Should you Invest $378K in a Gong Cha Franchise?

Another strong franchise that benefits from the ever increasing market demand for bubble tea, Gong Cha is a popular franchise opportunity especially for first-time entrepreneurs. Indeed, it only costs $378,000 to open a Gong Cha franchise.

But should you really buy the franchise and invest in a Gong Cha tea shop? How much profits can you make with this business?

In this article we’re looking into the Franchise Disclosure Document to find out whether you should go ahead and invest in a Gong Cha franchise. Let’s find out!

Key stats

Franchise fee$30,000
Royalty fee6.0%
Marketing fee4.0%
Investment (mid-point)$378,000
Average sales$299,000
Sales to investment ratio0.8x
Payback period*[franchise_value_investment_payback]
Minimum net worth$300,000
Minimum liquid capital$150,000
Source: Franchise Disclosure Document 2022

Find the best franchises

Access unbiased revenue, costs and profit data for 1,000+ franchises on franchiseindx.com

+ unlimited FDD downloads

About Gong Cha

Gong Cha is a beverage franchise that spreads good vibes and delicious bubble tea. 

The tea drink franchise is headquartered in London, UK, and is famous for its delicious milk foam, coffee, milk tea, tea latte, and creative mixes. 

The brand’s story goes back to 1996 when Wu Zhenhua launched a premium tea shop in Taiwan.

In 2006, Wu opened Gong Cha in Kaohsiung, Taiwan, with a strong commitment to serving delicious drinks to the now-growing customer base in the region. 

The beverage company started franchising in 2009, expanding to Hong Kong to capitalize on the tourists’ craving for high-quality tea. 

The brand’s expansion spread to Korea, Japan, Australia, Mexico, Canada, and the United Kingdom. 

Today, Gong Cha operates over 1,800 units in 20 countries worldwide. 

Gong Cha franchise pros and cons

Pros

  • Specialized training: franchisees must complete 14 days of extensive training as part of the Franchise Agreement. This helps them stay on par with the latest in restaurant management, customer service, and recipe. Franchisees undergo intense, hands-on training from a global network of Gong Cha bubble tea experts. 
  • Raw material supply: Gong Cha boasts a devoted logistics department that streamlines the raw material supply to its franchisees. 
  • Centralized and localized marketing support: comprehensive marketing and promotional resources improve brand recognition. This includes co-op advertising, social media, ad templates, and regional advertising. 
  • Fast-growing industry: bubble tea is a unique QSR concept that has taken the American food and beverage industry by storm. Franchisees can benefit from strong market growth
  • Diverse demographics: the franchisor’s business concept has a strong global appeal. The innovative menu attracts families, adults, students, children, and anyone craving delicious bubble tea. 

Cons

  • No financing: the franchisor doesn’t offer direct or indirect financing to restaurant owners. It neither liaises with third-party financing sources nor provides direct funding to business owners. 
  • No absentee ownership: franchisees must be involved in the business operations as part of the Franchise Agreement. 
  • No part-time ownership: franchisees can’t run the business part-time or as a side hustle. The franchisor expects restaurant owners to have complete control of every business operation and work within the stipulated operating hours every day of the week. 
  • Competing brands: Gong Cha is rivaled by its top competitors, such as Kung Fu Tea or Green Mountain Coffee to name a few

How much do you need to invest?

You may need to invest around $378,000 on average to open a new Gong Cha store.

The average investment amount can vary depending on various factors and conditions like your location, restaurant size, the current market price of startup equipment, etc. Generally, the amount ranges between $161,700 and $593,650 (FDD 2022).

What are you paying for?

So why do you need this amount at the beginning, you may ask? Well, this initial investment covers all the startup costs you would need to pay to start a restaurant business. Namely, in addition to the initial franchise fee of $30,000, the investment amount covers:

  • Formation costs: architect/engineering fees,  leasehold improvements,  exterior signage, equipment, furniture, security deposit, technology systems,  training expenses, business licenses & permits, etc.
  • Initial marketing: grand opening advertising fee 
  • Operating costs: inventory, rent, insurance, utility deposits, 3 months working capital, etc.
Type of ExpenditureLowHigh
Initial Franchise Fee$30,000$30,000
Formation Costs$93,700$407,050
Initial Marketing$2,000$5,250
Operating Costs$36,000$151,350
Total$161,700$593,650
Source: Franchise Disclosure Document 2022

Find the best franchises

Access unbiased revenue, costs and profit data for 1,000+ franchises on franchiseindx.com

+ unlimited FDD downloads

What is the turnover of a Gong Cha franchise?

On average, a Gong Cha franchise makes $530,000 in sales per year. Yet note that this number is the annual median sales of 87 franchised restaurants in 2019.

Indeed, due to COVID, sales decreased by -44% in 2020 vs. 2019. Although current information is not available; based on historical data we assume that a Gong Cha franchised restaurant would generate more than $500K a year as of today.

Number of storesMedian sales% change
201957$530,257
202087$298,504-43.71%
Source: 2022 FDD

How profitable is a Gong Cha franchise?

We estimate that an average Gong Cha franchise makes $45,000 in profits per year. This represents a 15% EBITDA margin.

Note that Gong Cha doesn’t provide any detailed information about the financial performance of its franchises in its latest Franchise Disclosure Document. Instead we had to make assumptions which we have summarized below.

Profit and lossAmount% Sales
Sales$298,504100%
COGS$(74,626)25%
Gross Profit$223,87875%
Labor$(86,566)29%
Marketing and royalty costs$(29,850)10%
Occupancy$(26,865)9%
Other OpEx$(35,820)12%
EBITDA$44,77615%
Source: Franchise Disclosure Document 2022

Should you invest in a Gong Cha franchise?

If you’re considering starting a new Gong Cha store, the good news is that the initial investment is one of the lowest for restaurant franchises ($378,000). Yet does this mean you should go ahead and invest the money?

Indeed before you should pay the $30,000 initial franchise fee you should first consider how much profits you can realistically make from this business, and whether it’s worth the upfront investment.

That’s what we look at when we calculate payback: the initial investment divided by the (expected) annual profits. For Gong Cha we found it takes on average 8 years for the investment to pay itself back. This is a good payback in line with the industry.

In other words, you would wait on average 8 years to recoup your investment if you were to buy a Gong Cha franchise (either from your own funds, a bank loan or external investors).

Find the best franchises

Access unbiased revenue, costs and profit data for 1,000+ franchises on franchiseindx.com

+ unlimited FDD downloads

Disclaimer

Disclaimer: This content has been made for informational and educational purposes only. We do not make any representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the information presented in the article. You should not construe any such information or other material as legal, tax, investment, financial, or other professional advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, advertisement, or offer to buy or sell any franchises, securities, or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the franchise and/or securities laws of such jurisdiction.

All content in this article is information of a general nature and does not address the detailed circumstances of any particular individual or entity. Nothing in the article constitutes professional and/or financial and/or legal advice, nor does any information in the article constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this article before making any decisions based on such information or other content.

0