Zoo Coffee Abandons Franchising to Cut Losses

Zoo Coffee’s sudden store closures and customer fund disputes have turned it into a cautionary tale in China’s competitive coffee scene. When a Beijing branch shut down with unpaid gift card balances last December, the fallout put the spotlight on deeper issues: rapid unchecked growth, franchise mismanagement, and a damaged brand reputation tied to the wider struggles of Korean coffee chains in China.

In short: Zoo Coffee is ditching its 90%-franchise model, slashings its 1,000-store 2020 goal, and shifting to just 70–80 new company-owned stores per year — a more than 30% reduction in planned expansion.

Franchise Exit Slows Expansion Drastically

Last December, the abrupt closure of Zoo Coffee’s SOHO Modern City location — while many customers still held valid stored-value cards — triggered public backlash. Zoo Coffee chairman Kim Kun-woo confirmed the ‘runaway’ incident to Beijing Business Today, adding that the company is now negotiating refunds. Looking ahead, Zoo Coffee will no longer pursue franchising as its main growth strategy in China.

As of now, the brand operates over 200 stores in China, 90% of them franchised. Going forward, only high-performing locations with favorable leases will be retained under franchise agreements once current contracts expire. The company’s original plan to hit 1,000 stores by 2020 has been drastically revised: it will now open just 70–80 company-owned stores annually.

Financial Strain From Ditching Franchises

While cutting ties with franchises eliminates issues like mismanaged outlets and unpaid debts, it creates major financial challenges. For years, franchise fees were Zoo Coffee’s primary revenue stream, fueling its rapid expansion. Those fees not only vanish under the new model, but the company must now cover all startup and operational costs for new locations itself.

Kim admitted that over the past three years, all franchise earnings had gone into establishing offices in Beijing, Shanghai, and Guangzhou, plus building a logistics hub. The highly fragmented franchise network also led to sky-high delivery costs, preventing profitability until now. With the switch to company-owned stores, rent and operating expenses shift fully onto Zoo Coffee. To ease the burden, the company is actively seeking external investment. Earlier rumors of a possible acquisition by Cat Coffee were denied, but an investment partner was secured earlier in 2019 — a key enabler for the franchise-to-direct shift.

The strategy also means Zoo Coffee will focus future openings around its existing logistics network in first-tier cities, which are also the most competitive markets. Maintaining solid performance there will be critical — and uncertain — for a business already under financial strain.

The Push to Shed Its 'Korean Coffee' Image

Beyond fixing internal chaos, Zoo Coffee is fighting to repair its public image. Kim has stated the brand wants to move away from its ‘Korean coffee’ label and distance itself from the now-defunct Coffee Bene, another Korean chain whose collapse damaged consumer trust in the whole segment.

Coffee Bene suffered a high-profile meltdown in May 2018, with its China headquarters shutting down, leaving 160 employees unpaid for months and owing nearly 10 million yuan. That scandal cast a shadow over other Korean brands, including Mall Coffee and Zoo Coffee. The recent franchise collapse at Zoo added urgency to the need for a rebrand. But industry watchers warn that overcoming the legacy of both Coffee Bene’s collapse and Zoo’s own franchise scandals will require more than a name tweak.

Competition is fierce. Beyond other struggling Korean coffee entrants, Zoo faces entrenched rivals like Starbucks and COSTA, which dominate first- and second-tier cities with stronger funding and brand recognition. A wave of homegrown coffee brands is also emerging. For Zoo Coffee, carving out a stable market share will be a long-term battle.

Experts note that even with its new focus on company-run stores, Zoo will likely concentrate on the high-cost, hyper-competitive markets where its logistics network already operates — raising further doubts about whether its remaining stores can deliver the sales needed to sustain the business.

Frequently Asked Questions

Why is Zoo Coffee switching from franchising to company-owned stores?

Zoo Coffee is abandoning franchising due to recurring issues with runaway franchises, unpaid customer deposits, and brand damage. The company aims to improve control and rebuild trust by operating stores directly, even though this shift reduces expansion speed and increases financial pressure.

How many stores did Zoo Coffee plan to open originally, and what’s the new target?

Zoo Coffee previously aimed to have 1,000 stores in China by 2020. Under the new plan, it will open just 70–80 company-owned stores per year, a reduction of over 30% in its expansion rate.

What percentage of Zoo Coffee’s stores in China were franchises?

As of the latest data, 90% of Zoo Coffee’s more than 200 China locations were operated by franchisees. Only a minority were directly managed by the company.

Why is Zoo Coffee trying to 'de-Koreanize' its brand?

Zoo Coffee wants to distance itself from the broader reputation crisis affecting Korean coffee chains in China, particularly after the collapse of Coffee Bene. By moving to a company-owned model and downplaying its Korean roots, it hopes to rebuild consumer confidence and avoid being associated with failed foreign franchise models.

What financial challenges does Zoo Coffee face in going franchise-free?

Without franchise fees, Zoo Coffee loses a major income source and must now fund all new store openings itself, covering rent, staffing, and operations. This shift creates significant cash flow pressure, prompting the company to seek outside investment to stay afloat.

Who are Zoo Coffee’s main competitors in China?

Zoo Coffee competes with global brands like Starbucks and COSTA, which have strong market presence and funding, as well as other Korean coffee chains and a growing number of local Chinese coffee startups, all vying for the same urban customers.

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