Zoo Coffee Dumps Franchise Model Amid Scandal

Zoo Coffee, once a major Korean brand in China’s specialty coffee market, is now battling a string of franchisee collapses—most notably in cities like Zhengzhou and Beijing—that have severely damaged its reputation. These closures, where customers lost prepaid card balances, have led many to draw parallels with the infamous collapse of fellow Korean chain Café Bene.

Zoo Coffee is officially dropping its much-criticized franchise model, aiming to shift entirely to company-owned stores. The chain also shut down its original plan to hit 1,000 stores by 2020, cutting expansion from 100+ to just 70–80 new outlets per year going forward—all while denying rumors that Kopi Luwak is taking over.

1. Zoo Coffee Abandons Franchise Model

At a New Year strategy meeting, Zoo Coffee chairman Kim Gun-woo announced the brand would stop awarding new franchises starting in 2016. Instead, the company is moving to an all-direct-operated model. Existing franchises can continue operating under their current agreements until expiry—but after that, only high-performing locations may be retained as franchises. Over 90% of Zoo Coffee’s more than 200 China stores are currently franchised.

This pivot comes after multiple franchise failures made headlines. In several cities, operators disappeared, leaving customers unable to redeem stored value cards. “We are actively communicating with affected consumers regarding refunds,” Kim admitted.

2. Slower Growth, Higher Control

The switch to an owned-store model drastically cuts projected expansion. Originally targeting 1,000 stores by 2020 through aggressive franchising, Zoo Coffee now aims to open just 70–80 company-run shops annually. That means overall store growth will shrink by over 30%.

The change also means losing franchise fees and absorbing the full cost of store openings. Previously, franchising provided steady cash flow—but also contributed to inconsistent quality and operational chaos. Without franchise income, Zoo Coffee must now self-fund each new location, and take on higher logistics expenses previously offset by a spread-out franchise network.

“The decision wasn’t easy, but necessary,” an insider noted. “Controlling quality and brand image is nearly impossible with a loosely managed franchise system.”

3. Not Kopi Luwak—Who’s Really Investing?

Rumors swirled that Kopi Luwak, another coffee brand, was preparing to acquire Zoo Coffee. Those rumors have been firmly denied by chairman Kim. He also confirmed that while investment for the pivot has been secured, the source is not Kopi Luwak.

The move to a direct-operated model requires significant capital. Without franchise fees, Zoo Coffee must cover everything from rent and labor to logistics and marketing. The brand has reportedly lined up financial backers, but declined to name them publicly. That funding is critical to executing the slower, more controlled expansion.

4. Breaking Away from ‘Korean Coffee’ Stereotypes

Zoo Coffee’s rapid, franchise-led growth mirrored that of Café Bene—which collapsed in 2018 amid allegations of mismanagement, unpaid wages, and a staggering debt of over 1 billion RMB. Both chains relied heavily on franchising, and both suffered when local operators failed.

Kim is adamant that Zoo Coffee must shed its “Korean coffee” image to survive. By shifting to company-owned stores concentrated in Tier-1 cities like Beijing, Shanghai, and Guangzhou, the brand hopes to rebuild consumer trust. But those same cities are also where competition—from global chains to local third-wave shops—is fiercest.

The company also plans to align its logistics around existing infrastructure in those key metro areas, a move that could improve efficiency but won’t reduce the financial burden of going it alone.

Frequently Asked Questions

Did Zoo Coffee really have a lot of franchisees go out of business?

Yes. Multiple franchise locations in Chinese cities including Zhengzhou and Beijing closed abruptly, leaving customers unable to redeem stored value card balances. These incidents drew negative media coverage and public criticism, prompting the brand to address the issue publicly.

Why is Zoo Coffee giving up its franchise model?

The franchise system led to inconsistent quality, operational issues, and high-profile franchisee collapses. By switching to company-owned stores, Zoo Coffee hopes to regain control over branding, customer service, and product standards, while also addressing concerns about its reputation.

Is Kopi Luwak buying Zoo Coffee?

No. Zoo Coffee chairman Kim Gun-woo explicitly denied that Kopi Luwak is involved in any acquisition or investment. While the brand has secured external funding to support its pivot to an all-direct-operated model, the investor is not Kopi Luwak.

How many stores does Zoo Coffee currently operate in China?

Zoo Coffee has over 200 stores in China, with around 90% of them being franchise-operated. The brand plans to slow its expansion dramatically, from a previous goal of 1,000 stores by 2020 to just 70–80 new company-owned stores per year.

What’s the new growth target for Zoo Coffee?

Zoo Coffee has abandoned its previous target of 1,000 stores by 2020. Instead, it will open only 70–80 new company-owned stores annually, resulting in a more than 30% reduction in planned store growth.

Where will Zoo Coffee focus its new company-owned stores?

The brand plans to concentrate on first-tier cities such as Beijing, Shanghai, and Guangzhou, where it can leverage existing logistics infrastructure. However, these markets are also among the most competitive in China’s coffee sector.

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