Korean's Fuel - Coffee

Market Overview 

Based on the OECD statistics, working hours in Korea ranks in the top three on the global ladder. To keep up with the working hours and stay awake, coffee has become a part of Korean society.

In 2018, each person had an average of 353 cups of coffee, which has grown over 30% since 2007. The total coffee market is estimated to over KRW 7 trillion with retail and café industry at a 3.5 to 6.5 ratio.

Unit: KRW Trillion

Source: Hyundai Economic Research institute

One of the main factors of the coffee industry’s’ growth comes from cafés which have been expanding rapidly from 2009. In 2017, the number of cafés registered peaked at over 90,000 and has subsequently declined. Currently, there are about 71,000 cafés in the market.

The image and the function of a café appear to be different from other cafés around the world; they are a place for more than just food and coffee. The largest group of café users are people in their 20s to 30s who study at the café.

The Korean coffee industry had a slower start than most of the coffee leading countries but now Korea has one of the most internationally fast-growing coffee industries. We believe it is because coffee has become a part of Korean culture and the café industry is distinct from other countries.

Coffee the Past and Present  

Coffee was first recorded in the Korean history in the 1890s when King Go-Jong enjoyed the beverage but it was years later that coffee was available to the public.

Unlike the current coffee trend, powder coffee in a pouch was the first common type of coffee in the market. However, as one of the major Korean characteristics is speed (Bballi-bballi or faster and faster)’ there was not enough time to mix the coffee powder with sugar and cream. The first generation of coffee was "mix" coffee, powder coffee mixed with sugar and powdered non-dairy creamer. This was first introduced in 1976 by DongSuh F&B. The small yellow package was not only a must in the office but also a popular gift to buy when visiting Korea from abroad. Most consumers were introduced to coffee through 'mix' and in 2010, 100,000 tons of mix were consumed.

The second generation of coffee was drip coffee and espresso sold at cafes. The need for a place for people to talk created the environment for cafés to grow. The initial target audience for cafés were working women who needed space to talk and were searching for a better coffee which had less sugar and cream. One of the first cafés was Holly’s which provided these needs. New cafés started to focus on large spaces and premium brands such as Caffee Bene, Coffee Bean and others. However, the trend became mainstream as Starbucks entered the market in 1999 and the cafe boom started with the introduction of espressos. The definition for cafes changed over time and it is different from how it is usually defined in a dictionary or in other countries. However, during this café booming era the market for cafés has been divided into two, luxury and price-efficient.

The third generation of coffee is the specialty coffee. Specialty coffee takes account of the coffee bean originality, roasting methods, and brewing process which adds a premium touch. Cafés that target these consumers can be small roasting cafés that roast their own beans or a premium branch of a renowned café such as Starbucks Preserve. The consumers are not demanding any specific coffee but are demanding a unique coffee with added value. This is shown not only by the growth in revenue of the specialty cafés but also the increasing number of premium coffee machines for households.

Definition of Café 

The backbone of the coffee industry is cafés which command the greatest market share in the coffee industry. A report by Hyundai Economic Research Institute reported that the retail market was 2.4 trillion KRW and the café market 4.3 trillion KRW is more than 60% of the market. 

The definition of café first came from coffee but has changed to ‘a place that sells coffee.’ In the dictionary, a café is defined as a usually small and informal establishment serving various refreshments (mainly coffee).

This definition of a café may be different in many places in the world. In Korea, we believe a café is more of a rental service, rather than a place to enjoy a cup of coffee. A café is a place where for the price of a refreshment (or food product), one rents space inside the café for people to meet, talk, study, work, take selfies or just hangout.

The café industry had changed over the years and is segmented into three different sectors: high-end, brand shops and small pick up booths. High-end (specialty) and brand shops usually have a large place or private spaces to sit and talk. Cost-efficient cafés have small pick up counter with a limited number of small seats with less comfortable chairs. The prices range from price efficient cafés are KRW 1,000 - 2,500 per cup while the local brand cafés are KRW 4,000 - 5,000 per cup and the specialty coffee is above KRW 5,000. 

Opportunities

The market is saturated and less popular coffee brands and cafes have been disappearing. However, experts believe that the market still has room to grow and new brands of coffee and cafes concepts are coming in and out of the market. The specialty coffee and brand coffees have been expanding with great success. To enter the market, supply a unique need and support it with a good image and strong brand. 

*18th Seoul Int'l Cafe Show (Cafe Show 2019)

If you would like to identify and capitalize on business opportunities in Korea, let IRC Guide your Way!  www.ircconsultingkorea.com, Jacob at lsh@ircconsultingkorea.com