The situation of franchising boba tea brand Mixue in Vietnam from Taiwan and its consequences
As of late 2023, Mixue, a well-known brand for ice cream and bubble tea has become the center of attention and controversy. During the previous months, a significant number of franchisees of Mixue in Hanoi, Vietnam, protested openly at the company’s headquarters on Trieu Khuc Street (Hanoi) against the new pricing policy implemented by the parent company in China – the franchisor in this franchise agreement.
According to the new policy implemented by Mixue China for its franchisees in Vietnam, Mixue has reduced the selling price of its products in Vietnam by 25%, aiming to strengthen its market share in this territory and attract consumers. To compensate for the reduced selling prices and alleviate the impact on franchisees, Mixue China has also cut the prices of raw materials by 8 to 10%.
Clearly, from the figures alone, it is evident that Vietnamese businesses will incur substantial losses under Mixue’s new policy, putting many Mixue franchisees in a precarious financial situation. Looking deeper into the business model, considering the cost structure of raw materials and the selling price to consumers, franchisees will actually face a larger loss, estimated to be between 15% and 17% in the short term.
Basic on Mixue
Mixue Bingcheng is an affordable beverage brand originating from China. According to a 2022 survey in the domestic Chinese market, Mixue’s bubble tea is sold for only 7 Chinese yuan, equivalent to approximately 0.97 USD. This is comparable to the current price of 25,000 VND in Vietnam. Additionally, Mixue’s lemon tea and lemon water are priced at 6 and 4 Chinese yuan, respectively.
In both the domestic and some international markets, Mixue is known as a budget-friendly brand for ice cream and bubble tea, catering to the preferences of the majority of consumers.
To rapidly expand its model nationwide and into foreign markets with low costs, Mixue has aggressively implemented a franchising model. However, the income from franchising is not considered high due to Mixue’s policies. According to a survey last year, franchise fees only accounted for 1.9% of Mixue’s revenue.
The majority of Mixue’s revenue comes from the sale of raw materials and equipment, which is seen as the most crucial factor for Mixue’s franchisees in each franchise agreement. Franchisees in both China and Vietnam are not allowed to use local raw materials or synthesize materials in different ways to ensure the quality and the brand image of Mixue.
A notable aspect of Mixue’s business strategy is its focus on expanding branches and stores in smaller provinces with lower incomes, primarily catering to take-out services. This aligns with Mixue’s diverse customer base, predominantly low to medium income, in contrast to the typical franchise model in Vietnam, such as Highlands Coffee, which requires prime locations in bustling areas with high foot traffic.
However, rapid expansion also brings about certain issues, including consumer complaints and even disputes with franchisees, both in China and countries like Vietnam.
New Pricing Policy and Impact
A 25% discount on products, but only an 8 to 10% reduction in raw materials, has created a significant financial gap, putting Mixue franchise businesses at risk. Products like honey black tea, 4-season oolong tea, fresh lemonade, and many others have seen a price drop from 20,000 VND to 15,000 VND per cup. This has led to dissatisfaction and concern within the business community.
To operate a bubble tea and ice cream business in Vietnam, the franchisee must calculate various expenses to ensure the store can function normally and generate profits. Among all these expenses, the reduction in raw material costs from Mixue China constitutes only a small portion.
Other expenses include rent (requiring a strategic location with ample foot traffic and spacious sidewalks), labor costs, utility bills, and various small operational costs. Many store owners in Vietnam report that annual rent increases by 15-20%, employee salaries rise, and utility costs increase due to inflation and other factors.
In the past, Mixue Vietnam has repeatedly communicated with Mixue China about being misled in franchise agreements without foreseeing the consequences due to the absence of non-competition clauses within a certain scope.
This is because Mixue China has continuously signed new franchise agreements with Vietnamese investors, leading Mixue stores to be granted rights excessively, popping up closely together and competing with each other rather than with stable bubble tea brands like Tocotoco, DingTea, etc.
These reasons are causing Mixue franchisees to protest against the application of Mixue’s new policy, which will further disadvantage them, leading to the risk of significant losses and store closures.
Currently, protests are ongoing in various forms. They are demanding transparency from Mixue regarding their business strategy and product pricing policies.
According to the publicly available franchise agreements of some franchisees with Mixue China, it can be observed that they were negligent in not seeking advice from a reputable and experienced legal entity in Vietnam before signing the contract. If proper legal advice had been sought, they would have realized that these contracts lack provisions preventing franchisees from entering into similar agreements with other parties within a certain radius (e.g., 3km) around the franchised store.
From a contractual standpoint, it seems that Mixue China is not in violation; rather, the Mixue Vietnam investors were negligent in paying at least 1 billion VND for the operation of a store without investing additional resources in contract scrutiny. However, this does not absolve Mixue China from potential impact, and Mixue Vietnam may not necessarily bear all the consequences.
The actions of Mixue China may infringe on competition laws and laws against price manipulation and trade protection in Vietnam. Mixue’s pricing strategy could be evaluated as an attempt to establish dominance and disrupt the market by undercutting prices for ice cream and bubble tea products in Vietnam. This disruption may attract customers to Mixue but could also directly affect the overall pricing of similar products in the market and impact the interests of other local producers selling similar products in Vietnam.
To protect their interests, Mixue Vietnam businesses should consider legal consultation, possibly joining forces for a collective lawsuit against Mixue China instead of relying solely on public protests, which may not yield significant results beyond public attention.
Impact on the Franchise Model in the Market
Learning from Mixue’s notorious case, it is likely that the franchise models of other prominent stores in Vietnam will be subject to certain impacts. For franchisees, establishing and signing franchise agreements may become more challenging as they pay closer attention to the contract terms and their operational implications.
For example, non-competition clauses requiring franchisees not to establish other stores within a specified radius or providing flexibility in the supply of goods may become more prevalent. Franchisees, with a more cautious mindset, may have better assurance when reviewing contracts with legal assistance from specialized franchise law firms. This, in turn, could lead to more successful investment decisions, operational choices, and business models.
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– You could visit here to see the Trademark Registration in Vietnam.
– You can also check the Vietnam Trademark Law: Detailed Guide And Legal Notes.
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