Gong Cha is reorienting its U.S. growth strategy to direct franchising to fill out the market.
Bubble tea concept Gong Cha is changing its growth strategy in the United States. Accustomed to growing through master franchise agreements, the brand is pivoting to direct franchising to saturate the market.
“We’ve been on a high trajectory in terms of growth in the Americas, and here in the U.S. specifically,” said CEO Geoff Henry. “We’ve gotten to this point with some fantastic business partners and entrepreneurs who were master franchisees.”
At over 200 locations in the U.S., Gong Cha’s global growth strategy was focused on master franchises. The U.S. is seeing change specifically because direct franchising is more common for growth.
Geoff Henry.
“In the U.S., it’s a much less common approach in the franchising industry,” Henry said about master agreements. “There aren’t that many entities out there that want to be in a master franchise role because they don’t want to have to significantly invest into supply chains.”
Related: Gong Cha’s Momentum Continues With Pair of Master Franchise Agreements
The challenge with master franchises is the level of responsibility, including the managing of supply chains and finding locations, Henry said. On top of managing their locations, this can be a lot of responsibility and limits potential franchisee interest, he said.
The white space was another factor in the decision. Gong Cha sold what Henry estimates as about 55 percent of the U.S. through master franchises, so the remaining 45 percent will be sold via direct franchising to fill in the gaps.
Since direct franchisees don’t have the same responsibilities as master franchisees, Gong Cha had to beef up its support team. As such, the team is onboarding national distributers to meet the supply chain needs.
“The process for a direct franchisee will be very similar to what they’ve experienced working with a large food service brand,” said Henry.
In order to prepare for direct franchising, Gong Cha made significant new hires to take care of master franchisee responsibilities, including managing the supply chain.
This isn’t an unusual move for global brands. In fact, brands expanding internationally from the U.S. often do the inverse, signing master franchises instead of direct. Gong Cha’s goal with its direct franchising initiative is to bring on operators looking to grow their portfolio, and the brand has been getting requests to do so for years, Henry said.
The shift is focused on multi-unit agreements, though single units are available “in the right markets,” said Henry. To help build out challenging markets, Gong Cha offers different footprint options, from full-size stores to nontraditional locations, such as airports and multi-concept units.
The brand’s first direct franchising locations are set to open in Las Vegas and Puerto Rico, with several deals in the pipeline.
“We believe Gong Cha is not only a fantastic brand but in the world of multi-unit franchising we think that we’re one of the best ways for experienced franchisees to diversify their portfolio,” said Henry. “In a world with high interest rates, high construction costs, Gong Cha has a very simple operating model and capital investment.”