Starbucks Korea Outpaced By Low-Cost, High-Margin Competitor Mega Coffee – CoffeeTalk

Mega Coffee, a budget coffee chain, has outperformed Starbucks Korea in both sales and store count. Last year, Ann House, the parent company of Mega MGC Coffee, recorded 495.9 billion won ($350 million) in sales, up 34.6% from the previous year, while operating profit surged 55.2 percent to 107.6 billion won. The company’s operating profit margin stood at 21.7%, higher than 18.8% in 2023 and 17.6% in 2022.

Mega Coffee’s profitability is driven by its franchise model, which allows it to generate revenue by supplying franchisees with coffee-related equipment and ingredients at a markup. Product sales to franchise stores surged to 467.2 billion won last year, an increase of more than 120 billion won, or 34%, compared to the previous year. As the cost of goods sold rose by only 62.6 billion won over the same period, the company was able to widen its profit margin.

Mega Coffee’s franchise-centric model has shielded it from the financial burdens of labor and real estate costs incurred during large-scale expansion. The company spent 34 billion won last year on fixed costs such as labor and rent, accounting for just 9% of its total expenses. Beyond ingredient sales, the company brings in additional revenue from franchise fees, training costs, and royalties.

The number of Mega Coffee locations surged from 1,603 in 2021 to 2,173 in 2022 and 2,709 in 2023, reaching 3,500 early this year. The company has been raising the overall expenses associated with running a franchise store, such as the franchise fee by 1.2 million won to 10 million won and the training fee by 600,000 won to 5 million won.

In the years ahead, effective franchise management will be the engine of sustained success, according to industry insiders. Headquarters must sharpen the brand’s competitive edge to keep franchisees committed and maintain its store count, as well as ensure consistent quality across all outlets to prevent customer dissatisfaction.

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