Welcome to Chopping It Up. I'm your host, Mike Hallen, the senior restaurant and food service analyst at Bloomberg Intelligence. Today we're joined by Jeff Henry, president of the America's at Goncho Global. Thanks for doing this.
Jeff, absolutely, it's a pleasure to be here.
And happy birthday. Man. It's a big one today.
Yep, it is a milestone for me. I can't believe it's already been five oho, but it's been good.
Five Oh, that's cool man. Any plans tonight.
Plans for the weekend, so today is actually just a little more arrest. Lots of travel lately, So I just hoping they.
Take it a little easy today, Okay, So well, I'll take it easy on you then I want to Yeah, it's too hard, you know, all right? So gun Cha I'm sure you know many of our listeners are unfamiliar with the brand. I'm lucky enough to have one right down the street in Montclair, New Jersey. But so, why don't you tell everybody what gog Cha is, what it sells, and what attracted you to the opportunity.
Yeah, so, Gungsha, we are the leading bubble tea franchise concept we've got over twenty one hundred locations globally. I think we're now in over twenty four countries. We sell a wide variety of freshly brewed teas, but most of our guests come in for what we call like a milk tea or a bubble tea. So it's tea, it's milk. It's toppings like pearls also known as boba. It can be other toppings like jellies or coconut pearls, milk foams. Basically a wide variety of way for our guests to
customize their bemverage. And you know, the category has been around for over twenty years, starting in Asia, but it's been really kind of taking off here in the US the past seven or eight years. And you know, Gunchha started in the Americas back in like twenty fourteen, and we've now kind of grown to know well over four hundred locations in the Americas. And I joined pretty recently.
I joined basically exactly a year ago. Spent the last twenty years in beverages, but I've really enjoyed my time here at Guncha. Just a fascinating brand, great category, and I think just an exciting opportunity for both guests to get a fantastic beverage, but also it's a great franchise concept.
Yeah, and beverages are hot, and cold beverages are hot, right acciden, but popular, I should say cold beverages are very popular. Yeah, all right, So about four hundred in the United States? Where are those located? What states invavements are you strong in?
So it's four hundred in the America. So we actually currently have presence from Canada into the US, Mexico, and all the way down to Panama. So in the US specifically, we're we've got about two hundred and thirty locations. We're in twenty states, big presence kind of in the Northeast from Massachusetts down to Virginia, big presence in Texas, and big presence in California and parts of the Midwest. In the US specifically.
Okay, cool. So what percentage of the global store base and the US or America's store base is franchised.
Yeah, it varies a little bit by region. So in the US we're heavily franchised. We're basically ninety nine percent franchised. You know in some markets, you know, like Canada, Mexico, or one hundred percent franchised, but in some of our larger markets in Asia, it's more like eighty five. So
it just kind of varies by region. But in the Americas specifically, you know, we started with a master franchising model, which kind of lends itself to heavily franchising and so and we'll continue to be heavily franchised in the Americas.
How big is the box? And you know, what else do you have on the menu besides the bubble teas? Yeah, if you could and talk about like the service model, you know, kind of how everything kind of stuck.
Yeah, yeah, So, I mean the great thing about gun Cha and the category is that the footprints are extremely versatile. So you might find a gun Shaw, you know, in the middle of a shopping mall corridor where we have a kiosk that's two hundred and fifty square feet, right, But you could also find one that's in a strip mall that perhaps is you know, a thousand square feet that's got seating for fifteen or twenty people. So we
definitely have flexibility and that folt. We're actually starting to get into some drive through locations as well, which is exciting for us, But it's a pretty simple operating model, right, So we've got a variety of teas and pearls that we grew fresh multiple times per day. You know, in most of our locations, you can run the store with two team members. Obviously during peak time you might both have to have three or four, but it's a pretty
simple model. We're investing into digital technology to make it easier for the team members to focus on making beverages as opposed to having to take orders. And so I think in this environment, you know, with higher interest rates, construction costs the way they are, you know, I think one of the things that makes us appealing is our
versaal footprint. And we're actually starting to see some of our franchisees kind of paired Gunsha with other franchise concepts to do kind of almost like dual brand or try brand locations.
Oh very cool, and I'm sure that's that's going to accelerate growth, having those those that flexible store footprints. That's cool. Who are your customers and how often did they visit?
Yeah, so our our core guest is definitely uh younger probably than you and I. You know, our core guest is typically you know, a gen Z or a younger millennial.
It's very popular with high school college aid students. But now that the category has been around for you know, ten plus years, you're having the category starting to age up because of those college students from seven or eight years ago are now in the working world, perhaps have a young families, and so they're actually bring their you know, their families in for a beverage on the weekends. But
it's definitely a younger audience. But you know, everyone likes to feel youthful, right, so we actually have you know, we do bring in, you know, people who are certainly a couple of decades older than our core target. But you know, the target for us is pretty similar for who's drinking the category globally. I mean, bubble tea is a global phenomenon, and so there's a big generational divide.
If you talk to somebody who's you know, thirty or under, they know exactly what bubble tea is, it's highly likely they've had it. It's also quite possible that they're a regular consumer of it. If you talk to somebody who's fifty or over fifty like me, now, it's highly likely that they haven't heard of it or haven't had it unless they've got perhaps teenagers in the household. So it's
just fascinating to watch. What's one alm with this I think global phenomenon because it really is bubble Tea in gun Chaw very much at the center of it is kind of the drink of this younger generation. You know, they don't necessarily want to be drinking everything that their parents are drinking. And I think the personalization, customization aspect of it kind of lends itself really well to our core target and to your earlier question about what's on
the menu. Yeah, we sell tea, you know, so you can get a hot tea, you can get a nice tea, you can get a milk tea. We also sell slushies, We sell creative series. We sell a few food items like freshly made waffles. In some instances we have freshly made doughnuts or cookies. But the vast majority of what we sell is kind of made to order beverages.
And it looks nice, right.
It looks great. I mean again, it's these products. You can have multiple layers, multiple colors, multiple textures, So people are coming in for the experience, right, They're coming in because one the product tastes great. But the great thing about like if you order the top selling it in most of our locations is you know, our milk tea with pearls, and so if you're a young twenty year old,
you're getting a lot of actual functional benefits. In addition to it tasting great and looking great, You're getting, you know, a little bit of caffeine from the tea. You're getting kind of a carbohydrate boost because the boba or the pearls you know, are a high carboed hybrid as well,
so you're getting kind of that energy left. And then actually, if you've or had it, the pearls are kind of chewing texture, so we actually can chew on the pearls and it's almost like a soothing mechanism, particularly for you know, university students maybe who are studying for an exam, so they can kind of sip on their melt tea while they're in the library studying for a few hours and it's kind of helps them keep them focused but also
perhaps brings down their stress a little bit. So there's a lot of reasons I think why people are kind of gravitating to the product.
Yeah, no, I've I've had a chance to try it. This stuff tastes great. Like I said, it looks great. So it's very instagrammable, which is which is important to the younger generations. So what's the sales mix of digital and delivery.
Yeah, so we are, you know, we're leaning heavily into digital again with our core guests being kind of that Generation Z younger millennial. You know, they're obviously gravitating towards
digital orders. In some case they prefer that because it's just more kind of they're kind of first nature for So if you break down digital for us, we do about most locations do anywhere between you know, eight to ten percent in kind of delivery, and then another five to ten percent what I would say is order ahead digital, and then we're investing significantly into in store self order kiosks, which for us have done phenomenally well. So I'm getting
back to like the beverage and the product. If you walk into a gun Char location, we've got a lot of different things for you to choose from, right, both different categories of beverages melt teese, creative series, slushies, standard tees, but also a variety of topics. So the Kiosk does a great job of letting the guests kind of navigate the menu, and it's got great looking pictures of the product and so therefore it just helps of the guests
find a beverage that they're looking for. And we tend to see a slightly higher tickets well, you know, ten to fifteen percent higher off of a digital Kiosk than we do at the counter, and many of our locations, you know, they quickly jumped to twenty five or even as high as fifty percent within the first month of
launching a self order Kiosk in the store. So the guest is basically naturally going to the Kiosk versus the counter to kind of put in their customized beverage, which is good also for you know, labor management, because then the team members can focus more on making beverages versus taking orders. Yeah.
That's great. Yeah, and it seems like you're on the right side of the demographics, right, So I guess do you have any industry data about how fast this category is expected to grow?
Yeah? So, I mean, just going back in time, it's interesting because you know, just personally for me in my career, you know, ten years ago, I was with Coca Cola, and I was running Coca Cola's kind of coffee and tea business for North America, and most of our focus was on iced teas, primarily you both in restaurants and
the bottle can side of it. But we were starting to see bubble tea emerge in the US, and quite Franks, they didn't know if there's going to be something that was a fad or really going to stick, because again, it had been around in ages since the early two thousand, starting back in Taiwan, which is also where gungcha originated from. But the category, you know, if you read a lot of different kind of analyst reports, you know it's expected to at least double, if not triple in size here
to be. You know, I think north of five billion in the next five to six years. And so I
think it's it's just a really attractive opportunity. Again, you've got both, you know, the younger age demographic and as it's it's a it's a category that get introduced to consumers at a young age too, right, So it's high schoolers, college students, and as they age up, they're continuing to drink this beverage and introduce it to their kids as well, because you can get a lot of you know, great products that don't have caffeine and a gun cha, which
I think just makes for a great kind of family occasion. So I think the reason there's so much excitement is because I think there's just a lot of interest in the category with this younger generation.
For sure. I think it's also interesting because you know, typically we see US brands being exported, not international ones being boarded. You know, were there any good examples of brands coming into the US from Asia or other places that you were able to study?
You know, I think to your point in terms of our approach, you know, we've we've taken the master franchising approach, right so in Asia, where we have fifteen hundred plus locations, if you go to South Korea, we've got over nine hundred locations. You know, we're pretty much everywhere in South Korea and so and so we kind of perfected that model for roughly ten years before we brought it to
this side of the world. But we started with a master franchising model to really focus on select entrepreneurs who were up for the challenge of managing operations, marketing in addition to supply chain as well as franchise sales, which is not the easiest thing to find in the US because most multi unit franchises and developers want to focus on operations and marketing, not managing end to end supply chain. And so I think the approach we've taken was more
of the what model. Like you said, it's more of the model that you would see if you were as originally a US based company going overseas. We kind of did the inverse in this sense, and so I think we just kind of before we took it overseas and overseas being the Americas, we perfected it back in Asia,
and I think continue to perfect it. And I've really now had to even since I joined in the past twelve months, stood up even more of a global operation where we're leveraging best practices from Australia, from Japan and from Korea and many of our markets around the world.
So let's dig into that a little bit more. That shift to direct franchising. How are the agreements lined up? Are you are you giving exclusive territories to certain states? What is the typical size of the agreements that you're signing any of that color would be helpful.
Yeah, So we literally just started direct franchising at the start of the year, so we're still getting momentum. We've got several new franchisees signed up. We've got a few stores that are opening here in the next few weeks in a couple of different states. So depending upon you know, the market, we could be looking at the deals that are you know, three to five stores to start with.
We've got some opportunities where they're starting with a handful of stores with them potentially the opportunity to expand to forty or fifty and have kind of exclusive rights over that state or territory. But it really just depends upon the market. We're trying to actually to try and grow faster.
So if we can have you know, one or two experienced operators in a DMA kind of building in parallel to kind of capture even more market share fat maybe block out some of our competition, that's the approach we're looking to go to, which is part of the reason we're doing direct franchising, because before within master franchising, we had to rely on the master to you know, find subfranchises to make it work, which got us to a
great point in time here now. But I think we can move even faster with the direct model because again, that's what most US developers are used to dealing with. They don't want to have to manage end to end supply chain.
Yeah, and I like when chains, when franchise or is opening up a territory to competition, it tends to motivate the franchises a lot more because you know, in a lot of instances, you know, development agreements tend turn into you know, agreements not to the develop right right exactly. They get to a they get comfortable, you know, with a certain level of sales and earnings, and they're not really motivated to build anymore.
Yeah, and we've got we've got some great master franchises and we're going to continue to have them, you know, lead and manage the states that we've sold them. But we've got about fifty percent of the geographic US left to sell and that's what we're doing kind of via direct franchising.
All right, great, and how are you prioritizing markets?
We're prioritizing largely based upon kind of the I think the category potential in those markets. So we're looking obviously heavily at kind of population, population density, age demographics, and certainly weather too. Right, So you know, having been in beverages for twenty plus years, there's a lot of seasonality in beverages, both in ready to drink beverages as well as kind of made to order beverages, and so we're looking at all those factors again, you know, population size,
age demographics, seasonality of weather. You know, historically the brand in the US started more heavily in Asian communities, so it maybe was a Chinatown or Korea town like in
New York City. But now that the category is becoming a lot more kind of well known and i think distributed across the country, you're seeing it in basically all types of locations where perhaps it's even a very low Asian population demographic, but there's already the awareness of the category, and so versus five years ago, there's a lot more markets that we're looking to get into today than we did back then.
It's cool, excuse female, i'd assume too, right.
It does skew female. Yeah, it's about i'd say probably typical split is maybe sixty forty, so it definitely skews female. And again there is you know, the reasons for that, I think are one because of the customization and the different options that kind of the guests can get. There's also you know, I think nutritional benefits. Again, you know,
the core product is tea. You know, t is the number two beverage consumed in the world after water, and there's obviously a lot of health benefits antioxidants associated with tea. So while the majority of our beverages are kind of on more the indulgence side, with the malteese or the brown sugar milt teese, people do come in for just a straight up great tasting tea as well.
Great And how's a pipeline looking What are your what do you how many stores do you expect to develop in the United States in twenty four and twenty five.
Yeah, I mean the pipeline's looking really good. We've got obviously, our existing master franchisees have been working on a pipeline here for a couple of years now. We are expanding our direct franchising development pipeline. You know, we're targeting north of one hundred openings in the America's this year, about half those coming from the US. And you know, as we continue to sell more territory. We expect that number to increase r year because we're also now getting into
Central America. We'll have our first stores in Honduras up and Guatemala opening up later this year, probably by by early June, and then we're also looking to get into South America. We're not in South America yet, but that's obviously a massive opportunity. So we expect our pipeline to certainly increase year a year. But we've got some really good momentum and a lot of engaged both existing franchises and prospects looking to get into the brand.
Yeah, that's a very strong growth rate on not an insignificant number of stores, So that's that's great. How involved does Goncha with site selection?
Well, we're more involved now with direct franchising. So with direct franchising, we're actually doing a couple of things. When we've we've partnered with some you know, industry experts, one of the leading software providers in terms of real estate analysis, as well as some outside consultancies around just doing deep dives into specific markets. So we have a very good sense of what the market potential is is for gun Cha as we go into a new market. Let's say
for Phoenix or for Vegas or for Nashville. We know the market potential and so as we work with new franchisees, you know, we can determine we need to have one franchise e lead that market to be mean multiple and then specifically in site selection, you know, we're very involved.
You know, we'll work with the franchise on what we believe are the top trade areas for them to start to go into to help kind of see the market, and then we'll provide them approval once they work with their own kind of real estate broker to find the actual location, whether it's an end cap, whether it's in line strip mall, whether it's inside of an indoor shopping mall. But we're certainly involved in the process, and then we'll work through them on the store design and layout.
Great man, are there any unit economics that you'd like to share?
I mean, all I can share is kind of what we disclose publicly in our FDD. You know, we're proud of our top line sales and our average is roughly you know, five hundred and twenty five thousand in the US. Obviously varies by market. Some markets can be you know, ten to fifty percent higher than that. You know, our top quartile of stores is typically north of eight hundred thousand, so that can make it for a really good kind
of cash on cash return. You know, our store investment or build costs you may vary from one hundred and fifty thousand to three hundred and fifty thousand, just kind of depends on where you are and how big of a footprint, because again, it could be a kiosk that's two hundred and fifty square feet, or it could be a much bigger space with a lot more fornenturance seating. But on average the store build is you know, two
hundred to two fifty. So you know it's when you when you look at the AUV it's could be a pretty good cash on cash return.
Yeah, for sure. It's a very strong sales to investment ratio. Okay, great, And so obviously, you know you've talked already about how the brand naturally attracts some of the younger generations. Is there anything that you're doing specifically to try to attract gen Z customers?
Yeah, I mean I think the so, I mean, this category it's a really fun category, right, I mean, there's lots of different toppings, there's colors, so we're always looking
to bring new news. So for instance, we did a global campaign so back in November December we did a little gingerbread series where we actually had a gingerbread flavored tea and we actually had it served in a gingerbread man bottle with a little milk foam topping, so you can imagine a gingerbread man it you know, had kind of a smiling face that the milk foam at the top made his face white, and the rest of our body was you know, gingerbread brown, so it was super cute.
You had a scarf, very very photographic, so you can imagine just how many hundreds of thousands of pictures we had in the social social sphere with our guests coming in for that. So that was a huge, huge win every market. We sold out much faster than we expected, which is you know a good problem. We would obviously would have loved to have even more, but so that's certainly something we're looking to lean into even for twenty
twenty four and make it even bigger. But ltos are part of the way that we know make news, you know, limited time offerings. We just launched in the US on Monday, a new partnership with Hershey, So we're actually doing kind of a tea based cookies and cream based beverage. Delicious
looks great. It's off to a fast start for us, and so we're doing that this spring and then this summer, we've got some great innovations that we'll be doing around the world that kind of incorporate flavors from different countries. Because again, part of Guncha is our global footprints, so we're getting inspiration from, you know, the twenty four plus different countries that we already have a presence in. So we're always looking to bring new news both to the
product and also on merchandising. You know, the gingerbread is one example. What we also bring in a fun little swag, whether it's tumblers or key chains or plushies. Like our core guests, they just love the brand and they love to collect things beyond just the product itself, so they can kind of, you know, both bring it home and also share it with their friends and social cool.
Is that what percentage of your business is that kind of stuff?
You know, it varies by location. Some operators are kind of lean into it. More than others. It's generally you know, four to five percent for like merchandising, and then you know the food mix can of again be another five to ten percent depend upon the location. We are continuing to look at more options for enhancing our food offering. We've got a pretty simple kind of back of house,
and all of our products is currently delivered ambient. So from a supply chain standpoint, you know, we manage our supply chain to end from the tea farms, cultivating the tea, fermenting the tea in the quality and then it's all delivered from Asia to us here in the US and all delivered via ambient. So as we work on kind of more ways to expand the menu, we also have to kind of continue to fine tune our supply chain model.
Cool and the Hershey's partnership sounds interesting. Are there more CpG companies and partnerships in the pipeline?
Yeah, there's a few more. Can't kind of shure who they are, but certainly we're looking to do a few more things that are I think definitely unique, innovative, maybe polarizing for some people. You know, the intent is maybe some people will certainly love it, some people won't like it at all, but that's kind of part of the intent, is to kind of create some conversation, get the brand's an aim out there, but also for those who love
it it is. You know, we're doing some fun stuff that we'll do later this summer with some big US and global brands, and then we're also leaning into some more licensing opportunities, right, I mean again, because people love to have you know, gung cha we call it a swag, you know, to bring home. We are looking to partner with some big global licensing brands to kind of marry up our brand with a brand that we think fits well to again just continue to delight and satisfy our core guest.
Yeah, and it sounds like it's a good way to build the brand, like create more brand awareness, right.
Yeah, absolutely, because again I mean just you know, versus twenty five years ago in terms of how you build brand awareness, so different now, right, Obviously, social media influencers is much much much more important to kind of get some traction and drive awareness, and so people are looking obviously for great experiences for brands that kind of stand
for more than just a product. And hence, you know, we're looking to elevate the entire brands proposition, but also kind of more touch points, you know, more ways for people to bring the brand home and enjoy it beyond just once they finish the beverage.
Well along those lines, Is RTD on your radar.
Yeah, there's lots of things on our radar for sure. RTD definitely. It's one of those things that we want to make sure that we get it right. You know, there's a lot of there are a lot of actually emerging rt D bubble tea concepts out there. I've tried
a bunch of them. I'm not sure that they quality would meet our standards, and so we don't want to introduce something that's inferior to you know, the great quality that you can get in a Gunshot store because we you know, we make our tea fresh multiple times per day. We make our pearls fresh multiple times per day. And if you're really into this category, you know, rubble t
you are, it's much like wine. Like you come in and you will basically examine and and and kind of really look closely at the quality of the pearls, texture, the chewiness, the temperature. And to do that right, you got to make them fresh, right, and so that's hard to do in an ARTD way. But we are looking at the our RTD, but we're just.
Not there yet, gotcha. All right? Cool, well, listen, Thanks Jeff, I appreciate your time, especially coming on here on your birthday. Where can the audience go to find a nearby guncha? And what social media platforms is the brand big on?
Yeah, so certainly you can go online to find any of our locations in the US, you know, gun Cha USA dot Com, we're you know, we're Instagram, Facebook, that's kind of where those are our kind of two primary social media channels. And again, we are opening locations every week. We are in you know, twenty states currently in the US. We've got almost one hundred in Mexico, almost one hundred in Canada. And so if we're not in someone's neighborhood today,
hopefully we'll be later this year. And I've done this year that hopefully next.
Yeah, listeners should go go check it out if they have one nearby. That the stuff's fantastic. You know, I wasn't a believer. I'm you know, forty seven, I'm not your core market, but you know I had it and the stuff is fantastic, So yeah. So I'd also like to thank the audience for tuning in. If you liked the episode, please leave us a rating and click the bell if you'd like to subscribe. Check back soon for
a conversation with David Maloney. He's the founder and president of datum FS, and we'll be discussing the commodity markets and their impact on restaurant costs.