The tea market has exploded over the last 10 years or so.
The health benefits of tea, as well as the trendy variations on the classic drink, have proved to be beneficial for this market.
Kung Fu Tea is just one of the franchised businesses capitalizing on the United States’ new-found love of tea and they are growing at a rapid pace.
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Kung Fu Tea’s History
The idea for Kung Fu Tea was born in Queens, NY in 2009. When three friends, Allen, Michael, and Ray met to discuss their next business venture. Along the way, they decided to grab a bubble tea, as it had been the favorite drink of their childhood when growing up in Taiwan.
Almost immediately after tasting their drinks, they realized that it was not authentic, but more of a cheap imitation. That is when they decided to bring true bubble tea to the United States and turn it into a business.
At the time that this conversation occurred, Allen, Michael, and Ray had recently returned from a trip to Taiwan.
To make sure their product was authentic, they decided to bring in their old friend Sean, who owned a bubble tea business in Taiwan and has a knack for making good, authentic tea.
After some convincing, the three friends were able to entice Sean on board, thus laying the groundwork for what would become Kung Fu Tea.
Goals and Visions
Kung Fu Tea set out to introduce the United States to an authentic, Taiwanese bubble tea and to set a standard for other tea shops to live up to.
Along the way, they have had trials and tribulations while trying to find the right combination of the best ingredients to produce a product that was superior.
They went through countless tea leaves and milk and yogurt varieties, testing each one, seeking that perfect recipe. Utilizing the basic principles of Kung Fu, patience and discipline, they persevered through and developed a bubble tea that is true to its origins and appealing on a mass level.
Kung Fu Tea is dedicated to the ideals and virtues of the art of Kung Fu.
They believe in quality, patience, discipline, and time. Through these characteristics, they make a quality product and present it to their customer base with pride.
Purchasing a Franchise
In 2011, Kung Fu Tea began selling franchises of their stores around the United States. There are currently 188 stores in the country, as well as locations in Canada, Australia, and Vietnam.
The highest concentration of locations is in the New York City area, which is unsurprising, considering this is where they got their start. There are locations in nearly every region of the U.S., but nowhere has been saturated yet.
This means there are plenty of opportunities for new franchisees to move in and take a piece of the proverbial pie.
When purchasing a franchise license from Kung Fu Tea, it is important to note that there are two different kinds that they offer: traditional and non-traditional.
Traditional stores would be located in an open-air space, such as in a strip mall/shopping plaza, or in a free-standing building. Non-traditional locations are those located inside of shopping malls, airports, college campuses, etc.
There are similarities and differences between the two, and we’ll do our best to cover all of them.
Licensing
The startup costs will vary between traditional and non-traditional locations, both in terms of practicality and what Kung Fu Tea will charge. Their license fee for a traditional location is $37,000.
The cost of a non-traditional location license fee is not explicitly listed on their website, it simply states that the cost is available upon request.
According to the figures presented for total startup capital required, it appears that the licensing fee for a non-traditional store would actually cost less than that of a traditional store.
Because they do not list the price outright, it may indicate that the price for a non-traditional location is on a scale. It is unknown what, if any, factors contribute to the determination of the fee.
Startup Costs
After the license is acquired, a new franchisee will also have to pay $10,000 in training fees. This will cover on-the-job training from Kung Fu Tea to teach the new team how to make the products, and everything they need to know about the culture of the company.
As with any franchise, there will be strict standards and guidelines that will need to be followed. The training provided will give the new franchise everything they need to follow those guidelines and remain in compliance with the franchise agreement.
The new franchisee will also be responsible for physical startup costs, such as retail space, equipment, inventory, and personnel. It is estimated that a new Kung Fu Tea store will require capital to cover costs in the range of $124,000-$430,000.
The actual cost will depend on a myriad of factors, including what kind of location is being opened. Non-traditional spaces typically come with a smaller space, which can mean smaller rent payments and utility bills.
On the flip side of the coin, sometimes airports and shopping malls charge higher rent, simply because of the location. The actual cost of the building and utilities will vary greatly by location.
Equipment prices also tend to vary based on location size. While most Kung Fu Tea stores will need the same equipment in terms of food and drink preparation, a larger store may require more cash registers and tables and chairs than a smaller store.
Similarly, non-traditional stores may not need any forms of seating at all. The size and location of a store play a huge role in determining what it will need to open and efficiently serve customers.
Doing research is a key factor in deciding how to open your franchise. Knowing your location and the demand your store will see will help to figure your needs and costs, and, ultimately, if the investment will pay off in the end.
Will the Franchise Thrive?
Of course, you can do all the research in the world regarding location and demand and your store could still fail. That’s the risk of the business. There are measures you can take, however, to give your franchise the best fighting chance.
First, you want to make sure that the franchise you are purchasing, is coming from a stable, healthy franchisor. Buying a license to a franchise that is consistently seeing locations close or struggle is not a smart move. Check their net growth rate.
Are more locations opening than closing?
How many are getting their licenses renewed at the end of the initial license period?
By checking into these questions, you can get a feel for the health of the system. A lot of locations closing means that they are not being successful.
It is normal for some locations to close, as local markets drop, or poor business practices by the franchisee affect performance. But if several locations across the system are closing, it’s a sign that there could be major problems with the franchise itself, be it the product being offered, or the structure of their franchise system.
Kung Fu Tea is currently exploding all over the market. Their net growth rate is 127, which is incredible when compared to the average of 97.
Since they began selling franchises in 2011, they have grown to almost 200 locations around the world and they are showing no signs of slowing down.
Most of their locations are in the United States, with the highest concentration being in the greater New York City area. This rapid rate of growth could be both good and bad.
On one hand, the product appears to be desirable and have a wide enough customer base to keep their locations open. On the other hand, growing this fast could be detrimental to the franchise system itself.
If the franchisor is not prepared to support the number of franchises that are popping up, it could result in a breakdown of the functionality of their locations.
Franchisees need support to thrive and carry the business name successfully.
If Kung Fu Tea is able to balance all of the franchise growth they are experiencing, they have the potential to turn themselves into a beverage powerhouse.
There are plenty of areas in the United States, as well as the world, that has yet to receive a Kung Fu Tea in their area, meaning there are plenty of opportunities for additional future franchisees to open their location and expand the brand.
Those who do purchase a franchise will be offered territory rights to ensure they own the only Kung Fu Tea locations within that territory. With the right placement and solid business practices, a franchisee could establish quite the market for themselves.
Overall, Kung Fu Tea appears to be a blazing success.
While it’s true that they have a shorter history than many franchise companies out there, what they have accomplished in their nine years far out-measures what some have achieved in 20 years.
If they are able to maintain stability through the rapid growth, it could mean big things for their business and their franchisees.
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