Bubble Economy

By Starr Wedemeyer

Bubble tea – that cold, frothy drink filled with chewy tapioca balls – has popped up over the past year in cafes and kiosks across the nation. But it’s more than just a fad, say entrepreneurs Evan and Kari Leong of Honolulu. The husband and wife team, owners of Bubble Tea Supply Inc., are betting on bubble tea’s staying power. “It may not grow as fast as it grows now, because it can’t sustain this kind of growth forever, but then it will become pretty standard, like any Pepsi or Coca-Cola product,” Evan says.

Entrepreneurial Couple: Evan and Kari Leong, owners of Bubble Tea Supply Inc.

Kari attributes bubble tea’s popularity to various flavors, such as banana, milk tea, papaya, mango, passion fruit, coconut and taro. “The way we’ve created our product, it’s more of a local taste,” says Kari, adding that popular flavors in Hawaii are strawberry, honeydew and lychee.

In its first year of business last year, Bubble Tea Supply’s annual sales was $350,000. Evan says he and his wife are on track to make $1 million this year.

Terri Santos, a customer and owner of Ono Yogurt at Windward Mall, receives her supply of bubble tea products from the Leongs. She sells about 75 to 150 bubble tea drinks per day at $3 to $3.25 per drink. Her store uses between 42 pounds to 56 pounds of tapioca balls per week.

Santos began selling the drinks last April. At the time, she thought bubble tea was just a trend. “Demand for the drink has steadily gone up,” Santos says. “It is definitely a big seller.”

The timing of the beverage’s popularity couldn’t be better, Evan says, adding that Coffee Retailer magazine, an industry publication, ranked bubble tea as the No. 1 beverage on college campuses. “It’s the hottest drink in that age demographic,” says Evan.

The Leongs say they are not too concerned with a strategy to maintain the trend, because the popularity of the drink in Taiwan, where it began in the 1980s, has lasted until today.

Originally, the Taiwanese drink was mixed with tea. The syrup, or powder flavoring, would create bubbles. Thus, the name. Tapioca balls were a later addition. Bubble tea also is known as pearl tea, boba or tapioca-ball drink.

An employee packages Neptune Ice products for distribution at local retail outlets.

The Leongs say they are aware of competition from businesses that have the same product lines and operations. These are businesses that have more capital and resources than Bubble Tea Supply. “If we were acquired by a larger company, we could do a lot because we have a ton of ideas and some research and development. It’s the facilities we kind of lack,” Evan says, adding that if a company were to make an offer to buy Bubble Tea Supply, he and his wife would be open to the idea – if the price were right.

Even with 15 employees, the Leongs each work an average of 10 hours a day, sometimes as many as 15.

Creation and Development
Initially, the Leongs had tapped into the Internet, not for business research purposes, but for the purpose of making bubble tea in their own home. But the Internet provided limited information. After making contact with a Taiwan manufacturing company, they realized there was a niche to start their own business in Hawaii.

The owners of Bubble Tea Supply Inc., Evan and Kari Leong, generated $350,000 in gross annual sales last year and expect to make $1 million this year; the company also launched its own brand of bubble tea, called Neptune Ice.

The Taiwan manufacturing company was eager to do business with the couple, because the drink — known internationally – still had not been introduced to Hawaii or North America at that time, Kari says. The manufacturing company allowed the couple to manufacture their own products, controlling the quality and quantity of ingredients, Kari says. The result: their own original brand of bubble tea called Neptune Ice.

Marketing
To establish credibility in the market, the Leongs went door to door to coffee shops, showing reprints of mainland publications that featured Bubble Tea Supply.

Today, the company now advertises and sells locally, nationally and internationally through its Web site, www.bubbleteasupply.com, as well as through traditional advertising, marketing and partnerships with the television program, Local Kine Grinds.

The company has established a customer base of more than 3,000. There are about 100 vendors in Hawaii that order the flavored powders, tapioca balls and business kits every month.

In the beginning, the Leongs spent $300 per month on marketing. Now $3,000 a month is spent advertising on television, radio, print and the Internet.

The company’s main market is the U.S. Evan says he and his wife don’t focus on the international market because international laws make exporting difficult. The Leongs attribute their success to being the first bubble tea supply company to go online with resources. The Web site accounts for about 50 percent of its sales.

Tung Bui, Matson Distinguished Professor of Global Business at the College of Business Administration at the University of Hawaii at Manoa, says the Web site is an ideal way for a small business to establish itself in the market, even though industry-wise, e-commerce only generates between 4 percent and 10 percent of sales.

Dr. Tung Bui: The Matson Distinguished Professor of Global Business at the College of Business Administration at the University of Hawaii at Manoa says customer service is important, especially if a small business uses the Internet to reach customers. Photo: University of Hawaii

“I think for a small business, the Internet, especially nowadays, is a very cost-effective way of reaching out to your customers,” Bui says. Customer service is still very important, however. “The most important thing is customer relationships,” Bui says. “Technology is one thing, but you don’t want people to be disappointed when customers go to the Web site and it’s not working. But I think the bottom line is how you truly satisfy your customers.

“The new trend nowadays is what they call real-time e-marketing. Everything has got to be done at that instant. If somebody wants to buy a recipe for tea, they want it right now and to pay for it right now. They don’t want to wait five minutes after or they might go to somebody else – real-time economy.”

Distribution
The raw ingredients for bubble tea are imported directly to the company’s warehouse and distribution location in Hawaii from manufacturers in Taiwan.

Linda Kramer, president of Hawaii’s Best Fulfillment, processes bubble tea retail and wholesale orders from the Web site and ships the products to vendors and consumers on the same day that orders are placed.

Kramer says both wholesale and retail sales are steady. Kramer will not comment on exact figures of orders to households and to stores but says Web site orders have been growing.

The Leongs, too, are confident that bubble tea’s popularity – at stores and on the Internet - will be around for the long haul. “I think the drink will stay, much like shave ice, coffee or tea,” Evan says