How the Coffee With You Franchise Collapsed in China

In April 2015, a group of angry investors stormed a Coffee With You store in Chongqing, hanging banners calling it a “fraudulent company” and demanding their money back. This wasn’t a random outburst—it was the culmination of widespread frustration among franchisees who said they were misled, overcharged, and abandoned by the once-promising Korean coffee chain.

The short answer: Coffee With You’s “entrusted entrepreneurship franchise” model required franchisees to invest heavily while giving up control. Most paid around 3 million yuan (approx. $475,000) for a 49% stake in stores they couldn’t manage, while the majority 51% was supposedly funded by the company—but no proof of that investment was ever shown.

What Was the Coffee With You Franchise Model?

Coffee With You launched in South Korea in 2008 and grew to over 800 stores nationwide. In 2012, a China joint venture called Coffee With You Management Co., Ltd.—backed by Chinese investment firm China Enterprise Investment Group—brought the brand to China. The company promised to challenge Starbucks, but took a radically different approach: less than 5% of its stores were company-owned, with over 95% run as franchises under a system it called “entrusted entrepreneurship franchise.”

This wasn’t a typical franchise. Under the model, franchisees contributed 49% of the capital and gave up all operational control. The company managed the stores, and franchisees were supposed to receive dividends. But in reality, the financial and operational terms heavily favored the company—and left franchisees exposed.

What Did Franchisees Actually Pay For?

Franchisees were told that opening a standard 200-square-meter Coffee With You store would cost around 3 million yuan. This included:

• Management fee: 350,000 yuan
• Training: 100,000 yuan
• Interior design & decoration: 600,000 yuan (at 3,000 yuan per square meter)
• Site supervision: 100,000 yuan
• Equipment & furniture: 800,000 yuan
• Signage & branding: 100,000 yuan
• Merchandise & supplies: 100,000 yuan
• Marketing & events: 100,000 yuan
• Logistics deposit: 100,000 yuan
• Initial supplies: 90,000 yuan
• Licenses & permits: 100,000 yuan
• Entrusted startup guarantee: 350,000 yuan

But franchisees later discovered many of these costs were inflated or fake. For example, a Kimberly M39 dual-head semi-automatic coffee machine, which retails for around 50,000 yuan, was listed at 120,000 yuan. Business license fees were billed at 100,000 yuan. And most egregiously, there was no evidence that Coffee With You ever invested its promised 51% stake—despite franchisees putting up millions and getting only 49% ownership.

In reality, a properly priced store of that size would have cost closer to 800,000 yuan—but franchisees paid up to 1.47 million yuan more than necessary, and still had no control over their investments.

What Went Wrong After Opening?

Even after paying up, franchisees faced ongoing issues:

• Poor management: One franchisee reported an extravagant 30,000-yuan launch event plan with inflated costs (like 300-yuan flower baskets), which she rejected. Staffing at the China operation was minimal—just two people handling over 10 stores in Chongqing.
• No financial transparency: Franchisees were promised shared control of accounts, but none were ever provided. They couldn’t access basic financial data beyond daily sales.
• Operational control issues: When one franchisee requested later hours due to nightlife traffic, Coffee With You unilaterally cut closing time—from midnight to 10 p.m.—without notice.

The situation worsened when suppliers weren’t paid. Coffee With You racked up debts with coffee bean suppliers, equipment makers, and contractors. As a result, many stores were left without proper ingredients or equipment repair, forcing them to buy local supplies—often at lower prices than what Coffee With You had charged. This led to inconsistent coffee quality, with customers noticing major taste differences between locations.

Why Did the Company Collapse?

In late 2014, reports emerged that the Korean parent company had pulled out. Speculation ranged from embarrassment over the chaos to losing control to the Chinese management team. Meanwhile, China Enterprise Investment Group was rumored to have misused franchise fees—possibly investing them overseas with failed returns, crippling cash flow.

By early 2015, several franchisees attempted to exit. Three Chongqing-based franchisees negotiated a buyout and were promised settlement payments—but Coffee With You delayed and eventually stopped responding. One store was even evicted for unpaid rent, with Coffee With You allegedly removing equipment without notice.

When protests at a northern Chongqing Coffee With You outlet led to a promise from company chairman Lu Changqing to repay by March 31, nothing happened. Lu stopped taking calls, and franchisees were left with no choice but to escalate: protesting at other stores, filing police reports, and taking legal action.

Frequently Asked Questions

What was the “entrusted entrepreneurship franchise” model used by Coffee With You?

It was a franchise system where franchisees provided 49% of the capital for a store but had no operational control. The company managed the store and was supposed to handle the remaining 51% investment, but no evidence of that capital contribution was ever shown. Franchisees took on financial risk without management rights or transparency.

How much did franchisees typically invest in a Coffee With You store?

For a 200-square-meter location, the official cost was around 3 million yuan (approximately $475,000), but market estimates suggested the actual cost should have been closer to 800,000 yuan. Franchisees often paid significantly more than necessary, with some expenses like coffee machines and licensing fees being markedly inflated.

Why did Coffee With You stores fail?

Multiple factors contributed: inflated setup costs, lack of operational control for franchisees, poor management from the parent company, unpaid supplier invoices leading to ingredient shortages, inconsistent coffee quality, and broken promises on financial returns and settlements. Ultimately, the brand collapsed under mismanagement and alleged financial misconduct.

Did Coffee With You ever deliver on its promises to franchisees?

No. Franchisees reported broken promises on financial transparency, settlement payments, store operations, and quality control. Despite paying large sums, most were left with closed stores, unpaid debts, and no recourse.

What happened to the company’s leadership?

Chairman Lu Changqing of China Enterprise Investment Group made promises to franchisees (such as repayments by a set date) but failed to deliver. He stopped answering calls, and both he and other company representatives declined interview requests. The company ceased effective operations in many regions.

Are there any Coffee With You stores still operating?

As of the time of reporting, two Coffee With You outlets in Chongqing remained closed, and the brand’s presence in China had largely collapsed. Protests continued as former franchisees sought restitution.