Photo/Shetuwang

Oct. 18 (NBD) -- Caffe Bene (Shanghai) Investment Management ("Caffe Bene Shanghai"), a wholly-owned subsidiary of the Chinese joint venture of Caffe Bene, South Korea's largest coffeehouse chain by the number of stores, has gone bankrupt.

Caffe Bene first came to China in 2012, with the set-up of a joint venture named Caffe Bene Management. 

An informed source told NBD that Caffe Bene had stopped developing new franchised outlets across China, and subsequent operations management over franchisees under Caffe Bene Shanghai had been transferred to Caffe Bene Management. Stores with poor business conditions are likely to be taken out, and Caffe Bene will possibly restart franchising or set up direct-sale stores instead, the source added.

A Shanghai court said in a statement released on last Tuesday that creditors of Caffe Bene Shanghai should claim their rights by November 9 this year and the first meeting of creditors is scheduled for November 16. 

According to business information provider Qichacha, Caffe Bene Shanghai invested in 230 companies and was involved in 304 lawsuits.

Excessive expansion coupled with poor management of franchised stores are believed to be the reasons behind Caffe Bene Shanghai' bankruptcy. 

Since entering the Chinese market, the coffeehouse brand has expanded its presence rapidly in the country's first, second and third-tier cities mainly through franchising. Caffe Bene had over 600 stores in China at a peak and once opened 200 outlets in a single year. 

In general, franchisees in China pay 50 percent, 60 percent or 100 percent of the total investment in a store, while Caffe Bene help franchisees with location selection, store decoration and management training. 

Taking the 50-50 franchising scheme for example, a franchisee bears 50 percent of the cost to open a store but holds a 49 percent stake in the franchised store. Besides, headquarters of Caffe Bene charge franchisees a management fee every month.

Zhu Danpeng, an analyst specializing in the food industry, said to NBD that Caffe Bene continued to use the franchise model for expansion after entering China, but failed to take into consideration the difference between China and South Korea in operation principle. Franchisees in China tend to take a shortcut in order to recoup costs after paying high franchise fees. But the coffee chain lacks standardized management over the operation system and process of franchised stores from the supply end to the consumption end, Zhu further explained.

Despite a great up-side potential in China's coffee market, many brick-and-mortar coffee retailers has yet to grasp correctly consumers' habits and their way of thinking, Zhu pointed out. Players in the coffee sector need to understand that Chinese consumers don't have a rigid demand for coffee and what coffee shops can do is to provide them with a satisfying environment. 

However, in the case of Caffe Bene, it focused a lot on the increase in the number of outlets rather than improvement in store environment and service, which would certainly compromise store operations.  

Shanghai-based consultancy CBNData estimated China's coffee consumption market to hit 300 billion yuan (43.2 billion U.S. dollars) in 2020.

Email: gaohan@nbd.com.cn