Bubble tea brand Xing Fu Tang’s Malaysia franchisee hits back at Taiwan HQ, says won’t be bullied

KUALA LUMPUR — Malaysia’s master franchisee for popular brown sugar bubble tea brand Xing Fu Tang said local outlets will not be “bullied” while fighting back against allegations made by the brand's headquarters in Taiwan, CEO International.

In a Facebook post, Xing Fu Tang Malaysia said it believed Xing Fu Tang Taiwan’s recent threat to terminate the master franchise agreement in Malaysia was due to a refusal by the local master franchisee Collab Working Lifestyle Sdn Bhd and all Malaysian sub-franchisees to buy RM4.5 million (S$1.47 million) worth of equipment.

START OF THE DISPUTE

In tracing the roots of the dispute, Xing Fu Tang Malaysia said this started on Oct 15 when Xing Fu Tang Taiwan asked outlets in Malaysia to buy the equipment or machines to mould the “pearls” used in bubble tea drinks at an allegedly “sky high” price.

Xing Fu Tang Malaysia said CEO International had sent a notice asking Malaysia’s master franchisee and all 34 sub-franchisees to buy the pearl-moulding machine to make strawberry heart-shaped pearls for RM120,000 each, adding that CEO International sent an invoice of RM4.5 million for 34 machines later in the afternoon although none of them had agreed to it.

“CEO International asked for the payment to be made the next business day, and threatened to terminate the master franchisee and franchisees if they did not buy the machines. We were asked to make the payment in full, yet the machines would only be delivered to us sometime between end-2020 and 2021.

“We called for a meeting with all sub franchisees on Oct 19, and they collectively signed a letter to inform CEO International that they would not buy the machines,” Xing Fu Tang Malaysia said in the Facebook post, providing photos to back up its claims.

Xing Fu Tang Malaysia further said the Taiwan headquarters’ claim of the machine being the first in the market was untrue, asserting that it has been in use in Japan for “quite some time” while also attaching a photograph of a store in Japan that allegedly uses such heart-shaped pearls.

Xing Fu Tang Malaysia said CEO International then made “wild accusations” publicly against the Malaysia master franchisee on Oct 21, highlighting that this came after the disagreement over the RM4.5 million worth of equipment.

OTHER GRIEVANCES

Xing Fu Tang Malaysia said its conscience is clear and asserted that it has not breached the master franchise agreement with Taiwan headquarters.

“Both the master franchisee and sub-franchisees in Malaysia have invested tens of millions of ringgit in the Xing Fu Tang brand. Since March we have spent RM500,000 in advertising and promotions. 

“We do all the work, and our royalty is 3 per cent compared to CEO International collecting 5 per cent. They sell us the machines, but they often break down and we get little after sales support,” it said in the same Facebook post.

Xing Fu Tang Malaysia noted that local outlets have to pay CEO International’s costly requests, including RM15,000 each for a giant six-foot fibreglass cup model for display and RM15,000 each for a hand-made pearl machine.

“Many of our pearl smart cookers, costing RM40,000 per store, have broken down within a few months. CEO International told us to buy a different model of induction cooker rather than assist us with warranty claims,” Xing Fu Tang Malaysia claimed, affixing a notice where the brand’s Taiwanese headquarters appeared to ask Malaysian outlets to use other methods to cook the pearls following feedback of breakdowns.

Xing Fu Tang Malaysia said it also bought 30 egg cake machines worth a total of RM150,000 at Taiwan headquarters’ instructions, but said these machines have yet to be used to sell any products as no guidelines have been given on how to use them and to market the product.

Xing Fu Tang Malaysia said it had to develop its own guidelines for Malaysia’s sub-franchisees on the interior design of stores, as CEO International allegedly did not provide any such template but had later retrospectively provided “guidance” by asking for change of lighting fixtures purportedly “just because they did not like the ones we used.”

“We bought 2,000 units of track lights and downlights at NTD2,109,000 (RM280,000) from them, which we feel was drastically inflated,” Xing Fu Tang Malaysia said, attaching invoices to back its claim of the purchases for the lightings and other equipment mentioned.

Xing Fu Tang Malaysia said CEO International had invited Malaysia’s master franchisee and all sub-franchisees to visit Taiwan for training and to sit for a test, claiming that this test was without guidelines and that failure to pass the test would result in them being barred from continuing to operate the outlets in Malaysia.

Xing Fu Tang Malaysia said the introduction of this test at this stage was “unfair” as the Malaysian franchise holders had already poured in money into the equipment and shoplots and started operations, adding that the master franchisee was accused of preventing the sub-franchisees from going to Taiwan for the test when the “truth” was that none of them wanted to go.

ACCUSATIONS AGAINST XING FU TANG MALAYSIA

Xing Fu Tang Malaysia also sought to rebut accusations made by the Taiwan headquarters, including the Malaysian franchisee’s alleged charging of high fees for raw material and transport to sub-franchisees.

“This is not true as our mark-up is marginal after factoring in logistics and customs taxes,” it said, noting that about 90 per cent of materials including sugar, cups and straws are from CEO International and that the only raw materials sourced locally are fruits, fructose and milk.

Xing Fu Tang Malaysia also refuted the idea that it had set up "illegal" outlets in Malaysia, arguing that these outlets could not be considered illegal when Taiwan headquarters allegedly sold equipment and raw material to them and continues to collect royalties and accept the revenue generated from these stores.

Xing Fu Tang Malaysia also said it was untrue that it had opened more than one store in each area.

Addressing Taiwan headquarters’ accusation that it planned to start a new brand, Xing Fu Tang Malaysia said it had only developed plans to do so for business survival and to protect the sub-franchisees after CEO International’s threat to terminate them.

“We know what is in the contract. We have signed a 10-year master franchise agreement. We were awarded the exclusive rights to Malaysia, yet they posted on Facebook that they are seeking new partners in Malaysia. Doesn’t that show that they do not intend to honour the agreement?” it said.

“As Malaysian SMEs, we have invested a lot of resources into the Xing Fu Tang brand, and we will not be bullied,” it added.

Xing Fu Tang Malaysia also noted a spate of vandalisation from Oct 17 to Oct 26, where two outlets in the Klang Valley were splashed with red paint on five occasions.

Saying that it had lodged police reports and shared close-circuit television (CCTV) camera footage with the police, Xing Fu Tang Malaysia added: “We don’t know who did this, but we cannot bow to thugs".

Malay Mail has reached out to Xing Fu Tang Taiwan.

Xing Fu Tang Malaysia’s master franchisee Collab Working Lifestyle executive director Derek Cheong previously told Malay Mail that the company had played a key role in helping the brand’s quick growth locally, as shown in its boom from just one outlet on March 3 to 39 outlets and a workforce of nearly 500 people in late October.

Xing Fu Tang, which is famous for its brown sugar bubble tea drinks, is one of the many popular bubble tea brands, but is not the first such brand to see a dispute between the franchisor and franchise holder. MALAY MAIL