oppinions needed on possible franchise idea

[DaimyoTaka]

hey guys.
i was just curious about what your opinions are of a specialty drink franchise?
im not talking coffee or smoothies exactly, but ive been thinking about opening a bubble tea franchise. ive been talking to a company in the chicago area called chill bubble tea Chill Bubble Tea - Homepage and i know they have these type of places in most major cities, usually in asian culture areas. but they are always full of customers, and we have nothing like this in Indianapolis, the start up is relativly cheap for the service they provide, but im just not sure if it would go over well here.
i know location and atmosphere could make all the difference in the world, so i was thinking of opening just off campus of the major college here.
anyway i was just curious of you your opinions on this idea and what sort of market potential you think it could have.

[deep_impression777]

I don't see why not. You just have a very good location that's filled with the kind of target customers you want. Also consider the cost (if the students can wel-afford your product) and the competition (if there is already a preferred alternative to your product in the area).

Is bubble tea very popular among the asian market? is this market present in your location?

[allysa]

it's fine to me, the location is good. Plus most students are into dieting, tea is good for them. All the best!

[DaimyoTaka]

great thank you,
yeah it seems to be very popular in china town, but they seem to be full of all different ethnicities,
but like i said there is nothing even remotly close to it here.
i just dont want to get in over my head and have starbucks put me under in 6 months because i cant compete.
i guess i think its a good idea and just needed some validation on it haha.

its going to put me about 80k in the hole right off the bat so that worries me a bit,
mainly because ive never done anything within this sort of market. (food or bevarage)

thanks again guys

[akula]

hey guys.
i was just curious about what your opinions are of a specialty drink franchise?
im not talking coffee or smoothies exactly, but ive been thinking about opening a bubble tea franchise. ive been talking to a company in the chicago area called chill bubble tea Chill Bubble Tea - Homepage and i know they have these type of places in most major cities, usually in asian culture areas. but they are always full of customers, and we have nothing like this in Indianapolis, the start up is relativly cheap for the service they provide, but im just not sure if it would go over well here.
i know location and atmosphere could make all the difference in the world, so i was thinking of opening just off campus of the major college here.
anyway i was just curious of you your opinions on this idea and what sort of market potential you think it could have.

ok...let me give you some feedback

1. you're facing an opportunity selection problem. there's lots of things you can invest your 80k into, including a tea franchise
2. to decide on whether to go with the tea or an alternative investment, you have to analyse the tea opportunity in relative terms (rather than absolute)
3. for example; you can take your 80k, leverage it up to 160k and invest the 160k into an index fund. in 12 months you'll have a 20% return (80% guaranteed), you'll pay 6.5k in interest on your borrowed 80k, leaving you with 25.5k (32%) ROE...alternatively you can take your chances and try to get a 32% return with your tea franchise..which is unlikely because food retail average about 5% ROE

So yes...go for the tea if you enjoy that kind of work, but compare the opportunity with other opportunities if you have a set hurdle rate.

btw, nice screen name u have

[DaimyoTaka]

thank you akula , that is very good advice!
i have 0 relative experience in this market, (aside from being a customer )
so it would be a completely new venture.
and its not that i have 80k burning a hole in my pocket, im a business owner and theres plenty of places this could go, i was just thinking more as a next step type of idea.

its more of an idea that i had though up about a month ago while i was at one of these places just watching people poor in and wait in line to get it.

and there profit margin seems quite high for the what the cost is of the franchise itself.
and the shelf life of the actual ingrediants (aside from fresh produce) is much higher then say a mcdonalds.
but i had been looking into the food and bevarage industry some and it seems like a very hight cost for most franchise's out there, 300k for Qdoba or chipotle and there profit margin isnt that great. but a starbucks makes 3$ per cup.
so with some research i found that bubble tea sells for 4.50 plus tax so 4.58 a cup. and 1 cup can be made for 1.05 so 3.45 per cup, pretty comparable to starbucks.
it sounds pretty decent right? so what am i missing in this equation ?
cause theres gotta be a reason it hasnt been done to death yet.

[akula]

thank you akula , that is very good advice!
i have 0 relative experience in this market, (aside from being a customer )
so it would be a completely new venture.
and its not that i have 80k burning a hole in my pocket, im a business owner and theres plenty of places this could go, i was just thinking more as a next step type of idea.

so with some research i found that bubble tea sells for 4.50 plus tax so 4.58 a cup. and 1 cup can be made for 1.05 so 3.45 per cup, pretty comparable to starbucks. it sounds pretty decent right? so what am i missing in this equation ?
cause theres gotta be a reason it hasnt been done to death yet.

yah sure..I guess this brings up 3 points;

1) lifestyle..do you want to work in food retail? what if you become sucessful? is this the career you want? does it suit your personality? will you enjoy making tea for people more than anything in the world? will you love your job? if the answers are "no", then a tea franchise is not the best opportunity for you personally

2) Financially, whilst your 70% contribution margin is attractive, what about your fixed costs? you've got rent, salaries etc...and with $2.40 contribution margin per unit, how much tea will you have to sell to break even, turn profitable to meet your 30% hurdle rate. If it's like 500 units a day, how you gonna get sales like that? how will you finance your marketing if you're not making your sales forecast?

3) Even if your financials are making sense, how liquid is the market for your securities? Will you be able to exit your investment at a great capital gain? How strong is the acquisitions market for franchises? Why not buy an established franchise shop rather than set one up from scratch?

look...for me when I'm making an investment; I wanna get into a business which I enjoy running, which makes sense financially (i.e. low breakeven point), and in an industry where I can sell the venture at 10x EBITDA..are these present in your tea opportunity. if not, I'd consider an alternative.

[DaimyoTaka]

yeah i think your correct, the last thing i personally wanna do is work in food, i think i more or less was hoping to bring it up, make it succesful enough to sell it off in 3 years.
but you make a very valid point.
i have a company that i LOVE now, but the demand is changing, and im trying to change with it , but with change comes expense. so i think im looking more for a plan B.
but i think im going to look into the index fund idea.
thats a very good idea, and if i cant find an investment for business A,
it would deffinatly be able to hold me over til i find a new opportunity.
thank you for the tip!

[LiveWise]

There was an "Oxygen Bar" here in Boise, ID where people could go in and have their drinks and also pay extra to breathe oxygen through a tube. It was featured on the news several times. People would say on the news how much better they felt after using the oxygen--just like atheletes on the side lines. It was next to the university. I fiugred that they really only needed to get 1% of the university students to enjoy it and want to visit weekly. Within a year, it was out of business. I never went it. I don't know what made it fail. There are probably many factors.

Realize that the resturant/coffee house business is very competitive--many fail within the first five years. If you are going to do this, realize that you are going to spend a lot of time and money before you ever make a penny. Research how much they do for the $80K you will spend. If you don't sell a certain product, will they exchange it or refund it?

If I were you and you were really set on making this place happen, try to get samples of the product. Then talk with students around the college if they think it's a good idea, if they would buy your product, how much they would pay for it, etc. If a person really likes it, but values the item at less than you are selling it for, then they may not want to pay your price for the Cup of Chill Bubble Tea. If you get a positive response, it may do well. If you don't get a positive, then don't do it no matter what you think.

Good Luck!

[kesteed]

It sounds a bit risky. I would deffinately research the market that the other tea shops serve and make sure that market is reachable in your area. Do you have any financial statements from the franchise? On a different note, I am doing a marketing research project for a franchising firm in Austin, Texas and they are looking for Dogtopia Franchise owners. Dogtopia is a doggy day care business. Since you are interested in franchising would you help me out and take a 5 minute franchise survey? You can visit Dogtopia's website at dogdaycare.com. Let me know if you are willing to take the survey and I will give you the link. Thanks.

[franchisebrief.com]

Before rushing into anything, you should start by doing a survey. Put up a marketing questionnaire to evaluate the potential of such a store in your area. Have a couple hundred people fill out the questionnaire and analyze results. You will soon see if there is a potential or not.

[cwijas]

I think its a great idea. I have been thinking about a drink franchise too and college kids can make you alot of money if you are selling the latest hottest trend drink!

I market a healthy energy drink and acai plus and am thinking about something like that too.

I wish you success and believe you can do this!

[johnbears]

Since when does an index fund earn 20% per year?

ok...let me give you some feedback

1. you're facing an opportunity selection problem. there's lots of things you can invest your 80k into, including a tea franchise
2. to decide on whether to go with the tea or an alternative investment, you have to analyse the tea opportunity in relative terms (rather than absolute)
3. for example; you can take your 80k, leverage it up to 160k and invest the 160k into an index fund. in 12 months you'll have a 20% return (80% guaranteed), you'll pay 6.5k in interest on your borrowed 80k, leaving you with 25.5k (32%) ROE...alternatively you can take your chances and try to get a 32% return with your tea franchise..which is unlikely because food retail average about 5% ROE

So yes...go for the tea if you enjoy that kind of work, but compare the opportunity with other opportunities if you have a set hurdle rate.

btw, nice screen name u have

[canadascoffee]

ok...let me give you some feedback

1. you're facing an opportunity selection problem. there's lots of things you can invest your 80k into, including a tea franchise
2. to decide on whether to go with the tea or an alternative investment, you have to analyse the tea opportunity in relative terms (rather than absolute)
3. for example; you can take your 80k, leverage it up to 160k and invest the 160k into an index fund. in 12 months you'll have a 20% return (80% guaranteed), you'll pay 6.5k in interest on your borrowed 80k, leaving you with 25.5k (32%) ROE...alternatively you can take your chances and try to get a 32% return with your tea franchise..which is unlikely because food retail average about 5% ROE

So yes...go for the tea if you enjoy that kind of work, but compare the opportunity with other opportunities if you have a set hurdle rate.

btw, nice screen name u have

that's a rather ridiculous assumption. throw $160k into SPY (S&P 500 index fund) one year ago and you would have lost about $40k... or half of the 80k investment.

[johnbears]

He is talking about long term. At least 5 years but more like 10 years. But I still dont get 20%. Small stocks have historically preformed at 12% rate per year. Akula, any clarifications here?

that's a rather ridiculous assumption. throw $160k into SPY (S&P 500 index fund) one year ago and you would have lost about $40k... or half of the 80k investment.