The Korea Herald

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Caffe Bene faces uphill battle in China

By Korea Herald

Published : Sept. 21, 2015 - 18:48

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The homegrown coffee chain Caffe Bene’s aggressive expansion plans in China face an uphill battle due to operational woes and losses as its domestic business struggles with mounting debt.

The coffee chain, which rolled out its plan to launch 1,000 cafes across China by the end of 2015, suspended its expansion after the company’s delayed payment to Chinese workers sparked controversies. It has some 580 stores in China, falling far short of its initial plan.

“We are currently working with our partners to normalize the business in China. Expansion would be the second thing to consider after a settlement,” a Caffe Bene spokesman said.

The coffee chain made inroads into the Chinese market in 2012 by launching a joint venture with a local partner.

This month, Chinese media outlets reported that the loss-making company has been delaying payments to franchisees and interior constructors.

Caffe Bene also reportedly delayed disbursing wages amounting to nearly 10 million yuan ($1.6 million) for some 160 employees in Beijing in May.

“We are going through a trial-and-error stage and expect better results next year,” he said.

The joint venture posted net losses of 240 million won ($204,000), while Caffe Bene in Korea reported net losses of 7.49 billion won last year.

Some have speculated that Caffe Bene is mulling the disposal of the Chinese unit to pay off its mounting debt. But the spokesman denied the rumor.

As of the end of June, the coffee chain’s debt-to-equity ratio sat at 2,636 percent, five times higher than the 519 percent in 2012.

Business here is even worse. Over the past four years, one in seven Caffe Bene franchisees have closed down due to tough competition.

The 7-year-old brand had mushroomed on seemingly every corner of Korean streets. It has 928 cafes in Korea, up from 670 in 2011, although it has been posting losses since 2013.

In 2014, Caffe Bene’s founder and chief executive officer Kim Sun-kwon said he aspired to have 10,000 outlets around the world by 2020.

By Park Han-na (hnpark@heraldcorp.com)