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How much does Ding Tea cost?
Initial Investment Range
$202,240 to $400,000
Franchise Fee
$65,670 to $105,900
The franchise offered is to operate a Ding Tea beverage service establishment offering gourmet teas, coffee, various flavored tea-based beverages, bubble tea, and compatible food products and related supplies, accessories and gifts.
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Ding Tea March 1, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: August 19, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
Low Risk
Explanation
This risk was not identified, as the franchisor's financial statements were not provided for this analysis. Reviewing these statements is critical for assessing a franchisor's ability to support its franchisees. Signs of financial weakness, such as operating losses or high debt, could indicate future problems with support, marketing, and the overall health of the system. Without this information, a key area of due diligence remains incomplete.
Potential Mitigations
- Your accountant must conduct a thorough review of the franchisor's audited financial statements for the last three years, paying close attention to the footnotes and auditor's notes.
- Ask an accountant to analyze trends in revenue, profitability, and cash flow to assess the company's financial stability and reliance on franchise fees versus ongoing royalties.
- Discuss any concerns raised by the financial statements with your franchise attorney to understand the potential legal and operational implications.
High Franchisee Turnover
High Risk
Explanation
The turnover data reveals significant risks. In 2022, there were 27 terminations against a base of 116 units, a very high rate. More concerning is the trend in 2024, which shows only 4 new outlets opening while 21 exited (5 terminations and 16 non-renewals). This resulted in a net decline in total outlets. Such high churn and a shrinking system are strong indicators of potential franchisee dissatisfaction, unprofitability, or other systemic issues.
Potential Mitigations
- A discussion with your business advisor is crucial to understand the severe implications of such high franchisee turnover.
- Your franchise attorney should help you formulate targeted questions for the many former franchisees listed in the FDD.
- It is vital that your accountant model worst-case financial scenarios based on the possibility that the business model is struggling system-wide.
Rapid System Growth
Medium Risk
Explanation
The franchise system experienced rapid growth in 2023, adding a net of 15 outlets, but this was immediately followed by a net decline of 17 outlets in 2024. This volatility suggests the franchisor's support infrastructure may have been strained by the prior growth, potentially contributing to the subsequent high rate of franchisee exits. This pattern indicates instability in the system's ability to manage its size and support its franchisees effectively, which poses a risk to your long-term success.
Potential Mitigations
- With your business advisor, question the franchisor about the reasons for the recent contraction and what changes have been made to their support systems.
- Contacting franchisees who joined during the growth phase and those who left during the decline is essential to understand the support experience.
- Have your attorney review the franchisor's support obligations in the Franchise Agreement to determine if they are specific and enforceable.
New/Unproven Franchise System
Medium Risk
Explanation
The U.S. franchisor, Ding Tea Corporation, was formed in January 2019, giving it a relatively short operational history in the United States. While its Taiwanese parent company has more experience, operating a franchise system in the U.S. presents unique challenges. A newer system may have less brand recognition and underdeveloped support structures, which could increase the risk for early franchisees like you. The high turnover in Item 20 may reflect these growing pains.
Potential Mitigations
- A deep dive into the U.S. management team's specific franchising experience is warranted; your business advisor can help you investigate.
- Speaking with the earliest U.S. franchisees is critical to gauge how the franchisor's support and systems have evolved.
- Your attorney could attempt to negotiate more protective terms in the agreement to compensate for the higher risk of joining a newer system.
Possible Fad Business
Low Risk
Explanation
The business operates in the bubble tea and specialty beverage market, which is a popular but highly competitive and trend-driven industry. There is a risk that the concept could be susceptible to shifting consumer tastes or be part of a market trend with limited long-term staying power. If the trend fades, you would still be bound by the long-term franchise contract, potentially in a declining market.
Potential Mitigations
- Conducting independent market research with a business advisor to assess the long-term consumer demand for this specific type of beverage concept is advisable.
- Question the franchisor on their strategy for product innovation and adaptation to stay ahead of market trends.
- Your financial advisor can help you evaluate the business model's resilience in the face of changing consumer preferences.
Inexperienced Management
Medium Risk
Explanation
The FDD discloses that the franchisor's president has led the company since its 2019 inception and has experience with the parent company in Taiwan. However, the document does not provide details about the management team's specific experience in operating and supporting a franchise system within the competitive U.S. market. A lack of U.S.-specific franchise management experience could impact the quality of support and strategic guidance you receive.
Potential Mitigations
- A thorough investigation of the U.S. management team's background in both the food service industry and franchising should be conducted with your business advisor.
- In your calls with current franchisees, specifically inquire about the management team's accessibility, expertise, and understanding of local market challenges.
- Your attorney can help you ask direct questions to the franchisor about the stateside support team's structure and experience.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD package. Private equity ownership can be a risk because the firm's primary duty is to its investors, which may lead to decisions focused on short-term profitability, such as cutting franchisee support or increasing fees, rather than on the long-term health of the brand. An ownership change during your term could also introduce uncertainty.
Potential Mitigations
- If you review a franchise with private equity ownership, engaging a business advisor to research the firm's history with other franchise brands is crucial.
- An important question for your attorney to explore is what happens to your agreement if the franchisor is sold.
- Discussing any changes in support or fees since the acquisition with existing franchisees would be a key due diligence step.
Non-Disclosure of Parent Company
Medium Risk
Explanation
The franchisor's parent company, Chu Yu Hsiang Co., Ltd., is disclosed and plays a critical role as a primary source of revenue through required franchisee purchases. However, the FDD does not appear to include the parent company's financial statements. Given the parent's significant financial reliance on franchisee purchases and its role as a key supplier, the absence of its financials creates a blind spot in assessing the overall stability and potential conflicts of interest within the system.
Potential Mitigations
- Your franchise attorney should determine if the parent company's financial statements are required to be disclosed under franchise law, given its integral role.
- It is important to have your accountant analyze the potential risks of being dependent on a foreign parent company for supplies without full financial transparency.
- Discuss the stability and reliability of the supply chain from the parent company with current U.S. franchisees.
Predecessor History Issues
Low Risk
Explanation
The FDD for Ding Tea Corporation, formed in 2019, does not disclose any legal predecessors. This risk typically arises when a franchisor acquires a system from a prior entity and fails to disclose that entity's history, which could include issues like litigation, bankruptcy, or poor franchisee relations. While not a factor here, it is an important area to check in other FDDs.
Potential Mitigations
- When analyzing an FDD that does list predecessors, a business advisor can help you research the history and reputation of those prior companies.
- Your attorney should carefully review Items 1, 3, and 4 for any information related to a predecessor's legal or financial troubles.
- Asking long-term franchisees about their experience under any previous ownership is a valuable due diligence step.
Pattern of Litigation
High Risk
Explanation
The FDD discloses a concerning pattern of significant government enforcement actions. The company entered into consent orders with franchise regulators in both California and Washington for violations of state franchise laws, resulting in substantial penalties and required remedial actions. This history indicates past non-compliance with fundamental franchise sales and disclosure rules, which represents a serious risk regarding the franchisor's practices and integrity.
Potential Mitigations
- A franchise attorney must review the consent orders in detail to understand the specific violations and their implications for you.
- Discussing these regulatory actions with the franchisor to understand the causes and corrective measures taken is essential.
- Treating this history of regulatory non-compliance as a major red flag when evaluating the investment is a prudent step to take with your advisors.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems