I was watching the local Taiwanese news the other day and saw a very interesting segment on a man who owned a shrimp kabob stand.  Apparently, this guy used to earn about $30,000 NTD a month at some generic office job but now rakes in over $300,000 peddling skewered roasted shrimp in a dinky tin can with wheels.  My brow furrowed and my jaw dropped as I did a quick calculation of his income, which was by all means extremely impressive even when converted into U.S. dollars (approximately $120,000 annually, most of them kept in his pocket if he evades taxes like most street vendors).What the heck!  Why bother updating my resume?  I need to do my own shrimp on a stick!  Do street vendors really earn that much money?  Well, most of the time they don’t look like they do.  Stores and shops in Taiwan change their facades all the time.  Today a random tiny hole in the wall is one of many tea/coffee/juice stands, tomorrow it will become YoFroyo (this just happened these past few days in Gongguan).  But one seemingly invincible Gongguan cornerstone is the very famous bubble milk shop named Chen San Din (陳三鼎青蛙撞奶).  While they offer about ten different drinks ranging from grass jelly (仙草) and jelly fig (愛玉), their specialty is “frog eggs”.  Don’t be grossed out because even though Chinese people are known to eat wacky stuff, “frog eggs” are actually marble sized tapioca balls (aka bubbles) that have been simmered in brown sugar until they are soft and chewy like gummy bears.  Combine a ladle full of warm, freshly-made “frog eggs”, some sweet brown sugar syrup and icy milk, and you’ve got yourself their signature drink literally named “Frog Smash Milk” (青蛙撞奶) and the reason why there’s always, always, always people lined up at their shop from open till close.  It really is a smash!  Being the curious capitalist that I am, one of my goals for this column was to try to decode their success. 

　　I dressed as innocuously and professionally as I could and headed down to their shop right before they opened.  I asked the workers in my sweetest voice whether I could ask a few questions about their business.Well darn, unfortunately what works at the bar doesn’t work at the bubble shop.  I was literally shut down.  There was just too much risk in accidentally leaking their trade secrets, they said, and since they perpetually busy there was no purpose in attracting more customers.  I managed to pry a paltry amount of information out of one of the helpers..  She wouldn’t tell me her name though, or any details regarding pricing, costs, franchising, any of the good stuff!

　　The conversation basically failed. One of the ladies said “Don’t speak anymore” in tai-gi.  Thanks to the Everyday Taiwanese (台語) class last semester I attended last summer, I knew I was becoming a nuisance.  Time to cease and desist!  Despite all that, what I learned was that Mr. Chen San Din (陳三鼎) is a scrooge about publicity and media partly because he doesn’t need it and partly because of the heavy competition in beverage market.  Even though everyone can clearly observe the ingredients that go into Frog Smash Milk while waiting in line, it’s also evident that no one can replicate its gooey chewy sweetness.  There are plenty of “frog egg” stands in every night market, and another one named Kenting Duai Duai just around the corner in Gongguan.  I’ve tried several, and they all pale in comparison to Chen San Din.  Every aspiring businessperson should remember this truth: to become successful you don’t have to necessarily invent something new or brilliant, just do it better than everyone else.  MP3 players existed before the iPod came along.  Even though picking Mr. Chen’s brain was a no fly zone, it that doesn’t mean that I can’t extrapolate their business revenues and profits through some general assumptions.  Turned away but not defeated, I stood across the street and counted the number of drinks that Chen San Din sold per minute.

　　They were able to churn out 5-6 drinks per minute, pretty much as fast as they could scoop, pour, and bag.  5 drinks x 60 minutes = 300 drinks an hour 300 drinks an hour x 12 work hours = 4,800 drinks a day 4,800 x 30 NT per drink = 144,000 NT a day (~4,600 USD) 144,000 per day x 365 = 52,560,000 NT a year (~1,700,000 USD) HOLY SMOKES.  Their revenue is approximately 1.7 million USD per year!  By my estimates I assume that they’re continuously working throughout the day, which they really are since they are THAT popular, but to be conservative let’s discount their revenue by 10%, which brings it down to ~1.5 million USD a year.  What are Chen San Din’s main variable costs?  Tapioca, sugar, and milk.  Employees. Taxes (proportional to income).  What are Chen San Din’s fixed costs? The store front, pots n’ pans.  Let’s assume that after 20+ years of being in business, Mr. Chen now owns his storefront and the costs of his equipment (which I assume are not cutting edge technology and have been reused for ages) is on average nominal at best.  Fixed costs for 2010 are zero.  To estimate variable costs, we first have to run with the general assumption that grocery stores markup their prices by around 100% of selling costs (according to the research I did online). That means whatever we buy for ourselves in 7-11 or Wellcome (retail grocers), prices for those same items are actually half to those who purchase from wholesalers.  Chen San Din must be purchasing his beverage inputs at wholesale since he buys in bulk, so to estimate his costs all we have to do is tally up how much it would cost normal people to make a Frog Smash Milk and then divide it by half. I observed that they use one cup of fresh milk per drink.  A quart of milk in Taiwan is approximately 75NT (~2.50 USD).  75NT divided by 2 = 37.5NT as the wholesale price for a quart of milk. 37.5 NT divided by 4 is approximately 10 NT or 0.30 USD, the Chen San Din’s cost of milk for each drink.  Online, a pack of black tapioca bubbles that serves 80-90 servings costs 14 USD, which would be 7 USD wholesale. 7 USD divided by 80 servings gives us the amount it costs for “frog eggs” per drink… amounting to only ~0.10 USD.  Then there is brown sugar.  Due to the proprietary nature of Frog Smash Milk I have no idea how much they put into each drink, but sugar is cheap and definitely costs much less than milk, which we already estimated to be 0.30 USD per drink. I’ll say that it’s 0.20 USD. 0.30 USD for milk, 0.10 USD for tapioca, 0.20 USD for sugar.  Chen San Din’s food-related costs per drink = 0.60 USD.  Chen San Din’s revenue per drink = 1 USD (30 NT).

　　Therefore, the shop’s profit margin (excluding labor) is 40% (1-0.60)/1). Earlier we had mentioned that they make 4,600 USD a day, which means that they actually earn 1,840 USD.  Then there are the 4-5 employees that they hire, which probably get paid decently, maybe each 300 NT an hour (well above minimum wage of 95 NT an hour). That gives us labor costs of 300 NT x 12 hours x 5 employees = 18,000 NT (580 USD) for labor costs. 1,840 USD (profit excluding labor) – 580 USD (labor) = 1,260 USD profit per day.  1,260 USD profit per day x 365 = 459,900 USD per year.  Mr. Chen makes almost half a million dollars a year pre-tax on his Frog Smash Milk.  There’s definitely a considerable standard deviation due to the rough assumptions I’ve made, but even if we were to apply a high discount to our estimates, we’d still get a result of CHA-CHING!  I am in shock.  Tell me, why are there so many aspiring investment bankers in the world when you can sell bubble drinks in Gongguan?