Caffe Bene struggles to turn around

By Lee Hyo-sik

Choi Seung-woo Caffe Bene CEO

Caffe Bene is struggling to bolster its faltering business at home and abroad amid increasingly intensifying competition.

One of Korea’s leading home-grown coffee franchises, the company has lost money for three consecutive years, failing to capitalize on the country’s rapidly growing freshly brewed coffee market.

In a bid to find a cash cow abroad, the coffee chain has been aggressively making inroads in China, the United States and other countries, but things haven’t turned out favorably.

With Caffe Bene’s deteriorating financial health, company founder Kim Sun-kwon decided to give up his managerial control late last year in order to attract investment from a private equity fund.

CEO Choi Seung-woo, who took the helm last October, has vowed to leave no stone unturned to turn around the struggling coffee franchise, which operates more than 1,400 stores domestically and abroad. In Korea, it operated 900 stores as of last December.

However, the task seems to be easier said than done, according to industry analysts who say Caffe Bene, founded in April 2008, has a long way to go before reclaiming its lost glory.

“Currently, more than 30 coffee franchises are competing in Korea. Several more are expected to enter the increasingly saturated industry this year,” said an industry analyst, who declined to be named. “Given this intensifying competition, it will not be easy for Caffe Bene to reemerge as a market leader.”

The analyst pointed out that Caffe Bene founder Kim had focused too much on increasing the number of its stores, rather than on properly educating its franchise owners on how to run a coffee house.

“It seems to me that Caffe Bene wasn’t interested in offering high-quality, fresh-brewed coffee to consumers,” he said. “What it sought was to make money quickly by attracting as many franchised stores as possible. Naturally, consumers decided to go to somewhere else that serves better coffee in a more customer-friendly manner.”

“Excessive” diversification is said to be another main culprit behind Caffe Bene’s fall from grace.

“The company should have mobilized more resources to foster its main coffee business,” another analyst said. “Instead, it turned its eye to becoming a restaurant, a convenience store and other businesses. But the problem was none of them succeeded, leaving a huge debt on Caffe Bene’s balance sheet.”

In addition, the coffee franchise’s aggressive overseas ventures have taken things from bad to worse.

“Caffe Bene should have built a much stronger home base before moving into foreign markets, but it didn’t do so,” the analyst said. “Given that it normally takes 10 years for foreign ventures to generate profits, I don’t think Caffe Bene is financially strong enough to prop up its struggling overseas businesses.”

The company, which first entered China in 2012, now runs 505 stores in 12 countries, but none of them have managed to turn a profit.

Losing money for 3 straight years

In the first nine months of 2015, Caffe Bene earned a total of 86.3 billion won, with its net loss reaching 5.1 billion won. The firm is widely projected to underperform for the entire year in comparison to 2014.

In 2014, its revenue fell to 128.9 billion won from 176.2 billion won in 2013 and 210.8 billion won in 2012. Its net loss also expanded to 7.4 billion won in 2014 from 1.2 billion won in 2013.

To cope with the worsening bottom line, company founder Kim gave up his controlling stake last December to attract investment from a private equity fund. Kim’s stake fell sharply to 7.3 percent from the previous 49.5 percent. The fund now holds an 84.2 percent stake in the company.

“The latest change in company ownership is largely designed to improve its financial health,” a Caffe Bene official said. “Under new CEO Choi’s leadership, all Caffe Bene employees will do their best to get the company back on track. We will definitely turn around in 2016.”

The firm will place top priority on boosting its revenue and bolstering its tarnished brand image, he said.

“CEO Choi and other executives have begun rigorous field management, meeting with store owners nationwide to hear about their concerns,” the official said. “We will also listen carefully to what our customers say and reflect their voices in our policies. Above all, the company will do our best to offer the best-tasting, premium coffee in a comfortable setting.”