Who Really Profits From Korea's $1 Coffee?

The Margin Gap Among Budget Coffee Brands

More than 500 franchisees of Korea's budget coffee chains have filed lawsuits against their head offices — roughly 320 owners of Mega MGC Coffee stores and about 200 from The Venti. Their complaint, in essence: "We barely scrape out a profit selling 1,500-won coffee (about $1.10) on razor-thin volume, while the head office fattens its margins."

The Korea Economic Daily, drawing on audit reports filed with the Financial Supervisory Service, has published the first brand-by-brand comparison of gross profit margins in the budget coffee segment. The brands all sell the same cheap coffee, yet the cut their head offices take varies dramatically. If you are thinking about opening a café, these are numbers you need to know.

Same Business, Nearly Double the Margin

Here are the 2025 gross profit margins for Korea's budget coffee brands. Gross margin is what remains of total revenue after subtracting the cost of goods sold (raw materials), expressed as a share of revenue. Put simply, it shows how much the head office keeps from selling supplies to its franchisees.

Mega MGC Coffee: 36.4%. The Venti: 30.6%. Mammoth Coffee: 27.2%. Compose Coffee: 27.0%. Paik's Coffee: 20.7%.

Within the same budget coffee segment, margins range from a low of 20.7% to a high of 36.4% — nearly a twofold spread.

The gap was even wider in 2024. Compose Coffee posted a striking 69.2%, a figure believed to reflect one-off circumstances surrounding its sale to a Jollibee Foods consortium for roughly 470 billion won (about $340 million). Paik's Coffee's relatively low margin, meanwhile, partly reflects parent company Theborn Korea absorbing the cost of discount promotions as a goodwill measure toward its franchisees.

Is a High Gross Margin Automatically Bad?

It's hard to say categorically. The numbers can shift depending on how the business is structured.

A head office that buys raw materials in bulk and resells them to stores will see both revenue and costs swell, which can push its gross margin down. Conversely, a head office that leans on royalties or company-owned stores carries less cost of goods, which can push the number up. Two companies can both show 36% and have very different structures underneath.

From the franchisee's seat, though, the story changes. With cups selling for 1,000 to 1,500 won, a budget coffee shop's per-unit margin is inherently thin. When you have to sell hundreds of cups a day just to turn a profit, and the head office is pocketing margins in the mid-to-high 30s on mandatory supplies, it's only natural to wonder: "I'm surviving on volume — is the head office the one actually making money here?"

The Markup Dispute and Its Legal Stakes

Behind this controversy sits a Supreme Court ruling from earlier this year, which found that the supply-chain markup charged by Pizza Hut Korea constituted "unjust enrichment." The markup in question — known in Korean franchise law as chaaek gamaenggeum, or differential franchise fees — is the distribution margin a franchisor adds on top of cost when supplying mandatory items to its stores.

Franchisees must buy supplies from vendors the head office designates, at prices the head office sets. They have no choice in the matter. When the franchisor layers excessive margin into that arrangement, store owners feel they are "effectively paying royalties twice." Since the Supreme Court deemed this unjust enrichment in the Pizza Hut case, the litigation has been spreading into the coffee industry.

One franchise industry insider predicted that "how mandatory-item prices are set, how much is disclosed, and how profits are actually split between franchisors and franchisees will all come under serious scrutiny."

What Prospective Café Owners Should Check

For anyone preparing to open a café, the lessons here are clear.

First, always check the gross margin. Before signing a franchise agreement, you can look up the franchisor's audit reports on DART, Korea's electronic corporate disclosure system run by the Financial Supervisory Service. If a company's gross margin runs well above the industry average, it's worth suspecting that the head office is taking an outsized cut on mandatory supplies.

Second, scrutinize the share of mandatory items. What percentage of your total raw materials must be purchased from the head office? The higher that share, the less room you have to control your own costs. Two brands with identical gross margins place very different burdens on owners if one mandates 90% of supplies and the other 50%.

Third, add up franchise fees, royalties, and supply markups together. A franchise fee that looks cheap means nothing if the head office claws the money back through markups on mandatory items. Only by combining the visible costs with the invisible ones — the total you pay the franchisor — can you see the real profit structure.

Fourth, a franchise is not your only option. Franchises offer brand recognition and an operating playbook, but in exchange you surrender much of your control over costs. Starting an independent café means building a brand from scratch, but you choose your own ingredients and set your own prices. Being able to control your own store's cost structure makes an enormous difference over the long run.

The Anatomy of a 1,500-Won Cup

Consider what's inside a single 1,500-won cup of budget coffee.

Beans, the cup, the straw, syrup, water, electricity, labor, rent, card processing fees. Then the head office's share: the markup on mandatory supplies, royalties, advertising contributions. What's left after all of that is the owner's net profit.

Industry chatter puts the owner's take at around 200 to 300 won per 1,500-won cup. Sell 300 cups a day and you've earned 60,000 to 90,000 won — roughly $45 to $65. In that arithmetic, even a 5-percentage-point cut in the head office's supply markup would make a tangible difference to an owner's income.

Opening a café looks like "making a cup of coffee," but in reality it is the arithmetic of cost structures and profit splits. Whether you outsource that arithmetic to a head office or do it yourself is the most fundamental difference between a franchise and an independent café.

However these lawsuits turn out, anyone preparing to open a café should start with one thing firmly understood: if you don't know the cost structure of the coffee you're selling, someone else is designing it for you.