Kung Fu Tea Franchise Cost / Profit: 2022 Industry Outlook

Written by: Dylan Tymkiw
Last Updated: July 14, 2022
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This article is based on its most recent FDDKeep reading or watch the  video originally recorded on Vetted Biz Youtube Channel

KungFu Tea offers franchises sell a variety of brew tea, bubble tea, coffee, juices, smoothies and other hot and cold beverages. Kung Fu Tea has an atmosphere that charms customers and encourages them to always come back.

Kung Fu Tea was founded in New York in 2010. The parent company of Kung Fu Tea is Kung Fu Tea USA Inc. and it started offering franchises in 2013 under the business name of Kung Fu Tea, a company that is based in Delaware.

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Currently there are 245 Kung Fu Tea shops across the United States and that number is only getting bigger. Since Kung Fu Tea is a franchise, you could own the next one!

Kung Fu Tea has many competitors who serve the Asian-American market. Some are national and international companies, while others are small companies with only one location, serving the local community. One big competitor is StarBucks. 

We will analyze if the potential returns are worth the initial cost of the franchise. 

How Much is a Kung Fu Tea Franchise?

patrick in kung fu tea

The initial fee for a standard Kung Fu Tea franchise is $37,000. If you choose to open a non-traditional unit (airport, hotel, etc) you will only pay $25,000. The fee for every additional unit you might open in the future is $25,000.

Kung Fu Tea Franchise Cost:

The estimated total investment for beginning operations of a Denny’s franchise is between $166,500 and $375,500.

Type of Expenditure Amount To Whom to Payment is to be Made
Low High
Initial franchisee fee (Note 1) $25,000 $37,000 Us
Training fee (Note 2) $10,000 $10,000 Us
Equipment from our affiliate $6,500 $7,500 Arms Global Inc.
Other equipment, furniture, fixtures and signane $30,000 $40,000 Approved suppliers or other independent suppliers
Computers, printer, fax, and other hardware and business software (Note 4) $2,500 $5,000  Approved suppliers or other independent suppliers
Prepaid rent and security deposit (Note 5) $5,000 $40,000 Landlord
Leasehold improvements and architectural costs (Note 6) $40,000 $150,000 Landlord and independent contractors
Interior design (3D rendering of shop) $3,500 $5,000 Designer or architect
Buy FDD
Type of ExpenditureAmountTo Whom to Payment is to be Made
LowHigh
Initial inventory of tea, coffee, cups, menu boards, and packaging materials (Note 3)$15,000$25,000Arms Global Inc. and approved suppliers
Initial marketing program (Note 7)$5,000$5,000Approved suppliers
Insurance – liability and workers compensation – initial deposit (Note 8)$5,000$20,000Independent carrier
Travel, living expenses and salaries during initial training (Note 9)$4,000$5,000Airlines, hotels, restaurants and others
Legal and accounting fees (Note 10)$5,000$6,000Independent professionals
Additional funds – first month (Note 11)$10,000$20,000Independent suppliers
Total (Note 12)$166,500$375,500

Other Fees:

Royalty Fee: 3% of Gross Sales

Marketing Fee: 2% of Gross Sales

Technology Fee: $100 per month

What do you need to open a Kung Fu Tea Franchise?

kung fu tea

Kung Fu Tea is continuously looking for passionate individuals that want to open new franchises. The process for opening a new franchise is similar to most franchises:

  • You fill out a form
  • Someone will contact you
  • Have an interview
  • Open a Kung Fu Tea Shop!

In addition to these steps Kung Fu Tea will send a representative for the first two weeks of operation to ensure that everything goes smoothly.

How Much do Kung Fu Tea Franchise Owners Make?

Kung Fu Tea does not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. 

Through our analysis of the Franchisor income statement we can guesstimate sales figures from the income statement line item “Franchise Revenue.”

2018 Kung Fu Tea Break-even point:

Royalty fee:  3% of Gross Sales

In 2020 Kung Fu Tea made $2,513,157

Estimated average franchise revenue: $341,926

2019 Kung Fu Tea Break-even point:

Royalty fee:  3% of Gross Sales

In 2020 Kung Fu Tea made $2,467,310

Estimated average franchise revenue: $335,688

1- Based on a midpoint investment of $271,000 with estimated profits of $33,568 at a 10% profit margin it would take about 10 years to recoup your investment.

2- Based on a midpoint investment of $271,000 with estimated profits of $50,353 at a 15% profit margin it would take about 7 years to recoup your investment.

3- Based on a midpoint investment of $271,000 with estimated profits of $67,137 at a 20% profit margin it would take about 6 years to recoup your investment.

Is Kung Fu Tea worth the Franchise Cost?

After a few years in the business, when you go to sell your franchise based on the median multiple of .31 and net sales of 2019 of $335,688 it would sell for about $104,063. This is only 38% of the midpoint initial investment.

You could make more money back if you sell the real estate along with the franchise. This is a strategy commonly used in the food and beverage industry.

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Kung Fu Tea Income Statement:

December 31201920182017
Revenues
Franchise and training fee income$1,129,561$1,625,167$1,858,561
Royalty fee income2,513,1571,973,8321,20,040
Marketing fee income1,213,529904,62960,166
Other revenues72,17255,3737,266
Total Revenues4,928,4194,559,0013,896,033
 
Expenses
General and administrative2,677,3462,338,7761,606,209
Selling1,633,9271,250,5791,085,720
Total Expenses4,311,2733,589,3552,691,929
 
Net Income before Provision for Local Income Taxes617,146969,6461,204,104
Provisionfor Local Income Taxes2,20210,23816,511
Net Income614,944959,4081,187,593


Over the years the company has been in decline, making less and less money every year. However, this decline is not related to revenue but rather to extra expenses. Kung Fu Tea is a relatively new franchisor and it is highly likely that those extra expenses are going towards marketing and different growth strategies. It is possible that these numbers will get a lot better in the near future.

kung fu tea store

How Many Kung Fu Tea Units Have Opened and Closed?

 

Outlet TypeYearOutlets at the Start of the YearOutlets at the End of the YearNet Change
Franchised

2018

2019

2020

125

163

213

163

213

242

+38

+50

+29

Company-Owned

2018

2019

2020

2

3

2

3

2

3

+1

-1

+1

Total Outlets

2018

2019

2020

127

166

215

166

215

245

+39

+49

+30


The number of units has been increasing in the last three years. In 2019, 50 new units were opened while in 2020, even amid the pandemic, franchisees managed to open 29 new units. It is exciting to see that the company is growing fast.

Conclusion

Kung Fu Tea is a relatively new franchise that is seeing rapid growth . The Asian-American population is continuing to grow and the demand for this kind of products will only increase, although it may take some time to reach the level of demand that other industries like fast food have. 

If you open a Kung Fu Tea it will take you between 6 and 10 years to recoup your investment depending on profitability, which is a very long time but is comparable to other franchises in the industry. On top of that, when you go and sell your franchise it will most likely not make your initial investment back if you just develop one location. However, you could try and sell the real estate along with the franchise and make a profit that way.

During the pandemic, Kung Fu Tea was not significantly affected. While most franchises in the food and beverage industry saw a huge number of units close, Kung Fu Tea continued to grow.

Our suggestion is to talk to at least five Kung Fu Tea franchise owners before opening your own.

franchise advisor

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