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Specialty Coffee Chains Booming in South Korea while Independents Stagnate

A Starbucks flagship in Seoul's Famille Park.

A Starbucks flagship in Seoul’s Famille Park.

The Korean coffee industry continues to expand at an astronomical rate, with 50 percent sales growth among all combined coffee segments in the three years ending in 2014. Yet a new report from the USDA Foreign Agriculture Service suggests that this growth may be headed in some surprising directions — most notably away from independent specialty coffee shops and towards the biggest coffee chains. Growth also seems to favor other lower-priced alternatives such as quick-service fast food restaurants and gas stations.

The report summarizes the South Korean coffee market data for the calendar year 2014, showing a 17 percent volume increase in coffee imports over the previous year, representing a 27 percent value increase to $527 million. The United States trails only producing countries Brazil, Colombia, Vietnam, Honduras and Peru in coffee exports to Korea, with shipments to well-established chains like Starbucks and Coffee Bean & Tea Leaf dominating the import share. Despite an ongoing domestic downturn, sources cited by the USDA suggest the coffee industry will continue at a 10 percent growth rate in the coming years.

The highest growth among all coffee segments in 2014 was found in specialty coffee chain shops, which increased value sales by 11 percent. The USDA cites the continued growth of Starbucks as leading the way here, especially in its ambitious growth of drive-through coffee shops. While the pod and RTD canned/bottled coffee segments also showed growth during the time period, the only coffee segments demonstrating value losses were instant coffee and, remarkably, independent specialty coffee shops.

“Independent specialist coffee shops performed negative value growth, while chained specialist coffee shops showed a sharp increase in both value and volume sales during the same period,” the USDA stated in its report, which adds that independent shops “are suffering due to lack of strong brand power and low customer loyalty. Also, consumers use specialty coffee shops as a place to gather and chat, study and spend time while they are enjoying cup of coffee. Independent specialty coffee shops are less popular because they lack such space due to their limited size.”

chains or independents coffee korea

Chart courtesy of the USDA Foreign Agriculture Service.

Digging deeper into the chain vs. independent comparison, the USDA figures show a relative flatlining in the number of new independent specialty coffee shops in operation, identifying 2,704 in 2014, compared to 2,618 in 2014. Overall growth in the number of independent specialty shops has not fluctuated more than 5 percent in any given year since 2009. Meanwhile the number of specialty chain shops has swelled from 2,400 in 2009 to 9,502 in 2014, with double-digit growth in each year of the five-year period.

One of the impediments in the Korean coffee market appears to be in consumers’ collective perception of value, with the USDA citing reports suggesting that they feel coffee in chain shops is priced too high, despite the segment’s astronomical growth over the past five years. This perception, the USDA suggests, has created additional market share opportunities for fast-food restaurants and retail locations like gas stations to capitalize on the overall popularity of coffee while offering lower-priced products.

Click here for the full report, which goes into far more detail on various segments, including RTD, pods, instant and roasted coffee for home consumption.

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