Caffe Bene holds onto 'unrealistic' ambition

Franchise coffee shop Caffe Bene unveiled an ambitious globalization plan this week, but market insiders and analysts greeted it with skepticism. / Korea Times file

By Park Si-soo

Kim Sun-kwon Caffe Bene CEO

Caffe Bene, the country’s second largest coffee shop by number of outlets, unveiled an ambitious blueprint for growth on Monday: opening 3,000 outlets worldwide and posting 1 trillion won ($895 million) in annual sales by 2015.

CEO Kim Sun-kwon said in a statement marking the firm’s fifth anniversary that the goal is achievable with rapid expansion in its three core markets ㅡ the United States, China and the Philippines.

Kim said he will make full use of the knowledge and experience he had earned while doing the business here to make Caffe Bene the world’s leading coffee shop brand.

Caffe Bene has some 850 name-sake outlets, mostly franchises, including 28 in China, six in the U.S. and two in the Philippines. Their combined sales last year were 210 billion won.

The declaration obviously deserves praise in a country whose economy is driven largely by exports. Ironically, however, the market reaction was not the case. Instead market insiders and analysts accepted the news with a cold shoulder, one of whom called the plan “unrealistic.”

Fueling the doubt is the fact that the announcement came only a week after the company carried out a large-scale layoff and salary cut of executives in an aggressive cost-saving drive.

Describing the situation as an “emergency,” the firm said nearly 80 out of 500 officials at its headquarters had been sacked and dozens of others were deployed to outlets to support sales and field marketing.

To highlight the sense of urgency, the CEO declared that he would work without compensation and executives voluntarily cut 30 percent more of their salaries.

“There is no company that does its business well in the overseas markets with declining performances on its home turf,” said Yang Il-woo, a food industry analyst at Samsung Securities.

Experts said gone are the days when a coffee company shows double-digit growth for multiple years since major markets such as the U.S. have reached the maturation stage. China and some developing Asian countries still have room to grow, they said, but it doesn’t guarantee the firm’s rapid growth there since they remain largely untested when it comes to coffee consumption.

“This is an unrealistic goal,” Yang said. “I think it (the goal) only shows the firm’s strong commitment for globalization but I don’t think the goal will be realized in the given time frame.”

A market insider said it is “unusual” for the company to press ahead with the globalization plan, raising suspicion that it could be a tactic to attract new investors. Kim said in several media interviews that he will try hard to get his firm listed by April this year.

The insider, who wanted her name to be withheld, said the suggested figures are still something achievable but there are two preconditions the company must have to get to the goal: strong brand power and proven performances in the domestic market.

“Let’s think about Caffe Bene with a cool head. How many people outside Korea do you think know about the company and the services it provides?” she asked. “Its brand power is weak, compared with Starbucks and other coffee brands with international presence.”

Starbucks have nearly 20,000 outlets worldwide, including 500 in Korea and 12,000 in the U.S.

She pointed adverse climate against coffee business here as another culprit doubting the feasibility of the firm’s globalization scheme.

Caffe Bene is one of five major coffee franchise companies that are subject to tough regulations on growth in the domestic market. Last November, the Fair Trade Commission banned it from opening a new outlet within 500 meters from existing chain outlets.

The cap was employed by former President Lee Myung-bak as rapid expansion of major food companies increasingly threatens the livelihood of mom-and-pop stores. President Park Geun-hye, who took office in February, has extended the policy under the slogan “economic democratization,” applying additional restrictions meant to curb their fast growth.

In January, the company pulled out from the convenience store business, which it once considered a new growth engine along with its family restaurant unit that is allegedly suffering sales decline.

Caffe Bene said it will disperse negative views on its globalization with actions and performances.

“Five years ago we said we would grow bigger than Starbucks in Korea. Then most people were cynical but we made it in the end,” said Kim Dong-hwan, a Caffe Bene spokesman.

“Our globalization is not an empty promise. We have concrete action plans and strategies that will guide us to the status where none of Korean food companies has reached yet.”