This is an English adaptation of a FoodBud historical article originally published on January 23, 2022.
In mid-January 2022, Lian Fa International, the parent company of bubble tea chain Sharetea, officially listed. By the end of 2021, Sharetea had 355 stores globally.
According to Lian Fa International’s prospectus, Sharetea generated RMB 140 million in total revenue in the first three quarters of 2021. Product sales, effectively supply-chain revenue tied mainly to franchising, contributed RMB 100 million, or 72.7%. Franchise authorization revenue, including regional franchise fees and brand management fees, contributed RMB 28.8 million, or 20.5%. Foodservice sales, meaning revenue from directly operated stores, contributed RMB 8.68 million, or 6.2%.
Total revenue was RMB 230 million in 2019 and RMB 150 million in 2020. Gross margin in the first three quarters of 2021 was about 50%, and pre-tax net profit was RMB 27.4 million.
Sharetea used single-store franchising in markets such as the United States, Hong Kong and Taiwan, while using regional agents in markets including Australia and Japan.
As of the end of June 2021, Sharetea had 107 franchised stores in the United States, 45 in Hong Kong and 5 in Taiwan. In regional-agent markets, Australia had 45 stores and other regions had 115 stores, including Vietnam and other markets. In Taiwan, directly operated stores included 4 Sharetea stores, 1 MAMAK stall and 2 Kampung Famous Hainanese Chicken Rice stores.
The prospectus showed that Sharetea, MAMAK and Kampung Famous Hainanese Chicken Rice together had only 14 stores in Taiwan, with an expectation that the total could reach 25 by the end of 2021.
Sharetea’s Taiwan footprint was still small, with 12 stores, while Hong Kong and the United States had more meaningful scale. As of July 2021, Sharetea had 320 stores outside Taiwan, across 4 continents and 13 countries. The United States and Hong Kong accounted for 56% and 16% of total revenue respectively.
In Hong Kong, Sharetea mainly operated street-front stores, supplemented by mall locations. It ranked second to TenRen’s Tea by store count. Of 44 Hong Kong stores, 29 were street-front locations. The Hong Kong market was affected by COVID-19, with monthly consumer traffic falling from 15 million people to more than 7 million people in 2021.
Sharetea had 112 stores in the United States. In the U.S. chain tea-drink market, Kung Fu Tea was described as the largest chain brand, concentrated mainly on the East Coast. Happy Lemon had 63 stores in the United States and 867 stores in China, but its momentum was described as declining. Notably, 70% of Sharetea’s U.S. franchisees and 50% of its customers were non-Chinese.
U.S. store materials were purchased from Taiwan. U.S. franchisees had to find freight agents themselves to handle raw-material import and downstream distribution. For store management, U.S. stores received an average of 2 to 3 inspections per store per year.
Sharetea planned to strengthen U.S. management through staffing and warehousing. As of July 2021, California was the largest U.S. franchise region, with 50 stores. For warehousing, the company intended to reference the Hong Kong model: raw materials would enter a warehouse and warehouse staff would distribute them to franchisees, with franchisees bearing delivery costs.
Based on Hong Kong experience, one full-time staff member could manage about 25 stores. The U.S. West Coast had 72 stores, implying an estimated need for 3 full-time staff. Local logistics information suggested that leasing a 2,500-square-meter warehouse would cost about US$6 per square meter, or US$15,000 per month. Based on local payroll levels, each full-time employee would require annual compensation of US$60,000.
Among the 112 U.S. stores, 20 used the same POS system as headquarters, allowing headquarters to view revenue and operating data. Another 61 used the same POS system but account restrictions prevented headquarters from viewing relevant operating data. The remaining 31 used different systems.
In 2021, the U.S. franchisee renewal rate was 95%, and the rate of franchisees opening a second store exceeded 50%.
Japan: The regional agent was Sushiro Global, a sushi chain operator. The partnership was signed in 2019, with authorization running from May 1, 2019 to April 30, 2022. In the first half of 2021, Sushiro Global generated RMB 2.23 million in sales, making it Sharetea’s third-largest customer.
Australia: Sharetea Australia was the regional agent. In the first half of 2021, it was Sharetea’s largest customer, generating RMB 5.47 million in sales, or 6.17% of revenue. However, in September 2021, Sharetea sued Sharetea Australia, seeking to stop its use of the brand and formulas. The dispute arose because Lian Fa International, preparing to list, asked Sharetea Australia to provide internal company data such as franchisee information. The cooperation agreement between Lian Fa International and Sharetea Australia was supposed to run until 2032. After Sharetea Australia refused to provide the relevant data, Lian Fa International notified it of termination. By November 2021, Sharetea Australia operated more than 100 stores. The dispute suggested limited control by Lian Fa International over some regional agents.
Malaysia: Company B was Sharetea’s agent in Kota Kinabalu and Sarawak in East Malaysia. As of the first half of 2021, East Malaysia had 39 stores. Company B generated RMB 2.86 million in sales in the first half of 2021, making it Sharetea’s second-largest customer.
Philippines: The regional agent was Shang Shen Industrial. In the first half of 2021, it operated 13 stores and generated RMB 980,000 in sales, falling out of the top 10 customers.
Singapore: Company A was the regional agent. In the first half of 2021, it operated 7 franchised stores and generated RMB 2 million in sales, making it the company’s fourth-largest customer.
Indonesia: PT Tritunggal was the regional agent. In the first half of 2021, it operated 38 stores, down from 46 in 2019 and 41 in 2020. Sales were RMB 740,000, outside the top 10 customers.
Vietnam: Company E was the regional agent. It operated 4 stores in the first half of 2021, compared with 10 in 2019 and 5 in 2020. Sales in the first half of 2021 were RMB 410,000.
Canada: Company C was the regional agent. As of the end of June 2021, it had 8 stores, compared with 8 in 2019 and 9 in 2020. It was the ninth-largest customer in the first half of 2021, generating RMB 1.21 million in sales.
Mainland China: A Shenzhen company operated 4 franchised stores. Performance was described as poor, and the operator was expected to close when the agreement expired rather than renew.
According to Lian Fa International’s prospectus, Sharetea planned to focus on expanding in the U.S. market, expecting the U.S. store count to reach 131 in the first quarter of 2022. In Europe, the company planned to use its Czech store as a starting point to expand into markets such as the United Kingdom and France, replicating the U.S. single-store franchise expansion model.
Note: IPO, financial and forward-looking expansion figures are historical, based on the 2021-2022 source article and prospectus disclosures cited there.