Abstract
A franchise business is a contractual relationship in which the franchisor and franchisee should cooperate to promote sustainable growth of their franchise entities. However, it is still unclear whether the relationship between franchisees and franchisors is a principal−agent or a business partner sharing a business goal. Thus, this study is a first attempt to investigate the relationship between franchisees and franchises using metafrontier and bootstrap DEA from the perspective of efficiency. We measured the efficiency of coffee franchises in Korea, which have grown rapidly in recent years despite the COVID-19 pandemic. Based on the bootstrap DEA results, there was a statistically significant difference in efficiency between franchisors and franchisees under the variable return-to-scale assumption. While the main cause of inefficiency in premium coffee chains is attributed to scale inefficiency, most franchisees have pure technological inefficiency. Thus, coffee franchisees can improve the operational efficiency by adjusting their business scale and reallocating service resources. This study demonstrates tailored operational plans to improve the operational efficiency of premium and mainstream coffee franchises and offers strategic initiatives to decrease the difference in efficiency between franchisors and franchisees.