---
title: "Why bubble tea is so profitable"
url: https://modern-mba.com/case/boba
sector: "Food & beverage"
sector_url: https://modern-mba.com/sector/food-and-beverage
aired: 2024-09-22
published: 2026-08-27
updated: 2026-08-28
reading_time_minutes: 11
charts: 7
video: https://www.youtube.com/watch?v=XgsrxADVo7M
author: "Yishan Lin"
author_url: https://www.linkedin.com/in/yishanlin/
publisher: Modern MBA
license: "© Modern MBA, all rights reserved. Quote and cite with credit and a link; republishing needs written permission."
---

# Why bubble tea is so profitable

A bubble tea shop on Sawtelle grosses $1.08 million a year on a $9 average order at a 30% store-level operating margin — higher than Starbucks, higher than McDonald's, and among the highest margins in retail. It is not a fad like frozen yogurt, and it is not the brand doing the work. This case study takes the numbers from three Los Angeles shops — a former franchisee gone independent, two Taiwan-trained operators, and a six-year neighborhood teahouse — to show where the margin actually comes from and why the moat is the supply chain.

## Key figures

- **30%** — Store-level operating margin on a $9 average order
- **$1.08M** — Annual revenue of one Sawtelle bubble tea shop
- **3x** — What a good independent grosses against a franchised chain store

## The argument

Bubble tea looks like frozen yogurt and cupcakes and is not. The economics underneath it are the best in beverage: rent requirements are low, the product is water and shelf-stable commodities, and the labor is boiling water and pouring milk. In the 1990s it was a $1–2 drink made from powdered mix and the only money was in franchising. It was then rebuilt in Asia — brewed tea, real milk, cheese foam, fresh fruit — and arrived in the country with the highest disposable income on earth and the least idea what it was.

The result is margins nobody in food service gets. A shop on Sawtelle grosses $1.08 million a year at a 30% store-level operating margin on a $9 average order. Two blocks away, in a plaza UCLA students call the Plaza of Death, another grosses $924,000 at over 35%. Starbucks runs 16%, McDonald's 16%, Dutch Bros 2%. The Taiwanese chains that spent millions franchising into Southern California average $342,000 to $365,000 a store — a third of what a good independent does.

Which is the finding. Brand is worthless here: in China every shop has a mascot and none is memorable, and one of these owners says openly she is not trying to build one. What separates them is what they pour and where they get it, which is why none would let a camera film their supplies. And that is a volume problem: three stores to run your own distribution, fifteen to afford the technology. Which is why all three are opening store two or three right now, and why the window is closing on anyone not already in.

## Charts

### Three shops, three completely different numbers

Annual revenue. Same city, same product — the Sawtelle store and the Artesia store have the same owner and the same menu.

|  | US dollars |
| --- | --- |
| 7 Miles Sawtelle | $1,080,000 |
| Odd One Out | $924,000 |
| 7 Miles Artesia | $540,000 |
| Hey Hey | $360,000 |

Source: Modern MBA, “Why bubble tea is so profitable”, aired September 2024. Chart: https://modern-mba.com/case/boba#chart-1 · Sources: https://modern-mba.com/case/boba#sources

### The franchised chains cannot get near them

Average annual revenue per store. Millions spent franchising into Southern California buys a third of what a good independent does.

|  | US dollars |
| --- | --- |
| 7 Miles | $1,080,000 |
| Odd One Out | $924,000 |
| Sharetea | $365,000 |
| Happy Lemon | $356,000 |
| Gong cha | $345,000 |
| Kung Fu Tea | $342,000 |

Source: Modern MBA, “Why bubble tea is so profitable”, aired September 2024. Chart: https://modern-mba.com/case/boba#chart-2 · Sources: https://modern-mba.com/case/boba#sources

### Margins nobody else in beverage gets

Store-level operating margin. Mikiko and Mid East Tacos are independents covered in earlier episodes, shown for scale.

|  | Percentages |
| --- | --- |
| Mikiko | 40% |
| Odd One Out | 35% |
| Dunkin' | 33% |
| 7 Miles | 30% |
| Mid East Tacos | 24% |
| Hey Hey | 20% |
| Starbucks | 16% |
| Dutch Bros | 2% |

Source: Modern MBA, “Why bubble tea is so profitable”, aired September 2024. Chart: https://modern-mba.com/case/boba#chart-3 · Sources: https://modern-mba.com/case/boba#sources

### On a ticket smaller than a sandwich

Average spend per order. This is a volume business running dessert-level margins.

|  | US dollars |
| --- | --- |
| Starbucks | $15 |
| Mikiko | $15 |
| Odd One Out | $14 |
| Los Gatos Tacos | $13 |
| Hey Hey | $11 |
| Dunkin' | $11 |
| 7 Miles | $9 |
| Dutch Bros | $8 |

Source: Modern MBA, “Why bubble tea is so profitable”, aired September 2024. Chart: https://modern-mba.com/case/boba#chart-4 · Sources: https://modern-mba.com/case/boba#sources

### Nobody has room to raise prices

Cheapest and most expensive drink on each menu, 2024. The shop with the best location has the least pricing power, because volume is what it cannot risk.

|  | Cheapest drink | Most expensive drink |
| --- | --- | --- |
| 7 Miles | $4.25 | $7.25 |
| Odd One Out | $4.50 | $8.50 |
| Hey Hey | $5.25 | $7.25 |

Source: Modern MBA, “Why bubble tea is so profitable”, aired September 2024. Chart: https://modern-mba.com/case/boba#chart-5 · Sources: https://modern-mba.com/case/boba#sources

### $1.54 separates the whole street

Average price of a drink at bubble tea shops on Sawtelle, 2024. There is no price war available here.

|  | US dollars |
| --- | --- |
| Teaspoon | $7.28 |
| Sharetea | $6.58 |
| Odd One Out | $6.41 |
| Tea MUG | $6.13 |
| Volcano Tea House | $5.90 |
| 7 Miles | $5.74 |

Source: Modern MBA, “Why bubble tea is so profitable”, aired September 2024. Chart: https://modern-mba.com/case/boba#chart-6 · Sources: https://modern-mba.com/case/boba#sources

### The independents run the leanest menus

Number of drinks on the menu, 2024. Fewer SKUs means tighter inventory, faster training, and less waste.

|  | Counts |
| --- | --- |
| Kung Fu Tea | 120 |
| Sharetea | 83 |
| Gong cha | 73 |
| Happy Lemon | 50 |
| 7 Miles | 42 |
| Odd One Out | 29 |
| Hey Hey | 20 |

Source: Modern MBA, “Why bubble tea is so profitable”, aired September 2024. Chart: https://modern-mba.com/case/boba#chart-7 · Sources: https://modern-mba.com/case/boba#sources


## Takeaways

1. Three blocks in West LA hold **40** restaurants, **3** cafés, **8** patisseries, **2** bars, and **5** bubble tea shops, six minutes end to end. Every customer one shop wins is a direct loss for the other four. It is a zero-sum block, and it is the most valuable boba real estate in the country.
2. **7 Miles** on Sawtelle grosses **$90,000** a month — **$1,080,000** a year. Its own second store in Artesia, same owner, same menu, same operation, grosses exactly half: **$45,000** a month, **$540,000** a year. Location is the only variable and it is worth 2x.
3. **Odd One Out** does **$924,000** from a plaza off the main street that UCLA students call the Plaza of Death, with effectively zero foot traffic. It compensates with price: the highest average drink on the block and an award-winning milk tea starting at **$8.00** before tapioca.
4. **HeyHey** in Echo Park grosses **$360,000** after six years in a residential neighborhood. Which raises the honest question the Sawtelle numbers dodge: how much of $1.08 million is the concept, and how much is a destination street in its first year?
5. The chains that spent millions franchising into Southern California cannot get near any of them. The average **Sharetea** does **$365,000**, **Happy Lemon** **$356,000**, **Gong cha** **$345,000**, and **Kung Fu Tea** **$342,000** — a third of a good independent.
6. The margins are the highest ever covered on this channel in retail. **Odd One Out** runs **35%**, **7 Miles** **30%**, and **HeyHey** **20%**, against **33%** at **Dunkin'**, **16%** at **Starbucks**, **16%** at **McDonald's**, and **2%** at **Dutch Bros**.
7. And the ticket is tiny. **7 Miles** averages **$9** an order, **HeyHey** **$11**, **Odd One Out** **$14** — against **$15** at **Starbucks** and **$11** at **Dunkin'**. This is a volume business that happens to have dessert-level margins.
8. Menu size is the cost lever, and the three shops sit at opposite ends of it. **HeyHey** sells **20** drinks, **Odd One Out** **29**, **7 Miles** **42** — against **50** at **Happy Lemon**, **73** at **Gong cha**, **83** at **Sharetea**, and **120** at **Kung Fu Tea**.
9. Pricing is where positioning shows. **7 Miles** runs **$4.25** to **$7.25**, **Odd One Out** **$4.50** to **$8.50**, **HeyHey** **$5.25** to **$7.25**. The mid-market shop with the best location has the least room to raise prices, because volume is the thing it cannot risk.
10. On Sawtelle itself the spread across seven shops is **$5.74**, **$5.90**, **$5.98**, **$6.13**, **$6.41**, **$6.58**, and **$7.28**. Under $1.60 separates the cheapest drink on the street from the most expensive. There is no price war to win here.
11. The real moat is upstream. Around **70%** of shops buy from whatever local one-stop distributor is convenient — same tea, same boba, same sugar, same cups as everyone else on the street — which leaves creativity as the only differentiator, and creativity does not scale into a whole menu.
12. So nobody will show you their kitchen. Every one of these owners treats the supplier list as the competitive advantage, and this episode was not permitted to film supplies in any of the three shops.
13. Which makes it a scale business whether the owner likes it or not: about **3** stores to run your own distribution channel, more to reach the top-tier ingredients, roughly **15** to afford the automation the mega-chains already have. All three shops are opening location two or three right now.
14. Franchising is not the escape it looks like. A franchisee pays a royalty they can see, and inventory and shipping markups they mostly cannot — one of these owners left a top Taiwanese chain after her three new drinks took months of back-and-forth to approve and then became the chain's best-sellers.
15. The paths in are the interesting part. Buy the education from a franchisor and leave. Or spend **564** days in Taiwan with a tea master, **15** mixologists, and a custom roaster before opening a single store. Or quit a six-figure consulting job in your thirties and work minimum wage at **Meet Fresh**, **Half & Half**, a patisserie, and **Philz** for 18 months to learn taro, tapioca, crepes, and how to run a floor.
16. And the ceiling is visible from here. Consumption is not growing as fast as shop count, the market is consolidating, and the owners say it plainly — this is no longer a business a beginner can enter in California. It is now a business for people who are already established.

## Common questions

### Are bubble tea shops profitable?

Unusually so. The three Los Angeles shops in this episode run store-level operating margins of 35%, 30%, and 20% — against 16% at Starbucks, 16% at McDonald's, and 2% at Dutch Bros — and the best of them grosses $1.08 million a year on an average order of just $9. The economics are structurally favorable: real estate requirements are small, the product is water plus shelf-stable commodities, and the labor is simple enough that a teenager can be trained on it. The catch is that these are top-1% locations. A franchised Gong cha, Sharetea, Kung Fu Tea, or Happy Lemon averages $342,000 to $365,000 a store.

### How much does a boba shop make a month?

It depends almost entirely on the block. The Sawtelle shop in this episode grosses about $90,000 a month; the same owner's store in Artesia, with the same menu and operation, grosses $45,000. A shop off the main street with no foot traffic does about $77,000 by charging the highest prices on the block. A six-year-old neighborhood teahouse in Echo Park does about $30,000. Location is worth a 3x swing on identical operations, which is why the first decision an operator makes matters more than almost anything they do afterwards.

### Why is bubble tea not a fad like frozen yogurt?

Because the product kept improving instead of staying still. Froyo and cupcakes were one idea repeated until supply exceeded demand. Bubble tea arrived in the US in the 1990s as a $1–2 drink made from powdered mix and non-dairy creamer, then got rebuilt in Asia over two decades — brewed tea instead of powder, real milk, expanded toppings, cheese foam, fresh fruit, natural sweeteners, photogenic layering. It is also the rare category where innovation flows East to West: China and Taiwan are saturated and slowing, so the concepts land in America years after they were proven somewhere else, in a market with high disposable income and low familiarity.

### What is the actual moat in a bubble tea shop?

The supply chain, not the brand. Roughly 70% of shops buy from whatever local distributor is convenient, which means the same tea, boba, sugar, and cups as every competitor on the street — and if everyone uses the same ingredients, differentiation collapses to creativity, which produces one good drink rather than a whole menu. The shops in this episode source small-batch tea directly from Taiwanese farmers with custom roasting profiles, or spend years developing their own supplier relationships. All three refused to let their kitchen supplies be filmed. And the supply chain is a function of scale: about three stores to run your own distribution, and around fifteen to afford the technology the mega-chains have.

### Is it better to franchise a bubble tea brand or go independent?

They are different businesses, not different sizes of the same one. A franchisee gets brand recognition, first access to inventory, marketing, logistics support, and technology — and pays for it in a royalty they can see plus inventory and shipping markups they mostly cannot. The franchisor makes money on volume of stores, which puts it in direct conflict with a franchisee who wants to be the only one in their area. One owner in this episode left a top Taiwanese chain after it took months to approve three new drinks she had developed for her own local market; those drinks became the chain's best-sellers. She now runs three stores of her own.

### Is it too late to open a bubble tea shop?

In California, the operators think so. Their view is that shop count is growing faster than consumption, so every new shop is splitting the same pie; that weaker brands are already dying and the market is consolidating into a few survivors; and that the era where opening a boba shop guaranteed customers is over. The specific bar they set is that this is no longer a business for someone without restaurant experience, without an established supply chain, and without the capital to reach multiple stores. They are explicit that this applies to California and that other states may still be early.

## Discussion

- Bubble tea looks like frozen yogurt and cupcakes and is not: low rent requirements, shelf-stable commodities, and labor that is boiling water and pouring milk. Which of those three actually carries the margin?
- A shop on Sawtelle grosses $1.08 million a year on a product that is mostly water and sugar. What stops that from attracting enough competition to compete the margin away?
- The category was rebuilt in Asia and arrived in the country with the highest disposable income and the least idea what it was. How long does that information gap last, and what happens when it closes?
- In the 1990s the drink was $1–2 and the only money was in franchising. What changed to move the profit from the franchisor to the operator?
- You are opening a shop today. What is your honest answer to why a customer picks you over the store two doors down?

## Sources

Store-level revenue, average order value, average and range of menu prices, menu size, and operating margins for 7 Miles Tea Lab, Odd One Out Tea, and HeyHey disclosed on camera by their owners; comparative average store earnings and margins for Gong cha, Sharetea, Kung Fu Tea, Happy Lemon, Starbucks, Dunkin', Dutch Bros, and McDonald's derived from franchise disclosure documents, company filings, and store counts; Los Gatos Tacos, Mid East Tacos, and Mikiko figures were disclosed by those owners in earlier Modern MBA episodes; Sawtelle menu prices surveyed in 2024

---

From [Modern MBA](https://modern-mba.com/). Read this case in full at [https://modern-mba.com/case/boba](https://modern-mba.com/case/boba), or watch the episode at https://www.youtube.com/watch?v=XgsrxADVo7M.