“Starbucks of South Korea” plans huge city expansion

Caffé Bene faces challenges of rising rents, aggressive competitors

Blu Realty Group's Andy Kim and Caffé Bene location at 1611 Broadway
Blu Realty Group's Andy Kim and Caffé Bene location at 1611 Broadway

A popular South Korean coffee and pastry franchise chain with more than a thousand locations in Asia is planning an aggressive rollout in New York City — even as retail rents in some neighborhoods are at all-time highs and competitors are growing.

Caffé Bene has signed deals with more than 80 individual franchisees to open locations in the five boroughs, Min Hong, the company’s franchise development manager for the United States, told The Real Deal.

The chain picked New York City as the focus of its U.S. strategy because of the brand awareness it would bring.

“Opening in New York, in Manhattan, is the best way to make people know our brand,” Hong said. “The Manhattan market is the most competitive in the U.S. If we can succeed in Manhattan then we can succeed [throughout the country].”

Last month, Caffé Bene tapped Andy Kim and his team at the mostly residential-focused brokerage Blu Realty Group to find locations for the franchisees.

Those franchisees pay a $35,000 one-time charge plus an annual fee of 4.9 percent on gross sales for the franchise rights. They must also pony up an additional 1.9 percent of gross sales as a marketing fee.

The Caffé Bene website lists neighborhoods such as Soho, Little Italy, Financial District, as well as outer borough locations such as Sunnyside and Brooklyn’s Chinatown, as target locations for stores.

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Industry observers said a coffee chain would face several headwinds in an expansion drive in New York City, including record high rents in some neighborhoods, and strong competition from the market leaders, Dunkin’ Donuts and Starbucks.

Beyond those two, Caffé Bene can expect stiff competition in the city from other coffee and sandwich stores, such as the Oakland-based Blue Bottle Coffee, a high-end coffee chain which recently raised $25.75 million in a new round of financing. And another South Korean coffee and pastry chain moved into the New York City market over the past several years. Paris Baguette, a division of the SPC Group, now has seven locations in the city. It has three in Midtown Including 6 West 32nd Street, two in Bayside and two in Flushing.

Despite the obstacles, New York City does offer some compelling attractions for new entrants into the retail food market. “There is more and more competition for the food dollar,” granted Kenneth Hochhauser, a salesperson at the retail focused Winick Realty Group, who was not involved in this expansion, and who was speaking generally about the market. “But there are more and more food dollars to capture. The challenge is to find an affordable location in the appropriate trade area.”

Certainly, New Yorkers’ like their coffee. An annual report on chain stores conducted by the Center for an Urban Future found that Dunkin’ Donuts now has 515 locations in the city last year, up by 39 stores from the prior year. Starbucks has 283 locations, up by 11 stores in 2012.

“If Dunkin’ Donuts and Starbucks are any indication, then New Yorkers clearly have a big appetite for coffee,” Jonathan Bowles, executive director of the Center for an Urban Future, said.

Caffé Bene currently has three stores open in the city: at 1611 Broadway in Times Square, 299 Seventh Avenue in Chelsea and 158-14 Northern Boulevard in Flushing.

While most of the retail locations globally are owned and operated by franchisees, the corporate office owns some locations, including the three existing stores in the city, Hong said.

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