Tapioca Express Is an 11-Year-Old

Tapioca Express is an 11-year-old bubble tea chain from California. They are expanding in to the New York market via franchise. The company has a favorable operating environment with competitors primarily being independent shops with limited marketing capacity. Indirect competitors include Starbucks, who represent more formidable competition. To enter New York, focus will be placed on introducing the brand and the product, and establishing the Tapioca Express brand in New York. The measures for this program will be revenues and non-Asian revenues, the latter to measure our efforts to explain bubble tea beyond our core Asian-American base.

Current Situation

Tapioca Express is a chain of bubble tea shops that was started in Alhambra, California in 1999 by a Taiwanese-American, Wayne Lin. Lin started the chain with the hope that it would become the "Starbucks of boba drinks" (Lee, 2002). Bubble, or boba, tea originated in Taiwan and arrived in North America via the large Taiwanese population of Vancouver, and quickly spread down the coast. Mr. Lin set up his company in the hopes of cashing in on the rising popularity of bubble tea among Asian-Americans. Since that time, Lin has expanded his company to northern California, the Seattle area, the Vancouver area and Texas. This business plan is for the company's first New York franchise.

Tapioca Express specializes in bubble tea, which is comprised of two elements. The first is a sweetened milky tea that comes in a wide variety of flavor and colors. The second is the starchy, gummy tapioca balls that sit at the bottom of the tea, lending a textural element to the product (Sasse, 2006). Tapioca Express also sells snacks, energy drinks and yoghurt drinks. The company sells over 100 different types of drinks in total (Tapioca Express, 2010).

The company is currently a privately-held concern, so sales figures are not published. However, it is known that Tapioca Express is currently expanding their operations, so a growth trajectory can reasonably be assumed. Currently, there are a number of competitors. In the direct market of bubble tea there are few chain competitors. Most bubble tea outlets are independently operated, and no chain has the scope of Tapioca Express. Most competitors have a similar product range to Tapioca Express, albeit lacking such proprietary products as the snow bubble. There are no statistics on the bubble tea market in the U.S. Or New York at present. Competitors in New York are a handful of small shops, none of which have a strong market presence. Broader competition would be other coffee or tea shops, especially ones such as Starbucks that attract an Asian-American audience.

The most pressing concern for the marketing team at Tapioca Express is to build brand awareness. At present, the company is a relatively low profile chain, to the point where many consumers may not realize that it is a chain. The long-term objective is to create an association with consumers between Tapioca Express and bubble tea such that the two are virtually synonymous. In New York, the objective is simply to establish the brand in a market in which the brand has never competed. This new marketing plan will help to not only introduce the Tapioca Express brand to the New York market but also to help explain the bubble tea concept to an audience that may not be familiar with the company's core product.

Performance Review and Environment Analysis

There is little in the way of financial analysis that can be done with Tapioca Express as the company remains in private hands. All of the competition in the bubble tea market is also in private hands. Larger coffee chains like Starbucks are publicly traded. That company has seen its revenues and profits decline in recent years due to increased competition and the economic downturn. The increased competition comes from companies like McDonald's that do not replicate the cafe atmosphere typical of Tapioca Express and are therefore too far removed to be considered other than incidental competition. Starbucks has a gross margin of 22.5% and a net margin of 5.8%. The receivables turnover is 33.2 times and the inventory turnover is 13.5 times. The return on investment is 14.5% and the return on assets is 9.8% (MSN Moneycentral, 2010). Although Starbucks is a much larger company with global operations, these are the sorts of returns that would make a good benchmark for a company like Tapioca Express that has a model centered around relatively expensive drinks and a limited menu.

Although Tapioca Express is a growing company, its marketing program lags behind those of its much larger competitors. In bubble tea, however, Tapioca Express has perhaps the strongest brand in the U.S. The brand remains quite small, however, and is subject to losing value in the face of a new, well-capitalized potential competitor. In New York, the Tapioca Express brand has no recognition, a function of the fact that the company to this date has had zero marketing presence in that market.

Customer feedback with regards to the Tapioca Express experience is generally favorable, based on reviews that can be found of various locations on TripAdvisor. Drink selection and the quality of the boba drinks tend to be cited more often than other reasons for satisfactory reviews (TripAdvisor, 2010). There is little to indicate any retention issues.

There are significant opportunities in bubble tea. The product's core audience is with Asian-Americans, though some other groups have also discovered the product. According to the U.S. Bureau of Statistics, 4.5% of Americans are of Asian descent, which equates to 13.9 million. This represents significant room for expansion of the chain. In New York, Asian-Americans represent 10% of the population of 8.3 million, so 830,000. This makes New York home to one of the largest populations of Asian-Americans in the country, and the single largest population of Chinese-Americans, a core customer group for any bubble tea shop.

There are few significant threats to the bubble tea industry. The industry is too small to be a serious threat to large coffee shops. Bubble tea is believed to be more resilient to economic downturn because of its unique cultural value proposition. However, the major threat is that of new entrants, because the business is new, rapidly growing and has few entrenched competitors. Because Tapioca Express the largest single player in the American bubble tea industry, it has a favorable competitive environment.

Marketing Strategy

The original objectives are to build brand awareness for the Tapioca Express name, to establish the brand in the New York market and to build understanding in the market about bubble tea. The key opportunity that we will exploit is that of the New York market, with its large Asian population. Although our experience shows that there will be spinoff interest in bubble tea from non-Asians, the core market is likely to be comprised of Chinese and Japanese-Americans.

Because there are three objectives, it is reasonable that there are three quantifiable objectives for this marketing strategy. The first is with regards to brand recognition -- we would like to in one year achieve 30% recognition of the Tapioca Express brand among Asians in New York and 10% among the New York population as a whole. To achieve this kind of brand recognition in one year will be considered a success, because we can build on that recognition in future years. A second quantifiable goal will be to have New Yorkers associate Tapioca Express with bubble tea. We would like that 90% of respondents who know our name to know what we do. The rest may have incidentally seen us, but we want to ensure in our communications that we are not just selling our brand name, but are selling the bubble tea product in general as well. Lastly, we want to have consumers understand what bubble tea is. We expect that almost all Asian respondents to our survey will know the product -- although we will test that -- but we want to see that of the non-Asian respondents who know the Tapioca Express name that at least 75% understand the concept of bubble tea. This will be considered a strong introduction to the product.

The marketing strategy that can deliver these results is a new product launch. We wish to bring the Tapioca Express to New York. This launch will entail a marketing blitz in print media, social media and a concentrated marketing blitz in the neighborhoods in which the Tapioca Express shops will be situated. The introductory phase will include only the first two components -- building awareness of the brand and associating the brand with bubble tea. At this early stage in the marketing, we want the message to be simple and easy to understand. We are primarily appealing to a core market that already knows the product. We merely wish to expose the brand to the public and convey that Tapioca Express is a superior bubble tea experience.

However, as long-term growth of Tapioca Express depends on successful conversion of non-Asians, we will begin within six months of opening the secondary campaign. The secondary campaign will be more informational in nature. The product at this point will be repositioned -- slightly -- from being a superior version of a new Asian-American favorite to being something that can appeal to all markets. By adopting a more global feel to the marketing, we believe that we will be able to develop new markets, increase our exposure among non-Asians and do this without compromising the core audience that we will have built to that point.

There are other strategies that could work as well. For example, we could enter the market with the assumption that the brand is strong and the product is familiar. Such a strategy would thus focus on positioning the shop, perhaps as a consistently superior bubble tea experience. Standards of cleanliness, quality and service would all be featured. The main drawback to this approach, however, is that it assumes too much of the audience. The New York audience is not as hip to trends coming from Asia as the West Coast audience is, so while bubble tea is known it is not nearly as big a phenomenon in New York. Thus why we feel the need to introduce the brand and the product. In addition, with so few competitors in New York there is little reason to focus on differentiating from them; we probably will not share a neighborhood anyway.

Another potential strategy is a low-cost, low-key approach. Tapioca Express is typically a low marketing overhead operation, and prefers that the quality of the experience is the main draw for customers to return. It is believed that the differences in the West Coast market allow for this tactic whereas in New York it cannot be taken for granted that a bubble tea shop will be inherently successful. Indeed, rents in New York are very high, which means that success must come quickly, and for that we need exposure, our chosen strategy.

Our competitors in bubble tea are small independent outlets and have very little in the way of marketing strategy. For the most part, their strategy is low-budget, ad hoc and focused mainly on building awareness. More general competitors like Starbucks represent a more significant threat, as they have strong marketing programs. A premium beverage is marketed, along with a "third place" experience. We believe that the "third place" concept is a good one in a crowded city where everybody lives in a small apartment. We will adopt this in some of our promotions as well, even though this could engender some response from the coffee giant. However, as we compete only indirectly, we believe such a response would be limited at best.

Action Plan

There will not need to be much adjustment to the core features of the product for the purposes of marketing. We may need to reduce the number of beverages if our high-rent spaces to smaller than the real estate to which we have become accustomed on the West Coast. However, we feel that the product we offer supports our premium positioning. The brand should be consistent with the currently established Tapioca Express. The company has been able to build brand value in its Western markets and there is no reason to believe that such brand strength would not materialize in New York given time.

At the core of the promotion plan will be print advertising -- lesser newspapers including smaller dailies, Chinese papers and community papers. This will allow us to focus our promotion on target communities. In addition, social media will be used to help spread the word of Tapioca Express' arrival in New York among the Asian community. We hope to achieve some public relations, perhaps by opening a very high profile location (Penn Station or Times Square) that will attract some media attention.

For the New York market, we will need to adjust our pricing strategy. This is a function of costs, however, rather than marketing concerns. New Yorkers are accustomed to paying extra for products, so our prices compared to those of our competitors will remain in line with comparisons in other parts of the U.S. We will price slightly above independent bubble tea shops, a reflection of our superior atmosphere and product. We have noted in the past that customers will pay more for our boba tea, but not much more, so we only charge a slight premium.

Distribution marks a challenge. Our logistics system is located in the west. Our supplies come primarily from China and Taiwan, sometimes through distributors based in Western Canada. To enter New York, we will need to ship our core ingredients to an area warehouse and from there to the stores. Currently products are shipped to Los Angeles, which for some products may mean needless travel. We will work to reduce this in order to make our New York operations more viable. In terms of store location, Tapioca Express will open several outlets in order to make a big arrival on the New York scene. Focus will be on one high profile location, one suburban location and a couple of inner city locations, perhaps in the boroughs, where the demographics are most suitable.

We will continue the Tapioca Express traditional of good service. We will send a trainer from our best-performing outlet to work with the New York staff, and will have our managers in New York fly to California to work with head office and see operations out West. We believe that by doing this we can deliver the same level of service in New York that we have become known for in the West.