The Chun Cui He milk tea and latte has been making rounds in the news for the past few weeks. Despite the steep price of $2.80, the beautifully designed bottles of coffee and tea that are exclusively sold at 7-Eleven have proven to be popular. People have been grabbing these drinks off the shelves as soon as they were restocked, even if that meant staying up till ridiculous hours such as 1 am.
Despite the craze over these drinks, it wouldn’t be unfair to say that at $2.80 per bottle, Singaporeans are probably being overcharged. In Taiwan, each bottle costs NTD 28-30, which is about SGD 1.10-1.30. This means Singaporeans are paying more than double for the same drink.
Why is that so?
Transport Costs
The bottles of milk tea and coffee are shipped from Taiwan and then distributed to the 7-Eleven stores around Singapore. The company importing these goods has to pay for transportation. The drinks must also be kept chilled, which incurs extra transportation costs. Because the drinks have a shelf life of 15 days, they must be transported quickly. All these delivery costs are then transferred to end consumers.
Storage Costs
If these products have to be stored at a warehouse before they are dispatched to different stores, it will also incur a cost.
Rental Costs
The Chun Cui He brand is being sold at 7-Eleven stores. As such, the company may have to pay 7-Eleven “rent” for using their shelves to display their product. In the grocery retail industry, brands typically pay a fixed cost for the display of items at the shelves of distributors (e.g., 7-Eleven, NTUC, Cold Storage). Thereafter, distributors also charge a markup to end consumers from what they paid for the product.
Anticipated Demand
Before the drinks even reached Singapore, there was already online anticipation. This created a craze for the product, allowing a higher price to be set due to low price elasticity of demand. Consumers are not price sensitive to the product (at least in the initial phase) and would still be willing to overpay. If the product turns out good, it sets a precedent for its value in the future. Many people in Singapore now perceive Chun Cui He drinks to be worth $2.80 per bottle, even though it’s really not.
Comparison With Another Taiwan Imported Good
To assess whether the costs justify the extra $1.50-$1.70 we are paying, we can compare the price of Chun Cui He drinks to another popular import from Taiwan: Gold Medal Taiwan Beer.
The 330ml can of beer costs NTD 30 (or SGD 1.30) in Taiwan, but the same can costs around $3 in Singapore. This means Singaporeans are charged $1.70 more for the beer, which is the same difference in price as that of the milk tea. However, considering that alcohol is taxed heavily in Singapore while milk tea is not, it is clear that we are paying a higher premium for the milk tea.
Conclusion
While there are cost reasons for why Chun Cui He drinks are significantly more expensive in Singapore, the high markup is largely due to the anticipated high demand. It might also be good for Singaporeans to remember that for $2.80, you can get milk tea at your favorite bubble tea stores without having to stay up and compete with others for a drink.
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