Bubble Tea Franchise Gong Cha (Taiwan) Targets International Growth
28 Apr 2021 - It was the line out the door of a Gong Cha store in Tokyo that first caught Cristina Soto’s attention. “We saw girls, 15-year-old girls, all lined up, ordering their Gong Cha. They weren’t even drinking it, it was all photo, photo, photo,” recalled Soto of discovering the Taiwanese bubble tea brand while on her honeymoon in 2017. Then she tried the tea.
“It’s addictive,” said Soto, who on additional visits to other stores in Tokyo and Hong Kong kept coming upon the same scene: throngs of Gen Zers lined up to order their pearl milk teas and matcha teas with milk foam. Additional research convinced Soto the concept would resonate with consumers in Mexico, prompting her to sign on as the master franchisee for the country. Her first Gong Cha opened in Guadalajara in February 2019, and she’s since added three more of her own, plus four sub-franchised stores, spread across the state of Jalisco and in Mexico City.
“My goal in five years is to have 100 stores,” said Soto as she noted the first location in Cancun was weeks away from opening, as was another in Monterrey. She’s also working with Mexico City-based department store chain Liverpool to open several Gong Cha kiosks within the retailer’s stores.
Tapioca black milk tea is among Gong Cha’s most popular drinks, said Soto, who touted the tapioca pearls, made fresh in-store every four hours, as a distinct feature of the brand. Taro milk tea, made from the root of the taro plant and with a nutty and slightly sweet flavor, is also a top-seller and an example of the quality ingredients Soto imports from Taiwan.
“The taro powder, you can buy it in Mexico, but it’s very sweet and it’s nothing like Gong Cha,” said Soto, who emphasized the superior quality of Gong Cha has helped her successfully introduce the brand in a country where tea consumption in general is low. Cassava Roots, a Mexico City-based bubble tea brand with about 50 locations, is her largest competitor.
The proliferation of Starbucks throughout Mexico—it has more than 700 outlets—helped introduce specialty beverages to a wider audience and served to make familiar to customers the sometimes many steps involved in the ordering process. “We help our guests make close to five to six decisions,” said Soto. “It’s so personalized … first find the flavor, then the ice level—no ice, light ice, regular ice—the sugar level, then choose from six different milk types. Then there are six more toppings to order from.”
Social media marketing plays a key role in driving consumer awareness of the brand as, like in Tokyo, Soto targets Generation Z—those born after 1996—as her primary customers. “We focus on Instagram,” she explained, both for her own marketing and to encourage and amplify postings by customers. “Our stores, most of them have neon signs, lots of wood” to make them “hip,” Instagrammable spots.
The integration of technology to enable pickup and delivery orders proved essential during the COVID-19 pandemic, and Soto also engaged with local social media influencers to promote the brand. She added online ordering, including ordering via Facebook, and said while she saw other retail stores and restaurants close or remain static, Gong Cha proved “COVID-proof.”
“Even with COVID, our sales increased 10 to 30 percent in all our stores,” she said.
Gong Cha targets U.S.
Founded in 2006 in Kaohsiung City in southern Taiwan, Gong Cha expanded to Hong Kong in 2009 and later South Korea and other Asian countries when Australian venture capitalist Martin Berry acquired the master franchise rights in 2012. Berry later partnered with Japanese private equity firm Unison Capital to buy the brand and grow it to more than 1,000 locations before selling Gong Cha in 2019 to Boston-based TA Associates. The PE firm, also with offices in London and Hong Kong, is renewing its franchise push in the Americas and Europe, including the United States, where it has 109 units.
Gong Cha opened 220 stores globally in 2020, said Einar Gustafsson, brought in by TA Associates in June 2020 as CEO for the Americas and Europe. He spent the last 15 years with United Kingdom-based Bakkavor, a private label supplier of prepared food, where he said he grew the business from $150 million to $2 billion and led its entry into China.
“I enjoy the building and the creating,” said Gustafsson of why he made the move to Gong Cha and relocated to Boston. Told by his contact at TA Associates that Gong Cha “was the next great thing,” Gustafsson noted while bubble tea’s immediate popularity was evident within younger generations—“All the kids know it. My kids know it.”—he wanted to make sure it “wasn’t going to be the next froyo.”
“So I did a ton of due diligence, I visited lots of stores,” he said, and always arrived at the same conclusion: “We are the best in it.”
Beyond the globally sourced teas and freshly made tapioca pearls, Gustafsson said Gong Cha offers an attractive business model with a low capital investment and small footprint of 500 to 1,500 square feet. “The setup is quite simple: a couple of hot plates to cook the tapioca, tea pots, ice, a small refrigerator,” he explained, noting there’s no food preparation. “And virtually all of our ingredients have a long shelf life—there’s very little waste.”
Like its other international markets, Gong Cha operates in the U.S. through master franchises, with a total investment range of $173,200 to $749,500; for sub-franchisees, the investment range is $159,200 to $546,000. Master franchisees pay a 3 percent royalty fee and in turn can charge their sub-franchisees a royalty fee of up to 6 percent of monthly gross revenue.
Anchal Lamba is the master franchisee for New York, New Jersey, Massachusetts and Texas, with 55 stores total, including seven she operates. She learned about Gong Cha after her father, who owns several Sprint stores, came back from a business trip to Hong Kong in 2012 and told her he “had the best bubble tea ever.”
Her first Gong Cha opened in 2014 in the Flushing neighborhood of Queens, New York, and she’s steadily grown the store count ever since, including 17 openings in 2020. As the master franchisee, Lamba handles training and support for her sub-franchisees, works with them on menu development and manages the supply chain with a warehouse in New York and distribution centers in Massachusetts and Texas.
“The Taiwan office has hundreds and hundreds of products that you can order,” she explained, so she works with her franchisees to keep the menu consistent within her territories.
Like her counterpart in Mexico, Lamba said Gong Cha’s quality ingredients and attention to detail—“We teach franchisees the exact temperature to brew the black tea and green tea.”—set it apart from others in the bubble tea space. Kung Fu Tea, with about 200 units, is Gong Cha’s largest competitor in the U.S., while other franchises such as Bee & Tea and Pearl’s Tea have just a handful of locations. Coffee chains, meanwhile, aren’t seen as competitors.
“Coffee is very different from what bubble tea offers,” said Lamba. “Bubble tea, it’s fun, you can add toppings. Someone might get their coffee in the morning and then get a bubble tea in the afternoon for their snack.”
Average gross revenue in 2019 for U.S. stores was $576,575; for the top quartile it was $898,370.