Korea's value-focused coffee chains' enjoy high profits, contrary to low profits of licensed store owners


Value-driven coffee chain operators like Mega MGC Coffee and Compose Coffee have experienced rapid growth in South Korea due to the increasing demand for affordable coffee products. However, the expansion of these stores has raised concerns as licensed store owners struggle with low profit margins from selling inexpensive beverages, while the chain operators enjoy higher operating profit margins. In 2023, Mega MGC Coffee and Compose Coffee boasted operating profit margins of 18 percent and 41 percent, respectively, significantly surpassing Starbucks' 6.5 percent margin during the same period. The surge in operating margins for local value-focused coffee chain companies can be attributed to franchise fees, with the initial fees paid by owners of licensed stores when opening new locations directly contributing to the operators' sales and profits. Mega MGC Coffee's store count surged from 1,184 in 2020 to over 3,000, while Compose Coffee's licensed store number increased from 725 to 2,571 during the same period. These companies are focused on maximizing profits by expanding the number of new franchisee stores while minimizing the number of directly operated stores. Despite the high operating profit margins enjoyed by value-focused coffee chain companies, licensed store owners face challenges, as they struggle to make significant profits even with high daily sales volumes. In contrast, stakeholders of value-focused coffee chain companies have reaped substantial dividends in recent years, with Mega MGC Coffee paying out 40.2 billion won in dividends in 2022 and 50.2 billion won in 2023, alongside annual net profits of 41 billion won and 56.4 billion won, respectively.


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