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Shanghai's milk tea chains are facing a bleak future, clouded by limited product variety and rising competition.
With few counter assistants and some basic equipment, roadside stalls selling Taiwan-style pearl milk tea, named after pearl-sized dumplings in it, hit the city streets in early 1999.
Banking on consumer curiosity, fast service and reasonable prices, the business, which requires a relatively small investment of 50,000 yuan (US$6,024), rapidly became popular.
Within a year, about 40 brands flooded into Shanghai, which currently has more than 1,000 milk tea stalls.
But the milk tea's fast-growing popularity is hurting the prospects of its chain suppliers.
"The business will maintain its current status for only two years at most due to intensifying competition and because consumers have become more mature," said Zhou Rongjian, marketing manager of the Taiwan-based Kuailile Management Co.
"We receive about 20 calls daily from people who want to be our franchisees."
Zhou said his company may opt for providing more food choices and expanding into China's western region to support its future survival.
Kuailile became a pioneer in the local market by opening Shanghai's first franchised milk tea outlet two years ago. So far, it has set up more than 90 outlets in the city.
Other milk tea chains are likely to follow its footsteps.
"Selling snacks, such as sandwiches and fried food, is our only way out," said a salesman of Lucky Cup, a milk tea chain outlet in the city.
He said his company is feeling the pressure from an increasing number of competitors and low profit margin.
Currently, the daily turnover of a store, selling 75 kinds of milk tea for 4 yuan to 6 yuan a cup, ranges from 500 yuan to 3,000 yuan, depending on its location. Production cost for a cup of pearl milk tea is a maximum 2 yuan, Zhou said.
Milk tea chains no longer dominate the local market as the drinks now are abundantly available in supermarkets, Zhou said, adding that competition over prices has lowered product quality.
Moreover, traditional teahouses, with a comfortable environment and more than 100 food choices, have threatened the growth of roadside milk tea chains.
"We provide consumers with a place to chat and relax," said an employee at a teahouse that opened two years ago on Zhaojiabang Road.
Though milk tea at the teahouse is priced about four times higher than at chain outlets, its business, which generates a monthly turnover of at least 50,000 yuan, is not affected by the rising number of roadside stalls, she said.
"I have tried instant milk tea only once," said consumer Gu Liqing, sitting comfortably in a teahouse on Hengshan Road.
"Local people's interest in the new drinks has quickly faded. High-quality products and service are the key to winning customers in the long run."
(eastday.com 02/15/2001)
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