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Coffee franchises battle competition, slowing economy

Major coffee franchise operators in South Korea experienced sharp drops in profits last year in the face of intensifying competition from low-cost coffee vendors and the continued economic downturn.

Coffee Bean & Tea Leaf, a U.S. franchise run by Seoul-based Mirae Asset Private Equity Fund, saw its net income decline by 67.4 percent on-year to 2.54 billion won ($2.22 million) in 2015, its regulatory filing showed.

Its sales dropped by 5.1 percent on-year to 138.9 billion won in 2015, while its operating profit declined by 68.5 percent to 3.9 billion won. Last year, Coffee Bean opened just nine new shops here, operating a total of 234 outlets in Korea. 

Paul Bassett, Maeil Dairies Industry’s premium coffee franchise, recorded a net loss of 1.84 million won in 2015, though sales increased 69.8 percent on-year to 48.4 billion won.

“The net loss came as we invested in launching about 30 new stores, carrying out sales promotions and cutting down the menu prices by about 10 percent in 2015,” Maeil Dairies Industry spokesperson Koo Ja-hyo told The Korea Herald.

Caffe Bene posted a net loss of 26.9 billion in 2015. Its sales declined by 14.9 percent to 121 billion won last year while its operating loss expanded by 293.1 percent to 11.4 billion won.

“The losses are tied to deficits from our U.S. branch as well as the costs related to selling off troubled assets such as BlackSmith and Mainz Dom,” Caffe Bene said in a statement.

U.S. coffee giant Starbucks’ net income in Korea declined 8 percent on-year to 28.3 billion in 2015, though its sales rose 25.4 percent to 773.9 billion won during the same period. Starbucks Coffee Korea’s operating profit increased 17.2 percent to 47.1 billion won as well.

“As Starbucks directly operates all of its stores in Korea, related labor and store leasing costs are high. Such costs are rising every year as well,” said Starbucks Coffee Korea spokesperson Song Hye-kyung.

Ediya Coffee, a Seoul-based, low-end coffee franchise which operates some 1,800 outlets here, posted a net income of 13.1 billion won in 2015, up 16 percent from a year ago.

The homegrown company is aiming to open 200 more stores in Korea this year and to record 1 trillion won in sales by 2020.

By Sohn Ji-young (