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How to Start a Bubble Tea Business

How to Start a Bubble Tea Business

The bubble tea (or boba tea) trend has rapidly gained popularity in the United States, and the chances are that even if you haven’t had one of these drinks yourself, you’ve seen plenty of them on social media. If you’re a bubble tea enthusiast and love coming up with new flavors, starting a bubble tea shop of your own might be a rewarding opportunity.

Business Overview

Bubble tea, also called boba or pearl milk tea, is highly popular in Taiwan and has since become a go-to drink in Europe and the United States. The basic bubble tea is made of black tea, milk, ice, and tapioca pearls, but some teas include chewy jelly, fruits, seeds, and more. These teas are served in clear cups to take advantage of their visual appeal, and they offer a healthy alternative to coffees and other fast food drinks.

As bubble tea has gained popularity in the United States, entire stores dedicated to the drink have opened. These stores offer a variety of flavors, mix-ins, and toppings and provide custom-made drinks while the customer waits.

Product innovation is an essential part of running a successful bubble tea business. Identifying the toppings and ingredients that are currently in demand can help your store to appeal to a broad audience, but getting creative and trying some new, exciting, non-traditional ingredients can also set your store apart from others and bring in customers.

Industry Summary

According to Allied Market Research, the bubble tea industry has undergone significant growth in the United States and is poised to continue to grow. In 2019, the bubble tea market was a $2.4 billion market, and it should reach $4.3 billion by 2027. Black tea made up more than half of the market’s share in 2019 and is expected to continue to grow in popularity.

Multiple factors account for the rapid rise in the popularity of bubble tea. Increased awareness of health-conscious eating habits and the popularity of healthier beverages like green and black tea has been a major factor in the market’s growth. Younger generations have also embraced bubble tea. The market was further aided by aggressive advertising and celebrity endorsements.

 

Industry Trends

Several trends are shaping the bubble tea industry. According to PR Newswire, bubble tea businesses are offering new products to meet consumers’ interests driven by the wellness trend. Low-fat and calorie-free drinks are more popular, and businesses that offer and market these health-conscious options can appeal to a broader customer base.

Yahoo Lifestyle reports that the popularity of bubble tea has also given rise to many bubble-inspired foods. Bubble tea has been made into or inspired ice cream, yogurt, tarts, pizzas, and more. Some businesses are focusing on bottled bubble tea that consumers can purchase in stores.

Instagram and Facebook have been a major driver of bubble tea’s popularity, and businesses that embrace this platform will have access to a powerful marketing tool. The Culinary Edge reports that businesses have used different cups, introduced wild toppings like churros and ice cream, and used prettier flavors like striated black sugar milk to take advantage of the drinks’ visual appeal. Encouraging customers to post photos of their tea can make for highly effective marketing, and it’s likely that this trend will continue.Target Market

Most bubble tea businesses market to adults who are looking for a convenient beverage. This target market may vary slightly depending on the store’s specialty. Some businesses focus heavily on bubble tea’s health benefits, while others may offer decadent toppings and focus more on the delicious taste of their drinks.

Skills Needed To Operate

While you won’t need a business degree to start your own bubble tea shop, certain skills and experiences are helpful.

Food service experience. Experience working in the food service industry and a knowledge of safe food handling processes is an advantage in this industry.

Awareness of bubble tea and health trends. A business owner who’s aware of current health and bubble tea trends can make well-informed decisions about product offerings and marketing to better appeal to consumers.

Creativity. From identifying new flavors and recipes to finding the perfect marketing campaign, creativity is a valuable skill for a bubble tea business owner.

Management experience. Most bubble tea businesses require multiple employees. A business owner who has previously hired, trained and managed staff will be well-prepared for this responsibility.

Customer service skills. Creating a positive customer experience is an essential element of building a loyal customer base. A business owner will benefit from previous experience working with customers.

Multitasking abilities. Bubble tea businesses can get busy, and a business owner needs to be able to balance multiple priorities.

Checklist for Starting a Bubble Tea Business

If you’re thinking about starting your own bubble tea business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.

Step 1: Write a Business Plan

Before opening your business, it’s important to sit down and write a detailed business plan. This plan will serve as your guide as you start your business, and it helps to get you organized. By defining your target market, the types of products you’ll offer, how your business will operate, menu, suppliers, and projected income and expenses, you’ll have a clear path outlining the steps you need to take to succeed. If you need to apply for financing from a bank or investor, your business plan will be an important part of your application. Multiple sources have also found that taking the time to develop a business plan increases the chance of success.

Related: How to write a restaurant business plan

Step 2: Form a Business Entity

A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a bubble tea business, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
 
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 3: Name the Business

Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Step 4: Select Your Location

The location of your business can greatly contribute to its success. When looking for a storefront, consider the amenities you’ll need and what type of location would be best. Stores in high-traffic retail locations can build awareness of your business and generate valuable walk-in traffic, but they also carry higher rental costs than stores in quieter locations. A store with a drive-through window can also be an advantage, and this convenience can encourage customers to make a purchase.

Related: Choosing a business location

Step 5: Register for Business Licenses and Permits

Because a boba shop involves handling food, you will also need to go through food safety & certificate sanitization training and earn proper licensure or certification, as required by your state.  Your shop will be subject to regular inspections, typically from the health department, to ensure proper rules and regulations are being followed.

Your bubble tea business will also likely need to register for general local, state, and federal business registrations such as a sales tax permit, Employer Identification Number, and Occupancy Permit.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Finding financing can help you to cover the initial startup costs for your business. If you’re applying for a business loan, you’ll need to have good credit and should plan to invest your own money in 15-25% of the start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get Your Marketing Plan in Place

Marketing will help build up your initial customer base, and it’s also key in encouraging new customers to visit your store. Writing a thorough marketing plan can help you to decide how best to promote your business. Potential marketing techniques include being active on social media platforms, online advertising, radio advertising, direct mail, print advertising, and more. You might also want to establish a customer loyalty program, which can encourage customers to return to your store again and again.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.

Step 9: Get Business Insurance

There are several types of insurance to consider when starting a bubble tea business. A few of these include:
– General liability insurance protects the business against expenses that might occur if a customer is hurt while on the property.
– Commercial property insurance helps to protect a business against damages it could face if its store or equipment were ever damaged in an event like a fire.
– Worker’s compensation insurance can cover expenses like medical bills that could result if an employee were ever injured while working.

Factors like the value of a business’ equipment and how many employees are on staff can affect the cost of insurance policies. Requesting quotes from multiple insurance providers can give you the most accurate idea of how much to budget for insurance costs. When evaluating the quotes, consider how not only the premiums but also how coverage exclusions, coverage limits, and other factors compare.

Related: Types of insurance your business may need

Step 10: Hire Employees

A bubble tea business will need multiple employees to cover all of the shifts and to be able to keep up with the demand during peak operational hours. According to PayScale, cashiers make an average of $10.09 per hour, though their earnings can range from $7.89 to $13.21.

A business’ budget will need to include not only staff salaries but also other staff-related expenses like paid time off and worker’s comp insurance.

Quality and consistency matter to your store’s reputation. While you might design a great-tasting drink, it’s important to ensure that it stays that way. Always taste-test your products and make sure that staff are properly trained in how to prepare them. Then, do spot checks every so often to verify that the drinks are up to your store’s quality. A bad-tasting drink can result in a lost customer and a negative review, so this is an essential part of successfully running your store.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a bubble tea business?

The cost to start a bubble tea business will largely depend on the business’ size and location. It’s possible to start a smaller business for about $50,000, and if you opt to begin with a food cart only, the cost will be even lower.

Some common startup costs for a bubble tea business include:
– Food cart or store renovations
– Equipment – refrigerator, tea espresso machine, shaker machine, blender, strainer, cash register/Point of Sale system (POS)
– Supplies including cups, lids, stirrers, and boba straws
– Inventory of ingredients like milk, creamer, mixes flavored syrups, tapioca pearls, tea leaves, sugar, etc.
– Seating for customers
– Signage

How much can a bubble tea business owner make?

Many factors will affect a business’s profits, including its location, the size of the business, the products offered, and how many years it’s been in operation. You can maximize your chances of making a decent profit by doing thorough market research to ensure you’re opening up in an area with minimal competition but also with a high demand for your products.

While bubble tea can be a business in and of itself, you might want to offer other products to increase your ability to upsell and bring in higher profits. Pastries, danishes, and other snack-type foods go along well with tea and can boost your income.

Are there grants to start a bubble tea business?

It’s extremely rare to find a grant to start a bubble tea business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.

What is the NAICS code for a bubble tea business?

The NAICS code for a bubble tea business is 722515.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Additional Resources:
National Juice Bar Association