To: Ten Lan Bubble Tea Executive Team
From: Angel Lee, Business Analyst, Strategy and Operations Team
Proposal: Launching new bubble tea stores in Pittsburgh Area
Executive Summary
As the Asian market grows lowlier recently, we evaluate our revenue growth strategy in other markets to ensure future business growth. Launching new bubble tea stores in Pittsburgh would be our next step as it would help strengthen Ten Lan’s business in the growing North American market. There exists an underserved market demand in Pittsburgh, and this launch would not only bring in new revenue but also start generating profits in the first year. Furthermore, as we accumulate more experience in operating in the U.S., this launch would be the building block for Ten Lan to expand its presence all over the U.S. soon.
Rationale/Situation Analysis
Background[i]
Ten Lan has been growing revenue from 2016-2020 by more than 7% annually 2016-2019. Even in 2020, the year when covid hits, we still achieved 3% growth. However, in the year 2021, we faced a 5.3% decrease in annual revenue. We must act and develop plans to prevent our business from shrinking.
Ten Lan currently operates in Asia and North America, where 97% of our revenue from the Asian market and 3% from North America. Research has shown that the overall Asian bubble tea market is rather static, with positive, though less than 1%, market growth in 2018-2021. On the other hand, the North American bubble tea market size is growing. Research shows that the North American bubble tea market accounted for $1,429.3 million in 2020 and is projected to register a revenue of $2,432.3 million by 2028[ii], with an expected compounded annual growth rate (CAGR) of 8.9% from 2020 to 2027[iii]. We currently capture roughly 1% of the market, and we should emphasize more on growing in the North American market to ensure future growth.
Despite the relatively static market growth, we should not close stores in Asia, as the majority of our revenue is from Asia, and we are earning profit in Asia with our long-established customer loyalty and efficient operations. We analyzed the North American market and found that new brands are entering, especially in New York City and Californian cities. Ten Lan currently has two stores in New York City, and we are worried that if we don’t expand our presence, Ten Lan would lose market share. It is critical to evaluate new regions and expand our presence to capture the increasing market size.
Proposed Solution: Launch new stores in Pittsburgh to Grow Revenue
Target Market Analysis - Should Ten Lan Enter?
To identify the city to enter in North America, we calculated the # of residents per bubble tea shop of the 100 largest cities in the United States below to understand which market is the most underserved. We discovered that Pittsburgh is the city with the highest # of residents per bubble tea shop, 14,938, whereas the average of the 100 largest cities is 7,566.[i]
Having the highest # of residents per bubble tea shop also means that the number of bubble tea shops per person is the lowest, indicating that there is potential market demand not served. Learning from the data on the Cities' distribution on # of residents per bubble tea shop, we identify that Pittsburgh should have more bubble tea shops, and we should consider launching our stores in Pittsburgh to capture the market demand.
We estimated the annual revenue of a bubble tea store in Pittsburgh. If we were to open a store like the size of our store in New York City and use a similar menu, the annual revenue would be $250,000[i], which would increase our annual revenue by 1.5%. We could also consider launching a second store after launching the first store if it’s operating at full capacity to increase revenue growth.
Company Capability Analysis – Can Ten Lan Enter?
Currently, there are 2 Ten Lan stores in the United States, both in New York City. To start a bubble tea business, we would need to first provide the equipment and supplies. Thankfully, we already had experience setting up the two stores in New York, and we have established relationships with key suppliers in North America. Our local delivery collaborators could help with shipping the ingredients to Pittsburgh, and we would be able to sell all the products once the store is ready. In addition, we have a marketing specialist that had the logo, branding, and menu prepared for the two stores, and the marketing campaigns had been proven capable of bringing in customers. We would be able to apply our marketing experiences in launching the Pittsburgh store.
With our experience operating a bubble tea shop in New York City, the projected income statement for the Pittsburgh store[i] in the first 3 years is as below[iv], assuming an 8% CAGR.
With the estimation above, we expect to break even in the first year and increase profit in upcoming years. As the market is growing, we should consider launching additional stores as soon as possible, and consider launching the delivery business to expand our presence and capture more portion of the market.
Market Entry Plan & Implementation – How to Enter?
Financially speaking, Ten Lan has enough cash available to invest in the new store. We do not need to get a loan from the bank. In picking the location, our collaborating realtor shared that there are more than 3 stores in Pittsburgh that fit our needs. They are in our budget range and are in good condition located in one of the busiest neighborhoods. Therefore, we could enter the market as soon as we make the decision to launch stores in Pittsburgh. [i]
As for the team involved, the New York City store manager is ready to support the launch anytime. The employees are trained, and the stores in New York City are operating smoothly with stable monthly revenue. The store manager has expertise in the steps and plans to launch a new store, and we expect the store to start selling the first cup of bubble tea 3 months after we rent a place. In the beginning weeks, we also plan to train new employees and sell selected items. Once employees are familiar with the process, the full menu would then be served. Based on past experiences, we project that we would be able to serve the full menu one month after the store's opening.
Risks
Competitors Entering the Market[i]
There are currently 21 bubble tea shops in Pittsburgh. Based on the research on the average number of bubble tea shops per person in top cities, if Pittsburgh were to have the # of residents per bubble tea shop as the average number of top 100 cities, 7,566, there would be 41 bubble tea stores in the city, which leaves opportunity for 20 bubble tea shops. We need to act fast as other brands may also consider expanding and entering the market. Ten Lan should enter now and accumulate experience operating in the Pittsburgh region. In addition, we could accumulate customer loyalty by launching a loyalty points program to keep frequent customers.
Conclusion
To strengthen Ten Lan’s business in the growing North American market, our next step should be to launch new bubble tea stores in Pittsburgh. Along with growing revenue, we would also gain presence and possess the experience of operating in the U.S. To capture the growing market, we should be prepared to expand into other cities soon and eventually expand our presence all over the U.S., and this initiative would help Ten Lan stay competitive in the market and ensure overall business growth in upcoming years.
References [i] Fabricate Data: this data has been fabricated for the purpose of this report [ii] “Bubble Tea Market by Base Ingredient (Black Bubble Tea, Green Bubble Tea, Oolong Bubble Tea, and White Bubble Tea), Flavor (Original Flavor, Coffee Flavor, Fruit Flavor, Chocolate Flavor, and Others), Component (Flavor, Creamer, Sweetener, Liquid, Tapioca Pearls, and Others), and Regional Analysis (North America, Europe, Asia-Pacific, and LAMEA): Global Opportunity Analysis and Industry Forecast, 2021–2028”, ResearchDive, June 2021, https://www.researchdive.com/4743/bubble-tea-market [iii] “Bubble Tea Market Size, Share & Trends Analysis Report By Product (Black, Green, Oolong), By Flavor (Classic, Coffee, Fruit), By Region (APAC, North America, Europe, MEA), And Segment Forecasts, 2020 – 2027”, Grand View Research, June 2020, https://www.grandviewresearch.com/industry-analysis/bubble-tea-market [iv] K.L. Murray, “Soo Bubble Tea Business Plan”, November 2016, https://klmurray.me/soobubbletea/SooBubbleTea.pdf