How Coffee Bene Caused Its Franchise Meltdown

In May 2014, a protest by disgruntled investors turned the South Korean coffee chain Coffee Bene into a cautionary tale. Six stores in Chongqing suddenly shut down, and protestors hung banners denouncing the company. The incident exposed deep flaws in how Coffee Bene managed its rapidly growing network of franchises across China, especially around costs, supply chains, and support for franchisees.

The core issue was a chaotic franchise model: high, unclear setup fees, unstable supplier payments, and inconsistent franchisee support led to store closures and public backlash. At least six Chongqing locations closed, and suppliers cut off materials due to unpaid bills, crippling operations.

What Sparked the Protests?

Coffee Bene became a trending topic over China’s Labor Day holiday after franchisees publicly protested. In Chongqing, six stores closed abruptly, with owners hanging signs to express dissatisfaction. Beijing reporters visiting local outlets found that while northern operations claimed to be unaffected, the southern unrest revealed serious underlying problems. The brand—once endorsed by Korean celebrities—suffered reputational damage as delays, broken supplier contracts, and franchisee anger made headlines.

Franchise Costs and Hidden Fees

Coffee Bene’s northern regional director told reporters that "there is no set price for opening a store" and that costs vary widely. Factors such as interior quality, store size, furniture count, kitchen equipment, and rent all affect total investment. However, franchisees accused the company of inflating fees or charging for vague items. Additionally, a 100,000 RMB logistics bond was required to ensure stores used company-approved ingredients—but some locations reportedly bought their own supplies, violating agreements.

The Broken Supply Chain

The franchisee protests highlighted major operational failures. Due to unpaid bills, suppliers of coffee beans, equipment, and even construction services stopped delivering to most Coffee Bene stores nationwide. This caused product shortages and service interruptions. The northern region claimed it was spared these issues, with suppliers and equipment support still functioning normally, but the broader collapse revealed systemic weaknesses in how the company managed vendor relationships and franchisee obligations.

Uneven Franchise Models and Member Card Issues

Coffee Bene operated three types of stores in China: company-owned, franchised, and joint venture (49/51 ownership splits). Franchisees paid a 4% management fee and could receive operational guidance, but were otherwise responsible for their own profits and losses. In joint ventures, Coffee Bene controlled management and took 51% of gross profit. However, member cards were another pain point. The loyalty system was centrally managed, but many stores didn’t participate due to complex backend settlement rules—or simply opted out, especially among 100% independently operated franchises. As a result, customers couldn’t use their cards at all locations, creating frustration and mistrust.

History of Expansion and Past Failures

Founded in 2008, Coffee Bene was South Korea’s largest coffee chain. By 2014, it had nearly 600 stores in China and planned to open 400 more, along with 1,000 “mini coffee bars” and 1,500 “self-service coffee kiosks”—aiming for 3,500 total outlets. But rapid expansion through franchising led to problems seen before in other chains. For example, Taiwan’s Café de Coral and Japan’s Doutor faced similar issues, while U.S. brand Seattle’s Best also struggled with inconsistent franchise quality. In China, earlier brand Shangdao Coffee grew too fast, opening 700 stores in one year, then collapsed due to poor franchise oversight and trademark issues. Its decline left it far behind competitors like Starbucks and Costa.

Why Franchises Fail

Industry experts note two key risks in franchise models: weak alignment between corporate and franchisee profits, and poor operational oversight. Without strong management, brands can’t ensure consistent quality or support, leading to franchisee distrust. Over the past decade, China’s coffee consumption has grown at double-digit rates, especially in smaller cities. In 2014, coffee and beverage franchises ranked as the most promising investment sector. But rapid rollout through franchising—without proper controls—creates long-term risks for both companies and investors.

Frequently Asked Questions

Why did six Coffee Bene stores in Chongqing close?

Six Chongqing Coffee Bene outlets shut down due to unpaid supplier bills, which led to a cutoff of coffee beans, equipment parts, and construction materials. This paralyzed operations, forcing closures. Franchisees protested, citing broken promises and financial losses.

What was the 100,000 RMB logistics bond for?

Coffee Bene required a 100,000 RMB logistics bond from franchisees to ensure they purchased approved ingredients through the company’s supply chain. If a store bought coffee beans or other items independently, the bond could be deducted to cover non-compliance penalties.

Did the northern stores avoid the problems?

Coffee Bene’s northern region claimed it was not affected by the southern protests. Its suppliers and equipment support remained functional, and stores continued operating normally. However, some Beijing locations faced delays due to licensing issues, unrelated to the protests.

How did Coffee Bene’s membership system work?

The loyalty card program was managed centrally, but participation varied by store. Many franchises, especially 100% independently owned ones, opted out due to complex backend processes. As a result, customers often couldn’t use their cards across different locations.

What franchise models did Coffee Bene use in China?

Coffee Bene operated under three models: fully company-owned stores, franchised locations (with a 4% management fee), and joint ventures (49% franchisee, 51% company). In joint ventures, Coffee Bene managed the store and took 51% of gross profit, leaving 49% to the franchisee.

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