Kung Fu Tea is an American beverage brand with headquarters in New York City that was established in 2010 with the goal of fostering a more specialized bubble tea culture. With more than 350 sites nationwide, they’ve become the biggest bubble or boba tea brand in the country.
How much will it cost to open a Kung Fu Tea franchise? You should expect to invest $123,000 – $422,000 to open a Kung Fu Tea franchise, including the franchise fee of $37,000.
Still interested in joining forces with this bubble team brand? I break down the financial requirements you need to start and whether or not the concept is worth the investment. Take our 7-minute franchise quiz to find out if this is the best option for you.
- Financial Requirements and Fees
- How Much Profit Does Kung Fu Tea Franchisees Make Per Year?
- Kung Fu Tea SWOT Analysis
- Is Kung Fu Tea Worth the Cost to Invest?
Financial Requirements and Fees
Here’s a snapshot of the financial requirements and fees associated with opening a Kung Fu Tea franchise location.
|Initial Franchise Fee||$37,000|
|Initial Supplies||$15,000 – $25,000|
|Equipment Costs||$6,500 – $7,500|
|Shop Interior Design||$5,000|
|Marketing Fee||2% of gross sales|
|Royalty Fee||3% of gross sales (Traditional unit)
4% of gross sales (Non-Traditional unit)
|Architectural And Leasehold Improvements Costs||$150,000|
|Total Investment Cost||$123,000 – $422,000|
In order to obtain a franchise from Kung Fu Tea, you’ll need to meet or exceed the minimum financial requirements.
|Liquid Capital||$25,000 – $35,000|
|Total Investment||$123,000 – $422,000|
You need to invest a minimum of $123,000 to begin operating this franchise. In addition, you must account for the costs of real estate, furnishings, renovations, uniforms, insurance, and other expenses. In other words, expect to pay significantly more than the minimum investment amount before opening day.
Before submitting an application for this franchise for a bubble tea store, assess your industry experience and financial situation. After that, you would need to consider the franchise’s potential market before moving forward with the franchise application. This is not a concept that will be viable in many parts of the United States, especially the rural Midwest.
Next, the Kung Fu Tea team will evaluate the submitted application. Expect to receive an email with a validation receipt. If the application meets the companies requirements, they will reach out for an introductory call. Assuming the call goes well, you’ll got through standard background and financial checks to confirm you have the funds required to start the business.
How Much Profit Does Kung Fu Tea Franchisees Make Per Year?
Company revenue / sales per year: In 2020, Kung Fu Tea generated $2,513,157 in sales. In 2019, the bubble tea franchise made $2,467,310 in sales.
Number of units: Kung Fu Tea operates more than 250 locations across the U.S., in a range of traditional stores and non-traditional locations operating inside hotels, malls, campuses, airports, and train stations.
Average Gross Revenue Per Store: $335,688 (This is based on revenue from the 2020 fiscal year.)
Industry Average Profit Margin: The ideal places to start a bubble tea business include college campuses. The cost to brew a cup of bubble tea in a store is about 75 cents, yet consumers will pay between $5.00 – $6.00 per cup. You means you have the opportunity to mark up the beverage by 350 percent or more, albeit it all relies on your competition, price sensitivity, and market.
During the first six months of opening a shop, you shouldn’t anticipate turning a profit. But by year two, you should be able to hit a gross margin of around 56% on sales. Some owners of bubble tea shops claim that their net profit margins are in the 20%–30% range annually.
How much do Boba Tea franchises generate in revenue on average?
In general, if the typical bubble tea shop sold 100 cups each day at an average price of $5.00 – $6.00, you could expect to earn $500 – $600 per day. Multiply this by 350 days being open per year, you could expect to make $175,000 – $210,000 annually. Of course, you’ll still need to subtract the shop’s yearly expenses to get the net annual profit. Make sure you understand the cost for a monthly lease, loan payment, royalty fee of 3%, marketing fee of 2% and taxes so you can determine what you would need to make to break even with this concept.
Standard expenses for a bubble tea shop include rent or lease of the store space, marketing costs, ingredients, insurance, franchise fees, equipment costs, and of course employee salaries. Let’s say all these expenses amount to $100,000 then we subtract this from your gross annual revenue: $175,000 – $210,000. You would end up with $75,0000 – $110,000 before taxes and franchise fees.
What is the average owner salary for a Kung Fu Tea Franchise?
You should be able to pay yourself an annual salary of $40,000 – $60,000 each year. This of course assumes that you will be acting as the store manager. If you want to operate this as a passive business opportunity, the leftover profit could be eaten up by the wages of a full-time store manager. Is this enough for you to comfortably live on for the first couple years operating the business?
Kung Fu Tea SWOT Analysis
Having an overview of what putting up a Kung Fu Tea franchise can help an individual decide if deciding to open one makes sense. Here we have broken down some of the strengths and weaknesses, as well as the opportunities and threats of the company as I see them.
1. Unique Expertise – More than ten years have passed since Kung Fu Tea first started hand-crafting their adventurous tea blends. Bringing the product from where it originated more than a decade ago, Kung Fu Tea is considered a pioneer in the boba tea industry. Directly employing the bubble tea concept from Taiwan for the past 12 years gives the company a rich and unique knowledge of how to make that authentic Boba tea.
2. Authenticity – In order to create its beverage selections, Kung Fu Tea solely uses genuine Taiwanese ingredients. With this strategy, the business is able to preserve a genuine flavor that drinkers find distinctive. Kung Fu Tea gives that unique customer experience of the unadulterated taste of bubble milk tea.
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3. Rapid Outlet Growth – Just within 12 years of existence and franchising, Kung Fu Tea has amassed a total of more than 250 outlets across the U.S., albeit totaling 350 outlets if you include the locations outside the U.S. such as Canada, Singapore, and South Korea. The majority of the more than 350 Kung Fu Tea locations are found in the US. Because of this emphasis on large-scale operations, the corporation has been able to achieve economies of scale and lower costs per unit of output.
4. Consistency – The consistency of flavor, beverage quality, and service dependability across all of Kung Fu Tea’s locations has allowed the brand to build consumer loyalty despite franchising at an early stage of its development. Because of how uncommon this accomplishment is among premium food brands, several businesses avoid using franchising as a business model. This is the reason why Kung Fu Tea stores keep growing along with their customer loyalty and demand.
5. Take out friendly – Kung Fu Tea was mostly unaffected by the pandemic shut downs. Kung Fu Tea kept expanding although a large number of franchises while other food and beverage sector closed their doors. This is a concept that thrives in an environment where curbside pickup is required.
6. Creative marketing – Kung Fu Tea established National Bubble Tea Day on April 30, 2018, the eighth anniversary of the business to commemorate the growing number of people who love bubble tea. The business teamed up with the Taiwanese restaurant brand TKK Fried Chicken on November 30th, 2018, to launch joint sites in the US. Kung Fu Tea was listed as one of the Nation’s Restaurant News Top 500 Restaurant Chains in 2021.
1. High Costs – It costs a lot to constantly brew the drinks and import the key ingredients from Taiwan. Because of this, Kung Fu Tea’s pricing is pricier than those of the majority of its rivals in the market.
Kung Fu obtains all of its teas from Taiwan, where tapioca is more often referred as “boba.” Jasmine green tea, black tea, and oolong are among the loose-leaf teas offered by the company.
2. Limited Product Portfolio – Kung Fu Tea now solely sells tea-based drinks, which restricts the company’s ability to grow its market. Expanding their product offerings can give them an edge over their rivals. If you take a look at someone like Starbucks, they’ve been able to add food items to the menu including breakfast sandwiches and baked goods. If this boba shop could add high-profit food items to the mix this business would look even more appealing.
3. Not a habitual beverage. Coffee is a beverage that’s enjoyed by consumers every day. I for one don’t go a single day without making a cup of coffee at home or visiting a Starbucks location. But you don’t see this same daily habit of enjoying a boba tea drink each morning. Boba tea is more of a special treat that is enjoyed less frequently.
4. High effort drink to produce. For each drink to be created completely fresh, Kung Fu Tea prepares the tea in its outlets every three hours. Oolong Milk Tea, Taro Slush, and Passion Fruit Green Tea are among its best-selling beverages, but they take hours of labor to make right.
1. Changing Lifestyle – A growing number of Americans are choosing foods made from natural ingredients as a result of the emphasis on healthy eating in the country. More individuals are choosing foods made from natural ingredients as a result of the American emphasis on healthy cuisine. With the help of this trend, Kung Fu Tea is able to expand the market for its natural product-based product lines, particularly its green tea varieties.
2. Taste Globalization – More customers than ever before are prepared to sample new foods from many cultures thanks to the fusion movement that has taken hold in the US. To increase its market share, Kung Fu Tea has the chance to take advantage of this trend.
3. Declining Caffeine Consumption – Kung Fu Tea may be able to draw coffee drinkers looking to switch to alternatives with much fewer caffeine thanks to the shift favoring caffeine-free products.
1. Growing Competition – Due in large part to its popularity on social media in recent times as well as its adaptability—more than 200 flavor combinations and thousands of drink modification options—the beverage has grown tremendously in popularity in the United States. In a few years’ time, the bubble tea market has grown into a $1 billion industry. But with grow like this comes growing competition.
2. Is this a trend? Remember how big the frozen yogurt trend became a few years ago? Most froyo establishments went under after a couple years in business. There sure seem to be a lot of similarities with bubble tea shops too. This beverage has the potential to go in and then out of style quickly. We don’t have longterm proof of concept for this beverage in the United States.
Is Kung Fu Tea Chinese owned?
This is not a Chinese owned company. As stated earlier, Kung Fu Tea is an American beverage brand established in New York City. Founders Allen Wang and Michael Jiang are entrepreneurs from Queens who got their idea for a boba tea shop upon returning from their trip to Taiwan. While in Taiwan, they were flabbergasted by the variety bubble tea they were drinking from the one they came to know and love. The founders were also surprised to see the number of people lined up to enjoy a hand-crafted bubble tea.
This travel experience gave the founders the light-bulb moment they needed to launch a boba tea business. One of their friends, Sean, already had a bubble tea shop in Taiwan. Allen, Michael, and Ray talked and convinced their friend Ray to go on board with their new business venture. Days went by and Sean eventually decided to come on board with his friend’s business proposal, the rest, as they say, was history.
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Is Kung Fu Tea Worth the Cost to Invest?
The popularity of Kung Fu Tea have an exciting product and are experience rapid growth. While the concept may never achieve the number of locations as fast food or coffee franchises, the concept looks like they still have room to run. Also, Asian-American population continues to grow after 35% growth over the past decade that could result in long-term demand increase for this drink.
With that being said, here are a few questions you should ask yourself before investing in this concept. Will you enjoy operating a bubble tea shop? You’ll be working face-to-face with the general public. If you don’t enjoy talking and meeting with people, consider a different type of business. As mentioned earlier, how big of an Asian community do you have in the area? How many younger Millennials and Generation Z residents do you have in the area? These are the consumers who understand what bubble tea is and will purchase the beverage.
Depending on profitability, it could take you up to ten years to recover your investment if you create a Kung Fu Tea franchise, which is a very long time but is typical for other businesses in the segment. Furthermore, if you only establish one location, your franchise may not generate enough revenue to cover your initial investment when you sell it.
In the end you’ll need to look inward to determine if a Kung Fu Tea franchise is right for you. Kung Fu Tea is a fast growing concept in a segment of the beverage industry that’s continuing to grow. But the concept is also unproven in the United States long-term and there is growing competition from similar concepts popping up.