The Coffee Bean & Tea Leaf Franchise Analysis (2024)
The Coffee Bean & Tea Leaf is a coffee shop chain founded in 1963. Since 2019, it is the trading name of Ireland-based Super Magnificent Coffee Company Ireland Limited. Its 80% stake is owned by the multinational company Jollibee Foods Corporation. It operates as an independent subsidiary and remains headquartered in Los Angeles, California.
As of 2017, the chain had over 1,000 self-owned and franchised stores in the United States and 31 in other countries. Find the latest figures for stores and financials below.
How is The Coffee Bean & Tea Leaf Franchise Positioned in the Food and Beverage Industry?
The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people get employed in this industry. Food franchises make up 36% of the total franchise establishments in the USA and it is expected to create 1.6million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.
How Much is a The Coffee Bean & Tea Leaf Franchise?
The initial Coffee Bean & Tea Leaf Franchise Fee is between $12,500 and $25,000. You have to pay this upfront fee when opening a The Coffee Bean & Tea Leaf franchise.
The Coffee Bean & Tea Leaf Franchise Cost
The estimated total investment necessary to begin the operation of a The Coffee Bean & Tea Leaf Franchise ranges from $359,500 to $785,500. The following costs are part of the upfront costs included in the initial investment for a Coffee Bean & Tea Leaf. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a The Coffee Bean & Tea Leaf franchise in 2022.
| Type of Expenditure | Amount | To Whom Payment is to be Made |
|---|---|---|
| Initial Franchise Fee | $12,500 – $25,000 | SMCC or its designee |
| Lease for Store | 2,500 – 12,000 | Landlord |
| Design & Plans | 20,000 – 40,000 | SMCC, Affiliate, Architect, Interior Designer |
| Leasehold Improvements | 35,000 – 150,000 | Contractor |
| Signage | 5,000 – 30,000 | Vendor |
| Furniture, Fixtures and Equipment | 175,000 – 275,000 | Various Vendors |
| Point of Sale (“POS”) System | 15,000 – 35,000 | SMCC, Affiliates and/or Vendor |
| Initial Inventory | 8,000 – 32,000 | SMCC, Affiliates and/or Vendors |
| Grand Opening Promotion | 10,000 | Vendors |
| Permits and Security Deposits | 1,000 – 6,500 | Government Agencies, Landlord and Utility Companies |
| Insurance | 2,000 – 10,000 | Insurance Company |
| Professional Fees | 1,500 – 45,000 | Attorneys, accountants or other consultants |
| Training Expenses | 12,000 – 40,000 | Hotels, Restaurants, and Airlines |
| Additional Funds – three month period | 60,000 – 75,000 | Suppliers, Utilities, and Employees Salaries |
| TOTAL | 359,500 – 785,500 |
Owning The Coffee Bean & Tea Leaf Franchise Requires Ongoing Fees
Royalty: 5.5% of Gross Revenues, or the monthly Guaranteed Minimum Royalty (1/12th of $25,000 for a full-service store)
Marketing Fee: 2% of Gross Revenues, but subject to increase to 4% of Gross Revenues
Art Work and Promotional Materials Fee: 0.5% of Gross Revenues
How much do The Coffee Bean & Tea Leaf franchise owners make?
| Franchised Stores | |||||
|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | FY | |
| Number of Stores | 37 | 37 | 37 | 37 | 37 |
| Average Gross Revenues | $179,209 | $220,031 | $222,327 | $217,754 | $839,321 |
| Median Gross Revenues | 162,293 | 193,870 | 203,899 | 197,298 | 757,359 |
| Highest Gross Revenues | 399,507 | 663,183 | 686,774 | 638,437 | 2,387,901 |
| Lowest Gross Revenues | 56,655 | 66,299 | 59,631 | 52,187 | 234,771 |
2021 The Coffee Bean & Tea Leaf Median Franchise Sales: $757,359
| Initial Investment (midpoint) | %Profit margin of average franchise sales | Estimated profits | Time to recoup investment |
|---|---|---|---|
| $572,500 | 10% | $75,735 | 9 years |
| $572,500 | 15% | $113,603 | 6.5 years |
| $572,500 | 20% | $151,471 | 5.25 years |
Based on the median sales provided by The Coffee Bean & Tea Leaf’s franchise locations, at an average of a 15% profit margin it will take around 6.5 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 15% profit margin which would elongate getting a return on your investment.
Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Coffee stores; the extent of market penetration and brand awareness that The Coffee Bean & Tea Leaf stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the The Coffee Bean & Tea Leaf Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for The Coffee Bean & Tea Leaf 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.
Under $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.55
When you go to sell The Coffee Bean & Tea Leaf franchise based on the median multiple of .55 and median sales in 2021 of $757,359, it would sell for $416,547. This is significantly lower than the midpoint investment of $572,500.
The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.
The Coffee Bean & Tea Leaf (Franchisor) Income Statement Key Insights
| P5 2022 YTD | 2021 | 2020 | 2019 | |
|---|---|---|---|---|
| Franchising Revenue | 4,765,117.02 | 11,030,953.23 | 9,952,187.51 | 6,132,057.00 |
| Licensing Revenue | 5,667,715.26 | 10,620,906.59 | 8,655,314.15 | 0.00 |
| Revenues | 10,432,832.28 | 21,651,859.82 | 18,607,501.66 | 6,132,057.00 |
| Gross profit | 10,432,832.28 | 21,651,859.82 | 18,607,501.66 | 6,132,057.00 |
| Administrative expenses | (3,048,117.90) | (3,497,345.75) | (1,672,016.63) | (249,656.00) |
| Operating profit | 7,384,714.38 | 18,154,514.07 | 16,935,485.03 | 5,882,401.00 |
| Interest Income | 341,551.86 | 274,130.28 | 0.00 | 0.00 |
| Other Income | 24,367.38 | 98,185.20 | 0.00 | 0.00 |
| Profit before taxation | 7,750,633.62 | 18,526,829.55 | 16,935,485.03 | 5,882,401.00 |
| Tax on profit | (157,809.54) | (449,372.35) | 564,011.00 | 224,408.00 |
| Profit for the financial period | 7,592,824.08 | 18,077,457.20 | 17,499,496.03 | 6,106,809.00 |
The Coffee Bean & Tea Leaf is a very profitable business for the franchisor with retained earnings of $18.07 million in 2021. Compared to $6.10 million in 2019, they saw an increase of almost 300% from 2019 to 2021. This is a good indication of high growth as a company overall.
How many Coffee Bean & Tea Leaf units have opened and closed?
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised – Domestic | 2019 | 102 | 98 | -4 |
| 2020 | 98 | 86 | -12 | |
| 2021 | 86 | 77 | -9 | |
| Franchised – International | 2019 | 740 | 728 | -12 |
| 2020 | 728 | 700 | -28 | |
| 2021 | 700 | 666 | -34 | |
| Company-Owned-Domestic | 2019 | 183 | 176 | -7 |
| 2020 | 176 | 114 | -62 | |
| 2021 | 114 | 112 | -2 | |
| Company-Owned-International | 2019 | 153 | 159 | 6 |
| 2020 | 159 | 158 | -1 | |
| 2021 | 158 | 180 | 22 | |
| Total Outlets | 2019 | 1178 | 1161 | -17 |
| 2020 | 1161 | 1058 | -103 | |
| 2021 | 1058 | 1035 | -23 |
Over the last three years, the company has been in decline. Both franchising units and company-operated stores have decreased. Over the last three years, outlets have closed at a rate of 48 units a year. This is an indicator that these stores may not be performing well. Or their franchise term is up and they are not renewing it.
Conclusion
The Coffee Bean & Tea Leaf is trying to offer a coffee shop franchise in a very competitive market. While the potential seems to be huge just based on financials, a lot of franchisees are leaving the system. The payback period is reasonable, but just in case you want to look at some other coffee franchises, we list some options below.
Tim Hortons
Tim Hortons is a Canada-based company that sells coffee and other non-alcoholic beverages as well as baked goods, soups, and sandwiches. They were founded in 1984 in Ontario and have since grown, with 5,291 stores currently operating in the United States. Tim Hortons has recently pursued expansion into international markets, with 42 additional franchised locations in Latin America.
With a large presence in North America, Tim Hortons is Canada’s largest quick-service restaurant chain. Tim Hortons is a subsidiary of Restaurant Brands International (RBI), a Canadian Corporation. Notably, RBI also owns Burger King, Popeyes Louisiana Kitchen, and Firehouse of America.
A 15% profit margin would yield estimated annual profits of $158,144. This means it would take nearly 11 years to recoup your investment. While Tim Hortons is a growing company and has seen increasing gross sales, the 8-14 year timeframe that you could reasonably expect to recoup your initial investment may be a long time for one to wait.
Scooter’s Coffee
Scooter’s Coffee is an American chain of coffee stores specializing in quick service of espresso drinks, smoothies, and baked goods founded in 1998 and has grown to about 250 stores in the United States. Boundless Enterprises, a Nebraska-based LLC, serves as the parent company for Scooter’s. The parent company also owns two affiliate companies – Harvest Roasting and Boundless Operations.
A 15% profit margin would yield estimated annual profits of $88,158. This means it would take nearly 9-10 years to recoup your investment depending on whether your store is a kiosk or coffeehouse. While Scooter’s is a growing company and has seen increasing gross sales over the past six years, the 7-14 year timeframe that you could reasonably expect to recoup your initial investment may be a long time for one to wait.
Biggby
Biggby is a community coffee shop chain with offerings of espresso beverages, sandwiches, baked goods, etc. Their franchise is generally operated from either a free-standing, storefront or strip center location or a prefabricated modular structure. Biggby has a very high focus on community integration which they credit for their economic recovery after COVID. Robert P. Fish is a Co-Founder and Co-CEO of Biggby since April 2016 along with Michael J. McFall. Both of them are managing members of Global Orange, Biggby’s associates.
A 15% profit margin would mean it would take nearly 4.5 years to recoup your investment. Based solely on the Franchise Disclosure Document, Biggby may be an exciting investment opportunity for potential franchisees. The company presents itself as an up-and-coming player in the industry focused heavily on community values and engagement. It is offering a chance to be a part of an industry that has been long present. While still in its early stages, Biggby Coffee’s growth seems to be accelerating.
Starbucks
Starbucks is a dominant force in the coffee industry, maintaining the highest share of the coffee shop market with 40% as of October 2019. Their total net revenue, according to their 2020 annual report, was over $20 billion in 2020.
One thing to keep in mind, however, is that Starbucks is NOT a franchise. The majority of their units are company-owned. That means that earned revenue stays within the company and does not go to outside investors. The rest of their stores are licensed, where outside operators are allowed to use the brand’s trademark and sell their products but are not obligated to follow any specific business plan or rules. In exchange, licensees must pay a royalty fee to the company.
Overall, Starbucks is a very profitable company that operates both company-owned and licensed units. Even though the pandemic did take a toll on their earnings, their quarterly report shows that they were able to make a strong rebound in 2021 and will likely continue to do so.
Although the cost of coffee has increased due to limited supplies, the fact that Starbucks dominates the coffee beverage industry helps mitigate these risks and renders it a strong force in the broader food and beverage industry.
