When Alan Yu opened his first boba shop in Southern California in 2000, he had no idea that his company, Lollicup USA Inc., would become a retail business empire, and one of the largest manufacturers of paper and plastic cups in the country, with $124 million in annual sales. He also didn’t foresee all the obstacles he would have to overcome in order to get there.
In the beginning, he thought only of boba.
“I just thought it was interesting. I’ve never done the restaurant business, and most of my friends thought this is a crazy idea. I just thought this is a good idea to start with,” he says.
Boba, or bubble tea, is an iced drink invented in Taiwan in the 1980s. It’s made with a tea base, often mixed with milk, and people can add chewy tapioca balls, fruit jelly or other toppings. It has since become an international phenomenon, with shops springing up all around the world.
"Most of my friends thought this is a crazy idea. I just thought this is a good idea to start with."
Yu, a UCLA grad, visited Taiwan in 1999, when boba tea was just starting to take off there. He decided to stay the year, and learn the ins and outs of the business.
“I figured, hey, we don’t have that kind of tea shop in LA, and it should be pretty fun to bring one over. That’s when I saw the opportunity,” he says.
The next year, he and business partner Marvin Cheng launched Lollicup in Southern California. It was an instant hit. “People were lining up. Every store that opened, people would wait in line for it,” Yu says. “I was surprised.”
Yu started to train other entrepreneurs to open their own boba shops and, within a year, established Tea Zone, a wholesale line of bubble tea and beverage ingredients to sell to these shop owners. Within two years, the number of licensees quadrupled. There were imitators as well. Rather than see them as a threat, Yu saw them all as part of a common cause to educate Americans about boba.
“My mentality is, if we just keep it as a secret and no one else should learn, then how far can we grow?” he says. “We’re limiting ourselves into geographic locations, but if we actually expand this and allow other people to take this opportunity and build it somewhere else…it’s actually beneficial for our wholesale business.”
"I figured, hey, we don’t have that kind of tea shop in LA, and it should be pretty fun to bring one over. That’s when I saw the opportunity."
As his roster of clients grew, Yu saw the potential to supply them with more than just boba ingredients and become a one-stop supply shop. So he decided to expand into the cup-making business. Easier said, than done.
In the beginning, Lollicup bought packaging material locally from domestic vendors, but Yu says the large manufacturers scoffed at the volume of their orders.
“We even told them, we have over 100 stores, we can buy a certain amount of cups every month,” he explains. “They still perceived us as a small player. I really did not get the kind of service I thought we deserved.”
So in 2003, Yu started importing cups from overseas manufacturers. It was not an easy solution. The international vendors had trouble matching the specifications of domestic products—the cups were thinner and lighter, and didn’t fit the lids that were available. They had to liquidate the first batch at a very low price. It was later in the year that they overcame technical problems and nailed down quality control. Finally, they were ready to sell these cups outside the boba business and under a new packaging brand called Karat.
The first trade shows they attended brought few conversions. The sales team had to go back to the drawing board and figure out what went wrong. They attended different types of trade shows, and, everywhere they went, they asked questions.
“We asked people what is the better show to go to,” says Yu. “We asked our peers, ‘What can we do? What can we modify that would help us? What is their demand for product?'”
It took years, but they hung in there, slowly improving and adding to their knowledge.
“Every year we tried different things. I believe that if this is the right path, if we fail, we just get up and do it again. Find a different way. Persistence is very important. If you think this is the right direction, it doesn’t matter how difficult it is, you just have to try a different method,” Yu says.
Ironically, the business finally started to take off during financial crisis of 2008. Suddenly, restaurants and food companies were looking to cut costs and look for cheaper alternatives, and Lollicup was ready to sell to them.
"I believe that if this is the right path, if we fail, we just get up and do it again. Find a different way."
Then came the strike at the Port of Los Angeles in 2012, with clerical workers and longshoremen walking off the job, and cargo ships idling offshore and rerouted to other ports. The company almost ran out of supplies. To avoid that in the future, Yu decided to start manufacturing the cups himself in the U.S.
In 2013, Lollicup moved into a 300,000-square-foot manufacturing facility in Chino, Calif.
“We thought it was going to be easy, but it turned out to be pretty tough,” Yu says. The company had to navigate city ordinances for permits, and scramble to get imported equipment certified. Then they added so many machines so quickly they had to upgrade the power, gas, water, and air line for the entire plant.
It took more than two years to get things in place. They then began to branch out from cups and make other containers as well. Now, they are getting heavily involved in manufacturing an eco-friendly line called Karat Earth, which includes compostable cups, food containers, and utensils made out of plant material.
Next year, they’re looking to grow into a factory in Texas that is double the size, can produce twice the amount of product, and will employ more than 200 people, in addition to the 380 people working at the Chino factory.
“We feel that it’s actually a trend of bringing back manufacturing in the U.S., so we would like to follow this trend,” Yu says.
A common obstacle facing entrepreneurs is getting the financing to expand their business operations. The main way that Yu has financed the rapid expansion of his business into new areas is through business loans. Starting in 2004, Yu obtained a small business loan of $400,000, putting his own house up as collateral.
“You have to believe in your business first. You have to believe that your business can succeed. So, you as an entrepreneur have to take the risk. You can’t ask the bank to take the risk 100 percent,” Yu says. “Then after the trust is built, then you can use your personal credit or business credit to get the loan.”
Soon he was able to double the size of his bank loan and increase the amount year-on-year. “Working capital is essential to fund day-to-day operations and to pursue growth opportunities,” says Linda Chun, East West Bank corporate banking relationship manager. “Given Lollicup’s strong financial performance, the bank subsequently approved several equipment loans to support their long term growth,” Chun says.
“We built a trust from day one, to today. That’s why East West Bank knows what we need for our type of business,” Yu says. “You have to work with the bank, see what they need, what they’re looking for in your financial portfolio. That’s very important. So, having great accounting is important.”
He talks more about getting financing here:
After encountering so many obstacles, Yu is a big proponent of using them as stepping stones. He says that every time his team encountered a major hurdle, they mobilized to overcome it, and performance actually surged the following year.
“You have to think obstacles are part of a test,” Yu says. “If we only had smooth sailing in the early stages of our business, I don’t think we would be able to deal with some of the larger issues we’re dealing with today.”
This year has been the best performing year-to-date for Lollicup, and Yu plans on tapping into new international markets and industries such as healthcare.
“Ten years ago, I didn’t know how far this could go. But today, I know this can be a multi-billion dollar business,” he says.