Gong Cha Milk Tea Franchise Cost and Profit (2024)
Gong Cha is a tea drink franchise founded in 2006 in Kaohsiung, Taiwan. Its name is a combination of Chinese characters “gong (贡),” meaning contribution or tribute, and “cha (茶),” referring to tea. Together means “Tribute tea for the emperor”. After expanding to Hong Kong in the same year it was founded, Gong Cha expanded internationally starting in 2012, including South Korea, Australia, and the United States. Gong Cha has opened over 1,650 cafes in 20 countries. Currently, most of the stores in the United States operate in the Northeast and the South of the United States.
Gong Cha is positioned in the bubble tea industry, which is one of the entertainment drinks people of all-age turn to. Gong Cha serves a total of about sixty different drinks, which can be divided into seven types: house specials, brewed tea, milk tea, “Creative Mix”, coffee, “Healthy Series”, and ice smoothies.
How Is Gong Cha Positioned in the Food & Beverage Industry?
The food and beverage industry is a significant contributor to regional economies and to the U.S. economy. It is a stable industry in terms of employment and labor income due to the consistent demand for food. The food and beverage sector accounts for about 5% of gross domestic product (GDP), 10% of total U.S. employment, and 10% of U.S. consumers’ disposable personal income (DPI). It has total sales of $1.4 trillion, of which $164 billion in value-added is generated by the food and beverage industry alone.
Food and beverage franchises are often the first things people correlate with the franchise industry. Food & Beverage is certainly one of the most popular areas of franchising. Although food franchising is often associated with fast food, the industry also includes fast-casual, coffee, and pizza. As the food and beverage industry is competitive in every aspect, the general market for bubble tea and tea drinks is developing in the United States. Globally, the bubble tea industry is expected to register a compounded annual growth rate (CAGR) of 8.9% from 2020 to 2027. Gong Cha franchisees have to compete with businesses that offer tea drinks, blended juice drinks, smoothies, etc.
Of the food and beverage concepts we have reviewed, total investment amounts can start as low as $3,000 for smaller kiosk concepts all the way up to $6,732,615 for a full-service restaurant.
What Is the Gong Cha Franchise Cost?
The total investment necessary to begin the operation of a Gong Cha master franchise business ranges from $188,200 to $684,500, which includes $115,000 to $515,000 that must be paid to the franchisor. The total investment necessary for your first affiliate subfranchisee to begin the operation of a Gong Cha store ranges from $159,200 to $571,800. This includes $0 that must be paid directly to us or our affiliate. One thing to note is that Gong Cha allows the master franchisee to grant subfranchises to affiliates and independent third-party entities. Both fees also contain a license fee of $100,000, $300,000, or $500,000, depending on the size and population of the territory.
Once the operations begin, franchisees are expected to pay the company a royalty fee of 3% on gross sales and a marketing fee of 1% on gross sales. For each additional Gong Cha subfranchise, franchisees need to pay $15,000 per store.
How Much Do Gong Cha Franchise Owners Make?
Gong Cha does not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. However, if you are purchasing an existing Gong Cha, the company may provide you with the actual records of that Gong Cha.
Through our analysis of the Franchisor income statement, we can guesstimate sales figures from the income statement line item “Franchise Revenue” Ideally the line item is Royalty Revenue. Franchise revenue can include franchise fees received. However, Gong Cha neither reveals its financial performance in its FDD of item 19 nor in its income statement.
Therefore, we estimate the sales based on various online information. The estimated sales for a single-unit Gong Cha franchise is $370,000.
| Initial Investment (midpoint) | %Profit margin of average franchise sales | Estimated profits | Time to recoup investment |
|---|---|---|---|
| 436,350 | 13% | 48,100 | 10.6 years |
| 436,350 | 18% | 66,600 | 8.1 years |
| 436,350 | 23% | 85,100 | 6.6 years |
In 2021, at an average 18% profit margin, it will take around 8.1 years to recoup your investment. This is longer than most franchise opportunities. You may not get an 18% profit margin which would elongate getting a return on your investment. The time to recoup investments incorporates roughly a 1.5-year period to scale up the store. This includes finding the location, building the store, passing break even, and then reaching significant income.
Is the Gong Cha Profit Worth the Franchise Cost?
To assign a valuation multiple for Gong Cha franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available. Since there is a lack of information on the milk tea industry, we estimate using the data on the coffee industry, which follows a similar business model as the milk tea industry.
Under $1 Million Net Sales
- Estimated Selling Price = Net Sales * 0.44
How Many Gong Cha Units Have Opened and Closed?
The number of franchisees is increasing over the last three years. Although there were no franchises increased in both 2019 and 2020, we should be aware that there were no stores closed or terminated during the COVID-19 pandemic. Although stores were forced to close temporarily, all of the stores were able to survive. In 2021, with the loosened COVID-19 policy, six franchisees join the business, and this year, there will be 5 new development.
Although there were only 18 stores reported in the FDD, there are more than 150 stores across 11 states listed on the internet. In 2025, Gong Cha is projected to exceed 500 stores in the U.S. The currently available territories for new development are New York, New Jersey, Pennsylvania, Connecticut, Massachusetts, Rhode Island, New Hampshire, Oklahoma, and Texas.
| Year | Outlets at Start of Year | Outlets Opened | Terminations | Non-Renewals | Reacquired by Franchisor | Ceased Operations Other Reasons | Outlets at End of the Year |
|---|---|---|---|---|---|---|---|
| 2019 | 12 | 0 | 0 | 0 | 0 | 0 | 12 |
| 2020 | 12 | 0 | 0 | 0 | 0 | 0 | 12 |
| 2021 | 12 | 6 | 0 | 0 | 0 | 0 | 18 |
Conclusion
Franchising with Gong Cha can be an interesting opportunity, especially when the bubble tea industry is rapidly growing in the United States. Gong Cha, being one of the well-known bubble tea brands in the industry, the brand name helps you build a more solid customer base. Despite its relatively low initial investment, the rewards are not as promising if you plan to invest in the short term. However, if you are really into the growing industry of bubble tea, Gong Cha can be your first stop and a good return if holding for a longer period.
