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
