It’s Boba Time Franchise Cost Justified By Profits? (2024)

This article is based on its 2022 FDD. 

It’s Boba Time is a milk tea franchise primarily operating in Los Angeles and expanding into other Southern California regions. Aiming to provide customers with the freshest and the most innovative drinks, It’s Boba Time was founded in 2003 starting with a menu of 40 drinks. After 19 years, in 2022, Boba Time currently has over 140 items on its menu.

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Normally, It’s Boba Time offers a variety of drinks from fresh fruits on smoothies and slushies to milk tea and coffee. It is claimed to be the most famous boba shop in the Los Angeles area and welcomes an average of 1,000 customers per day!

How Is It’s Boba Time 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. Boba Time franchisees have to compete with businesses that offer tea drinks, blended juice drinks, smoothies, etc. Some examples include Starbucks, Peet’s Coffee, and Tea, Chatime, and Coco Fresh Tea & Juice.

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 location.

It’s Boba Time Franchise Cost

The total investment necessary to begin the operation of an It’s Boba Time franchise business ranges from $294,524 to $442,300. This includes the franchise fee of $40,000 that must be paid to the franchisor. Boba Time also offers the opportunity for people to register as area developers, who manage multiple Boba Time stores in a specific area. Similarly, the first location will cost a development fee of $40,000, but every additional store will cost $30,000.

Once the operations begin, franchisees are expected to pay the company a royalty fee of 5% of gross sales and a marketing fee of  2% of juice and snack bar gross sales. There are other continuing fees, such as a computer system maintenance fee of $500-$1,000 per year and a renewal fee of $10,000.

How Much Do It’s Boba Time Franchise Owners Make?

Boba Time 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 Boba Time, the company may provide you with the actual records of that Boba Time.

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. From its breakdown of the income statement, the royalty revenue in 2020 was $1,676,545.

2020 Sales and Breakeven Point:

Royalty fee: 5% of gross sales

Royalty revenues: $1,676,545

Estimated system-wide franchise sales: $33,530,900

Estimated average franchise revenue: $745,131

In 2020, at an average 18% profit margin, it will take around 4.2 years to recoup your investment. Comparing this to most franchise opportunities, this is relatively. 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 Profit Worth the Franchise Cost?

To assign a valuation multiple for It’s Boba Time 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

When you go to sell a Boba Time franchise based on the median multiple of 0.44 and net sales of $745,131, it would sell for $327,857. This is approximately the same as the midpoint initial investment of $368,412.

How Many It’s Boba Time Franchise Units Have Opened and Closed?

The number of franchise stores has been increasing rapidly in the past three years. During the COVID-19 pandemic, there were 12 stores opened and no termination and 1 non-renewals, except 2 stores were reacquired by the franchisor in 2020.

The failure rate is 0% for the past three years, showing a stable and promising business model! 

Summary

It’s Boba Time definitely represents the rapidly growing milk tea industry, especially in California. Although geographically limited to California, Boba Time has expanded into other nearby states in the U.S. Providing more opportunities for prospective franchisees. Besides the extremely low failure rate, Boba Time provides a transparent record of how its franchisees perform compared to others. This not only helps potential clients make informed decisions but also provides them with opportunities to see its growth.