Why Coffee With You Franchisees in Chongqing Collapsed

In Chongqing, a once-promising South Korean coffee chain called Coffee With You has left behind a string of shuttered stores and angry investors. One franchisee, Li Li, invested 1.3 million RMB for a 49% share under a so-called "entrusted entrepreneurship" model — where the brand was supposed to manage everything — only to watch the shop bleed money for six months before closing. He’s not alone.

Six Coffee With You outlets in Chongqing have closed this year, four of them franchises. Another two company-owned locations were shut down by frustrated franchisees. Ten more remain open but have cut ties with the brand. What went wrong?

The Collapse: From Promise to Default

Coffee With You entered China in 2012, backed by a successful run in South Korea — where it grew to over 1,000 stores in five years — and celebrity endorsement from actor Kim Soo-hyun. By 2014, the brand had expanded to 600 stores in China. But in Chongqing, the model quickly unraveled.

Franchisees report that the “entrusted” model — where the investor owns 49%, the brand 51%, and the company manages the store — turned into a financial trap. Li Li’s store on Nanping’s New Year’s Day Department Store location is one of four franchise closures. Others include Dongdongmo, Rui Fu Plaza, and a Fuling outlet. Two company-run stores — in Yuelu and Yixiang City — were also forced to close after franchisee interventions.

What Went Wrong? The Franchisee Complaints

1. Unbalanced Contracts and Missing Brand Support

Franchise agreements heavily favored the brand. Li Li and others said the contract imposed numerous obligations on franchisees, but included almost no enforceable responsibilities for Coffee With You. Disputes had to go to arbitration in Beijing. Crucially, franchisees never saw proof of the brand’s promised 51% capital contribution, nor regular financial reports as required. Some suspected the South Korean backers had pulled out.

2. Sky-High Costs and Suspect Pricing

Rent in Chongqing was reported at around 200 RMB per square meter per month — roughly double that of competing brands. Interior decoration, like marketing walls, was priced at 50,000 RMB by Coffee With You, while independent contractors offered the same work for 10,000 RMB. Other items, including ingredients, were also allegedly marked up significantly.

3. Broken Promises and Operational Collapse

Since October of the previous year, Coffee With You stopped supplying ingredients and paying rent as contractually required. The brand was supposed to collect daily revenue and manage operational costs centrally — but that system fell apart. Franchisees were suddenly left to cover all expenses themselves, including staff salaries and utilities. Attempts to get the brand to negotiate lower rents or provide marketing support failed.

4. No Exit Strategy

Franchisees who wanted to leave found the brand unresponsive. Li Li claims he reached a verbal agreement in January to exit by March, accepting a 500,000 RMB loss. But the brand delayed, then ghosted him. Other franchisees faced similar delays. The company now says a 3-year commitment is standard and refuses immediate buyouts.

The Brand’s Response: Limited Accountability

Coffee With You representatives claimed the contract terms are standard nationwide for “ease of management,” and denied allegations of financial misconduct. They stated that financial statements were provided, and that the South Korean parent is still involved, though leadership is now Chinese. The company has paused its entrusted franchise model but offered little help to existing franchisees.

When asked about inflated supply prices, a staffer noted that self-procured items like honey pomelo tea (39 RMB vs 45 RMB) and butter (250 RMB vs 268 RMB) were cheaper elsewhere. Several locations reported halted supply deliveries, and unpaid contractors even showed up at shops to demand payment.

Legal and Industry Analysis: Why the Model Failed

Legal experts say the dispute is ultimately a contractual issue. Many franchisees may have misunderstood the nature of their agreements — believing they were standard franchise deals when they were actually joint ventures structured as partnerships.

Business professors point to deeper flaws in the “entrusted” or delegated management model. It’s essentially a franchise dressed up as equity investment — creating a mismatch in incentives. The brand collects revenue and makes decisions, but the franchisee bears financial risk. This is especially dangerous for newer brands without solid operational systems to support rapid expansion.

Experts advise potential investors to: choose mature brands, negotiate strong protection clauses if the majority stake lies with the franchisor, revise shareholder agreements every few years, and — critically — understand the unit economics before signing anything.

“If I had done the math, I wouldn’t have invested,” Li Li said. “Outsiders see the brand. Insiders see the numbers.”

Frequently Asked Questions

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

It’s a franchise-like structure where the franchisee owns 49% of the store and the brand 51%. The brand manages daily operations, while the franchisee provides capital but is supposed to have minimal involvement. In practice, this led to franchisees bearing financial risk without control or support.

How many Coffee With You stores closed in Chongqing in 2024?

Six locations shut down this year: four franchise stores (Nanping’s New Year’s Day Dept, Dongdongmo, Rui Fu Plaza, Fuling) and two company-owned stores (Yuelu and Yixiang City), which were closed by franchisees.

Why did franchisees want to leave the Coffee With You brand?

Franchisees cited unsustainable losses, high rent (around 200 RMB/sqm/month), inflated supply costs, lack of brand support on rent negotiation and marketing, and failure by the company to deliver promised services like ingredient supply and rent payments.

Did Coffee With You provide financial reports to franchisees as required?

Franchisees claimed they never received monthly financial statements as mandated by their contracts. The company later said reports were provided, but many franchisees dispute this and said transparency was lacking.

What happens now to the remaining Coffee With You franchises in Chongqing?

Ten franchise locations remain open but have stopped cooperating with the brand and now operate independently, managing their own costs and revenues without support from Coffee With You.

Can franchisees get their investment back?

Some reached verbal exit agreements, but the brand delayed or refused to honor them. The company states a 3-year commitment is standard and does not allow immediate withdrawal, leaving many investors in financial limbo and pursuing legal action.