Gong Cha’s Revenue Falls: Analyzing The Challenges Facing The Popular Bubble Tea Brand

Gong Cha, a prominent bubble tea seller, has encountered substantial financial difficulties in its latest fiscal year, reporting a pre-tax loss of $12.4 million (£9.2 million). This downturn marks a significant shift from the previous year, when the London-headquartered company posted a pre-tax profit of $527,000 (£394,000).

According to newly filed documents with Companies House, Gong Cha’s revenue decreased from $184.1 million (£137.6 million) to $177.7 million (£132.8 million) during the past financial year. The decline in both revenue and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) has been attributed in part to the timing of the Lunar New Year. Several master franchisees moved their product purchasing forward into the last quarter of the previous year, resulting in lower sales for the group in the first quarter of 2023.

The impact of changing consumer trends post-pandemic has particularly affected Gong Cha’s operations in Korea, where sales fell from $98.7 million (£73.7 million) to $92.8 million (£69.3 million). However, the company’s Japanese division demonstrated growth, with turnover increasing from $34 million (£25.4 million) to $40.3 million (£30.1 million).

In the United States, Gong Cha’s sales declined from $14 million (£10.4 million) to $11.2 million (£8.3 million), while Australia saw a drop from $12.2 million (£9.1 million) to $10.5 million (£7.8 million). Despite these challenges, Gong Cha’s overall headcount increased from 722 to 770, reflecting continued investment in its workforce.

Despite the current losses, Gong Cha’s board remains optimistic about the company’s future. A statement released by the company indicated that it continues to invest in strengthening its central functions, including product innovation, supply chain development, and market expansion. “The group continues to invest to strengthen its position as a leading global tea brand,” the statement read.

Gong Cha highlighted the robust growth of the global tea market in recent years, noting that bubble tea remains a staple beverage in Asia and is increasingly gaining popularity worldwide. The company has successfully transitioned from an Asia-focused, directly operated store model to a diversified global franchise operator.

Looking ahead, Gong Cha plans to further expand its global brand presence by developing existing markets and entering new ones, with a focus on sustainable, profitable growth for its master franchise partners. “We maintain a strong pipeline for new store openings in existing markets and for new market entry,” the board stated.

Founded in 2006 in Taiwan, Gong Cha has grown significantly, operating over 2,000 stores in 23 countries by the end of 2023. As the bubble tea industry continues to evolve, Gong Cha is positioning itself to adapt and thrive in a competitive marketplace.

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