Bubble tea chain Gong Cha struggles in its top market of Korea

Global leading bubble tea franchise Gong Cha Global Ltd.’s South Korean affiliate, which owns the beverage chain’s Japanese and Taiwanese operations, is seeing a sharp drop in its earnings amid intensifying market competition.

Gong Cha Korea Co.’s operating profit plunged 61.9% on-year to 6.3 billion won ($4.6 million) and its revenue climbed 1.1% on-year to 183 billion won last year, according to its earnings report issued earlier this month. The Korean affiliate wholly owns Gong Cha Japan Co. and holds a 69.3% stake in Gong Cha International Co. in Taiwan.  

In the Korean market last year, Gong Cha’s operating profit nosedived 77.9% on-year to 3.4 billion won, and revenue fell 3.9% on-year to 123.1 billion won. Korea is home to the tea chain’s largest market, according to Gong Cha’s official website.

Gong Cha's earnings were hit by fierce competition with local players such as Osulloc, the premium tea brand operated by cosmetics giant Amorepacific Corp., market insiders said.

Despite the Korean unit's struggle, the Japanese operations stood out with their highest-ever revenue last year. Gong Cha Japan’s revenue rose 21.7% on-year to 53.4 billion won and its operating profit swung to the black with 200 million won for the year.  

Gong Cha was established in 2006 in Taiwan. The Korean affiliate opened its first store in the shopping area of Hongdae, Seoul in 2012 and increased the number of domestic outlets to 120 by 2014.  

Seoul-based private equity firm UCK Partners, formerly Unison Capital Korea, acquired Gong Cha Korea for 34 billion won in 2014. The Korean affiliate entered the Japanese market in September 2015 and acquired a 70% stake in Gong Cha’s headquarters Royal Tea Taiwan for 40 billion won in January 2017.

In 2019, UCK sold Gong Cha Korea to US investment firm TA Associates Management LP for 350 billion won, about six times its earnings before interest, taxes, depreciation and amortization (EBITDA) in 2019. The Korean affiliate’s EBITDA was 17.9 billion won last year, 31.1% of that in 2019.

TA Associates has moved Gong Cha’s global headquarters from Seoul to London and increased the number of outlets worldwide. The bubble tea chain operates around 1,600 stores in 22 markets in the Asia-Pacific, Europe and the Americas.

The US asset manager is expected to divest of Gong Cha by next year, and its earnings in Korea this year will highly influence the tea franchise’s sales price, according to industry sources. 

Write to Ik-Hwan Kim at lovepen@hankyung.com

Jihyun Kim edited this article.