Franchise vs Independent: What’s Better for Opening a Coffee Shop?

When walking through Chengdu or Tianjin, spotting a Starbucks is almost guaranteed—but finding a once-popular domestic coffee chain like Shangdao Coffee is increasingly rare. Once a symbol of urban coffee culture, many of these franchises have quietly shut their doors, leaving would-be café owners wondering: should you go it alone or sign up with a franchise system?

If you’re deciding between franchising a coffee shop or opening your own independent café, here’s the hard truth: franchise coffee shops in China saw massive closures, with some brands like Shangdao shrinking from over 20 locations to just 10 in Chengdu. Independent shops offer full control but come with higher risk, while franchises provide systems but may limit flexibility and come with hidden costs.

The Rise and Fall of Shangdao Coffee

Shangdao Coffee was once a leading domestic coffee chain in China. In its prime, it operated over 20 stores in Chengdu alone. By 2024, that number had dropped to just 10—half of its former footprint—with only four remaining inside the city’s third ring road. Formerly a trendy spot for a ‘Western-style’ coffee, Shangdao has steadily disappeared from public view.

The decline wasn’t sudden. The brand faced multiple challenges: high rents, poor location planning (like omitting chess and card rooms despite local demand), and a lack of alignment between franchisees and headquarters. Some outlets simply let their leases lapse after renegotiation, while others closed due to financial trouble. Others transitioned into independent brands once their contracts ended.

Why Franchise Coffee Shops Fail

Shangdao’s collapse wasn’t unique. Across China, similar stories unfolded. In Tianjin, franchise numbers dropped from 70 in 2010 to around 40. Nationally, the brand once had over 200 locations; today, only around 1,300 remain open nationwide, many of them still operating but under strain.

Key issues included:

• Lack of unified management: Some Chengdu locations were managed by different shareholders each quarter, leading to inconsistent branding and service.
• Weak franchisee-headquarters relationships: Headquarters exercised little oversight, leading to mistrust and miscommunication.
• Forbidden yet widespread practices: While the brand prohibited selling stored-value cards, some franchises did anyway—resulting in customer losses when owners disappeared.
• Rigid space requirements: Franchisees were required to operate spaces of 600–1,000 square meters—far larger than a typical Starbucks (which averages around 250–300 sq m). This made rent a crushing burden.

For example, prime retail spaces in Chengdu’s shopping malls could cost RMB 300–400 per square meter monthly. Many Shangdao outlets inside the third ring road closed primarily due to unaffordable rents. Even outside the inner city, rents averaged RMB 150–160 per sq m—still high for a large-format café.

The Market Context: Why Size Matters

To put this in perspective, Starbucks operates over 1,000 stores across 60+ cities in China, with plans to hit 1,500 by 2015. Costa, which entered a decade later, grew even faster—opening 2–3 new stores per week and targeting 350 locations in major cities. Smaller brands like South Korea’s Caffebene also expanded quickly, riding K-wave popularity.

Meanwhile, average annual coffee consumption in China remains extremely low—just over four cups per person. That compares to 300 in South Korea, 340 in Japan, and even higher rates in Western countries. Despite growing interest, coffee isn’t yet a daily habit for most Chinese consumers.

The large store formats mandated by some franchises made them especially vulnerable to rent hikes. Shangdao’s own management acknowledged that an 800-square-meter Shanghai store could cost around RMB 1 million annually in rent alone.

What Actually Determines Success?

According to industry insiders, success in the coffee shop business depends less on size and more on clarity of concept, location efficiency, and adaptability. Some surviving Shangdao locations still thrive by focusing on either business or leisure customers, depending on their neighborhood.

Experts suggest shifting focus to smaller cities where rent is lower and coffee consumption is growing faster. But whether you choose to franchise or go independent, the fundamentals remain:

• Franchising offers operational systems, brand recognition, and sometimes supply chain support—but may involve rigid requirements, ongoing fees, and limited autonomy.
• Independent ownership lets you control concept, branding, and operations—but comes with greater financial risk, marketing burdens, and no safety net.

Ultimately, the decision hinges on your appetite for control versus support, and your ability to manage costs—especially rent and labor.

Frequently Asked Questions

What happened to Shangdao Coffee in Chengdu?

Shangdao Coffee once had over 20 locations in Chengdu but shrank to just 10 by 2024. Four remain inside the third ring road, with others either closed, converted to independent brands, or relocated. High rents, poor location planning, and weak franchise management contributed to the decline.

Why did so many coffee shop franchises fail in China?

Many failed due to a mix of high rents, inconsistent management between franchisees and headquarters, lack of consumer demand for Western coffee at the time, and rigid space requirements that made profitability nearly impossible. Some franchises also suffered from internal financial mismanagement and unauthorized practices like selling stored-value cards.

Is it better to open an independent coffee shop or a franchise?

There’s no one-size-fits-all answer. Franchises offer support and brand recognition but often require large spaces, ongoing fees, and strict adherence to corporate rules. Independent shops give you full control but come with higher risk, more startup effort, and no safety net. Your choice depends on your goals, capital, and preferred level of involvement.

How much rent was a problem for coffee shops like Shangdao?

In prime Chengdu locations, rents reached RMB 300–400 per square meter per month. Even outside the city center, rents averaged RMB 150–160 per sq m. Franchises like Shangdao that required 600–1,000 sq m spaces struggled to stay profitable under those conditions.

What are the risks of buying into a coffee franchise?

Risks include limited control over operations, mandatory store formats that may not match local demand, potential instability from weak central management, and financial obligations like franchise fees and rent on large spaces. Some franchises also faced issues with unauthorized stored-value card sales that left customers unprotected.

Can an independent coffee shop succeed in China?

Yes, but success depends on location, concept clarity, and cost control. With national per-capita coffee consumption still under five cups per year, independent shops face an uphill battle—but in growing markets and with lean operations, they can build loyal followings. Many surviving franchises now focus on smaller cities with lower rents and higher growth potential.

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