Gong cha Strives to Own U.S. Bubble Tea Market

    With a beverage veteran at the helm, the fast casual is aiming for 1,000 shops in the Americas through traditional operators and master franchisees. 

    Gong cha drink.
    Gong cha
    There are nearly 200 stores in the U.S., and that's expected to grow to 500 by 2025.

    Geoff Henry has been in the beverage business long enough to know what works and what doesn't. 

    He has almost 20 years of non-alcoholic beverage expertise, including more than a dozen years at Coca-Cola. There, Henry spent most of his time leading a tea and coffee portfolio that had seven brands, like Honest Tea, Gold Peak Tea, Fuze, and Peace Tea. Some were multi-billion brands, others were under $100 million and still emerging. Then he worked a handful of years at Jamba, helping the chain grow from fewer than 1 percent digital transactions to north of 20 percent. Henry also oversaw the rollout of a new app and POS system and familiarized himself with multi-unit franchising. 

    During these years of working with drinks, Henry kept an eye on the bubble tea category. From afar he saw the beverage grow meaningfully, especially with customers under 30 years old. The potential led him to Gong cha earlier in 2023, when he became president of the chain's Americas business segment. 

    "We've got a very proven business model, high-quality product, which is what also appealed to me. I've been doing beverages for 20-plus years and it's one thing to have a good brand, but a good brand plus a good product quality are the ones that often stand up the longest over time," Henry says. 

    Gong cha was founded in Taiwan in 2006 and has since grown to nearly 2,000 locations in roughly two dozen countries. In the Americas, there's close to 350 locations, which breaks down to about 200 in the U.S. and around 70 or so units in Canada and Mexico. Gong cha increased its global store count by an average of 17 percent over the past three years, and yearly U.S. store growth nearly tripled between 2018 and 2021.  

    READ MORE: Taiwanese Concept Gong cha Eyes Aggressive U.S. Expansion

    The Americas market should be well past 400 outlets by the end of 2023 and is expected to open 125 to 150 locations annually for the foreseeable future. In the U.S. specifically, the brand plans to surpass 500 stores by 2025. In the Americas overall, Henry says the objective is 1,000 locations in the next three-plus years. 

    The concept is building the necessary infrastructure for this expansion, with operational, supply chain, marketing, and development leadership now stationed domestically. 

    "We've built out a path to achieve that and get the whole organization fired up to go after it, and our franchisees as well," Henry says. "I think we're building momentum as we build out our team."

    In the U.S., Boston serves as headquarters. Globally, the brand is based in London. The fact that Gong cha spent years establishing itself across the world before entering the U.S. comes with several benefits, Henry says. Firstly, it makes a significant difference in operational standards. The way tea is prepared and shops are laid out is similar worldwide. And while other foodservice brands have different menus internationally, 95 percent of what's offered globally is in the U.S. Additionally, there's 900-plus stores in South Korea—full of company-owned and franchised locations—where Henry and his team can learn best practices. The amount of history and proven success gives him and franchisees more confidence when entering new markets.

    Henry also noted that one of the best parts of being heavily based in Asia is consumers' love for new menu items, at an even faster pace than America. The executive added that Japan is often seen as having the fastest-moving innovation, and there's 120 units in the country—many of which are company-owned. So there's several rounds of testing around limited-time products and consumer response. The U.S. team can leverage that work and bring it overseas. 

    In terms of competition in the U.S., there are a few peers, like Kung Fu Tea, but Henry believes Gong cha will be in a place of its own soon. 

    "My sense is that by the end of this year, if not early next, we'll be the clear leader here in the U.S. and not only the Americas. And I think we've got that because we've been around for [nearly] 20 years globally."

    Most of Gong cha's U.S. footprint is run by master franchisees, or a regional franchisor that acts as a surrogate for the company. Under these operators are several subfranchisees who open stores. In 2022, Gong cha signed three new master franchisees, awarding territory rights for Louisiana, Colorado, and Michigan, with plans to open more than 60 stores across all three states. 

    However, later this year the brand hopes to offer direct franchising as well. Gong cha has sold about 60 percent of the U.S., so there's plenty of untapped territory for operators who may want, for example, a 10-unit deal as opposed to an entire master franchising agreement. These markets include Arizona, Nevada, New Mexico, Utah, Illinois, Indiana, Hawaii, and a couple of spots in the Northeast. The chain is looking to expand further into Central America and South America too, but with master franchising.

    Gong cha is building its corporate presence in Chicago, with three in the city and one in the suburbs. The intent is to build more, but only to learn alongside operators and serve as training stores. The long-term goal is 50-plus units in Chicago and the surrounding area. When it comes to diversity of prototypes, drive-thru locations will soon be part of the system. Gong cha hopes to have a U.S. location open by Q1 of next year. The same is being done in Australia and Mexico. 

    Henry says operators are attracted to the brand because of its lower investment costs and simplicity. There are 250-square-foot kiosk locations and 900-square-foot streetside units that are "highly effective," he says. Within that, there's seating for maybe six to 15 people depending on location, so not too much is spent on fixtures and furniture. At the back of the house, most of the product is delivered ambient, meaning there's not a lot of refrigeration except for some types of milk and other items that have shorter shelf lives. And in some locations there's stoves and hoods, but mostly there's induction cooking. That's combined with the usual healthy margins that come with selling beverages—all of it makes for an enticing opportunity, Henry says. 

    "We have a great product and the teas we offer are fantastic," Henry says. "The pearls are high quality. Our operational standards are tight. I think our bubble tea and tea overall relative to any of our direct competitors, I think is head and shoulders above."