. They call overseas agents every week and make on-site visits every quarter to stay on top of the situations in each market. That can pay real dividends.

Before the company’s first store opened in Colombia, for example, the Colombian agent was panicking because the tapioca pearls used in many drinks would not cook through due to the location’s nearly 3,000-meter altitude. The Taiwan headquarters immediately worked with the supplier to develop tapioca pearls with lower cooking temperatures and sent them by courier to Colombia. (Read: Pearl Milk Tea Craze Sweeps the Maldives)   

“With these two departments, La Kaffa leads the rest of the industry by at least six years in international franchising,” says Henry Wang, who has insisted that the headquarter teams serve as the biggest sources of support for overseas agents. 

Photo by Ming-Tang Huang/CW

International Brand Challenges

Though this strong backing eases any concerns overseas partners may have, some partners are still tempted to go their own way. 

At the beginning of 2017, La Kaffa terminated its contract with its agent in Malaysia, resulting in a 33 percent drop in global retail shops and a 20 percent decline in revenues. The break-up was prompted by the Malaysian agent’s use of raw materials that had not been approved by La Kaffa headquarters, which tried to persuade the agent to stop the practice but to no avail.

“The Finance Department was the first to oppose the decision because the company had already launched an IPO. But if we had not shown the determination to grow the brand and maintain its consistency, it would have been hard to continue,” says Henry Wang in explaining the dilemma faced at the time.

When the Malaysian agent refused to change its practices, La Kaffa sued, spending a considerable sum on the legal action to protect the brand’s rights and interests. After La Kaffa won the suit, the Malaysian company changed its name and continued to sell tea beverages, but not under the Chatime banner. 

Thus, even with its strong international marketing structure, Chatime still faces the major challenge in the future of figuring out how to better nurture and manage an international brand.

“Unless a brand is strong or has a better understanding of the local market than the agent does, it is hard to guarantee that such an event will not happen again,” says Li Shyh-jane, deputy director-general of the Commerce Development Research Institute’s Business Model Innovation Research Division.  

Chatime ranks first in market share in the fresh tea beverage market.in Indonesia, Australia, the Philippines, Britain, France and Canada. (Photo by Chien-Tong Wang/CW)

For Chatime to become the tea beverage world’s Starbucks, its product cannot only be sold and appeal to ethnic Chinese consumers. Henry Wang is clearly aware that expanding the market outside the ethnic Chinese community may ultimately decide the fate of his ambitions.

In his Australia subsidiary, where only two of the 60 employees are ethnically Asian, employees use a Western perspective to sell, research and develop, and market an Eastern product, and 75 percent of Chatime stores in the market are located in primarily non-Asian communities. 

The strategy has helped the company nearly reach the 100-store milestone by bursting  through the bottleneck it faced when it reached 60 stores. 

“I want to take this model and use it in the American market,” Henry Wang says, brimming with confidence.

Building an International Platform

La Kaffa may appear to be a brand licensor, but it also represents food brands such as Wagokoro Tonkatsu Anzu Ginza (杏子日式豬排, a Japanese breaded pork chop brand) and Osaka Ohsho (大阪王將餃子, Japanese dumplings) and has acquired Duan Chun Zhen beef noodles (段純真牛肉麵) and Chunsun Pudding Cake (春上蛋糕).   

In expanding into food brands, Henry Wang hopes to export the food brands along with his tea beverage brand around the world and create an international food and beverage brand platform for his overseas agents. 

To achieve that, however, Wang must first secure a prominent position in the fresh tea beverage market, where a second revolution is underway and the trend toward “bigger is better” has become readily apparent. 

At the end of 2017, he bought a majority stake in China-based beverage chain Re Light Management Co. and acquired operating control of its two beverage brands, Heilongtang and Gomax, because of the urgent need to catch up to Chatime’s rivals. By adding 1,200 stores with the acquisition, La Kaffa’s network more than doubled to 2,000 outlets, better positioning it to take on CoCo, the world’s biggest tea beverage chain. 

“La Kaffa had to burst out or else the future would have been very difficult,” Henry Wang says, eagerly asserting that the company’s growth is just getting started. 

Henry Wang’s aggressiveness has earned the attention of his company’s competitors. Albert Wu, the chairman of Yummy Town Holdings Corp. which counts bubble tea brand Happy Lemon among its properties, said acquisitions are one way for a company to grow, but while they can quickly provide revenue boosts, they can also cause a company’s costs to soar if they involve different systems, he warned. 

But La Kaffa is determined to keep all of its stores strictly on brand, which is why Chatime has emerged as a widely recognized worldwide brand despite having only 23 stores in Taiwan that serve as talent training centers.

Wherever a Chatime is located around the globe, Henry Wang demands that service staff in every outlet first shout “Welcome” (歡迎光臨) in Chinese before greeting customers in the local language. 

He also uses a display on his storefronts to let the world’s consumers know that the lemons, mangoes, fairy grass and other farm products used in the drinks come from Taiwan. 

Beyond that, he has helped Taiwan regain its voice in the bubble tea industry by sponsoring the Chatime Global Tea-Rista Contest in Taiwan. 

Through his resilience, persistence in emphasizing the brand, and dedication to consistency, Henry Wang has successfully used Chatime to bring bubble tea to the world, in the process giving Taiwan greater international visibility.

Translated by Luke Sabatier
Edited by Sharon Tseng