Bubble tea cafs are becoming increasingly popular across Malaysia and in recent years, many new chains have

Bubble tea cafés are becoming increasingly popular across Malaysia and in recent years, many new chains have been formed, opening cafés in mainly urban locations.
Leading bubble tea firms provide some interesting information on the rapid growth of the product in recent years. According to Bryan Loo of Chatime (which is quoted on the Taiwan stock exchange), the rationale for setting up a bubble tea business was that there is a strong demand for tea in Malaysia, but no tea businesses as such – in the coffee business names like Starbucks are already in situ. Bubble tea is also more appealing to healthconscious consumers. Globally, Chatime has more than 800 outlets as of 2016, 116 of which are in Malaysia. The primary business model for the new cafés is a franchise model. The cost of setting up a café in Malaysia is at least RM200 000 (about £45 000), depending on factors such as location, size and renovation costs. According to Billy Koh, the franchisor for Gong Cha brand bubble tea, overhead costs of running a café are typically higher in a shopping mall franchise than in a normal highstreet type shop. However, the profit margins are reasonable at approximately 30 per cent for a typical franchise operation. The lower margin is attributable to the high materials cost.
Questions:
1 Can you think of some examples of overhead costs that might be incurred by cafés such as those described above?
2 How would these overheads affect profit if sales declined?