This article is based on its most recent FDD. Keep reading or watch the videooriginally recorded on Vetted Biz Youtube Channel.
KungFu Tea offers franchises sell a variety of brew tea, bubble tea, coffee, juices, smoothies and other hot and cold beverages. Kung Fu Tea has an atmosphere that charms customers and encourages them to always come back.
Kung Fu Tea was founded in New York in 2010. The parent company of Kung Fu Tea is Kung Fu Tea USA Inc. and it started offering franchises in 2013 under the business name of Kung Fu Tea, a company that is based in Delaware.
Contents
Listen to this article
Currently there are 245 Kung Fu Tea shops across the United States and that number is only getting bigger. Since Kung Fu Tea is a franchise, you could own the next one!
Kung Fu Tea has many competitors who serve the Asian-American market. Some are national and international companies, while others are small companies with only one location, serving the local community. One big competitor is Starbucks.
We will analyze if the potential returns are worth the initial cost of the franchise.
How Much is a Kung Fu Tea Franchise?
The initial fee for a standard Kung Fu Tea franchise is $37,000. If you choose to open a non-traditional unit (airport, hotel, etc) you will only pay $25,000. The fee for every additional unit you might open in the future is $25,000.
Kung Fu Tea Franchise Cost:
The estimated total investment for beginning operations of a Denny’s franchise is between $166,500 and $375,500.
| Type of Expenditure | Amount | To Whom to Payment is to be Made | |
|---|---|---|---|
| Low | High | ||
| Initial franchisee fee (Note 1) | $25,000 | $37,000 | Us |
| Training fee (Note 2) | $10,000 | $10,000 | Us |
| Equipment from our affiliate | $6,500 | $7,500 | Arms Global Inc. |
| Other equipment, furniture, fixtures and signane | $30,000 | $40,000 | Approved suppliers or other independent suppliers |
| Computers, printer, fax, and other hardware and business software (Note 4) | $2,500 | $5,000 | Approved suppliers or other independent suppliers |
| Prepaid rent and security deposit (Note 5) | $5,000 | $40,000 | Landlord |
| Leasehold improvements and architectural costs (Note 6) | $40,000 | $150,000 | Landlord and independent contractors |
| Interior design (3D rendering of shop) | $3,500 | $5,000 | Designer or architect |
| Type of Expenditure | Amount | To Whom to Payment is to be Made | |
|---|---|---|---|
| Low | High | ||
| Initial inventory of tea, coffee, cups, menu boards, and packaging materials (Note 3) | $15,000 | $25,000 | Arms Global Inc. and approved suppliers |
| Initial marketing program (Note 7) | $5,000 | $5,000 | Approved suppliers |
| Insurance – liability and workers compensation – initial deposit (Note 8) | $5,000 | $20,000 | Independent carrier |
| Travel, living expenses and salaries during initial training (Note 9) | $4,000 | $5,000 | Airlines, hotels, restaurants and others |
| Legal and accounting fees (Note 10) | $5,000 | $6,000 | Independent professionals |
| Additional funds – first month (Note 11) | $10,000 | $20,000 | Independent suppliers |
| Total (Note 12) | $166,500 | $375,500 | |
Other Fees:
Royalty Fee: 3% of Gross Sales
Marketing Fee: 2% of Gross Sales
Technology Fee: $100 per month
What do you need to open a Kung Fu Tea Franchise?
Kung Fu Tea is continuously looking for passionate individuals that want to open new franchises. The process for opening a new franchise is similar to most franchises:
- You fill out a form
- Someone will contact you
- Have an interview
- Open a Kung Fu Tea Shop!
In addition to these steps Kung Fu Tea will send a representative for the first two weeks of operation to ensure that everything goes smoothly.
How Much do Kung Fu Tea Franchise Owners Make?
Kung Fu Tea does not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets.
Through our analysis of the Franchisor income statement we can guesstimate sales figures from the income statement line item “Franchise Revenue.”
2018 Kung Fu Tea Break-even point:
Royalty fee: 3% of Gross Sales
In 2020 Kung Fu Tea made $2,513,157
Estimated average franchise revenue: $341,926
2019 Kung Fu Tea Break-even point:
Royalty fee: 3% of Gross Sales
In 2020 Kung Fu Tea made $2,467,310
Estimated average franchise revenue: $335,688
1- Based on a midpoint investment of $271,000 with estimated profits of $33,568 at a 10% profit margin it would take about 10 years to recoup your investment.
2- Based on a midpoint investment of $271,000 with estimated profits of $50,353 at a 15% profit margin it would take about 7 years to recoup your investment.
3- Based on a midpoint investment of $271,000 with estimated profits of $67,137 at a 20% profit margin it would take about 6 years to recoup your investment.
Is Kung Fu Tea worth the Franchise Cost?
After a few years in the business, when you go to sell your franchise based on the median multiple of .31 and net sales of 2019 of $335,688 it would sell for about $104,063. This is only 38% of the midpoint initial investment.
You could make more money back if you sell the real estate along with the franchise. This is a strategy commonly used in the food and beverage industry.
Kung Fu Tea Income Statement:
| December 31 | 2019 | 2018 | 2017 | |
|---|---|---|---|---|
| Revenues | ||||
| Franchise and training fee income | $1,129,561 | $1,625,167 | $1,858,561 | |
| Royalty fee income | 2,513,157 | 1,973,832 | 1,20,040 | |
| Marketing fee income | 1,213,529 | 904,629 | 60,166 | |
| Other revenues | 72,172 | 55,373 | 7,266 | |
| Total Revenues | 4,928,419 | 4,559,001 | 3,896,033 | |
| Expenses | ||||
| General and administrative | 2,677,346 | 2,338,776 | 1,606,209 | |
| Selling | 1,633,927 | 1,250,579 | 1,085,720 | |
| Total Expenses | 4,311,273 | 3,589,355 | 2,691,929 | |
| Net Income before Provision for Local Income Taxes | 617,146 | 969,646 | 1,204,104 | |
| Provisionfor Local Income Taxes | 2,202 | 10,238 | 16,511 | |
| Net Income | 614,944 | 959,408 | 1,187,593 | |
Over the years the company has been in decline, making less and less money every year. However, this decline is not related to revenue but rather to extra expenses. Kung Fu Tea is a relatively new franchisor and it is highly likely that those extra expenses are going towards marketing and different growth strategies. It is possible that these numbers will get a lot better in the near future.
How Many Kung Fu Tea 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 | 2018 2019 2020 | 125 163 213 | 163 213 242 | +38 +50 +29 |
| Company-Owned | 2018 2019 2020 | 2 3 2 | 3 2 3 | +1 -1 +1 |
| Total Outlets | 2018 2019 2020 | 127 166 215 | 166 215 245 | +39 +49 +30 |
The number of units has been increasing in the last three years. In 2019, 50 new units were opened while in 2020, even amid the pandemic, franchisees managed to open 29 new units. It is exciting to see that the company is growing fast.
Conclusion
Kung Fu Tea is a relatively new franchise that is seeing rapid growth . The Asian-American population is continuing to grow and the demand for this kind of products will only increase, although it may take some time to reach the level of demand that other industries like fast food have.
If you open a Kung Fu Tea it will take you between 6 and 10 years to recoup your investment depending on profitability, which is a very long time but is comparable to other franchises in the industry. On top of that, when you go and sell your franchise it will most likely not make your initial investment back if you just develop one location. However, you could try and sell the real estate along with the franchise and make a profit that way.
During the pandemic, Kung Fu Tea was not significantly affected. While most franchises in the food and beverage industry saw a huge number of units close, Kung Fu Tea continued to grow.
Our suggestion is to talk to at least five Kung Fu Tea franchise owners before opening your own.
