STiR coffee and tea magazine

22 STiR coffee and tea | 2025 Issue 1 Spring (Mar/Apr/May) S By Mainbayar Badarch outh Korea is a country with more coffee shops than convenience stores. According to the National Statistical Office, by the end of 2022, there were 107,729 coffee shops, while the total number of stores represented by the four major convenience store brands (CU, GS25, 7-Eleven, and E-Mart 24) was around 55,000 as of the end of 2023. So many players make the South Korean coffee market fiercely competitive, forcing established brands to constantly fight less expensive and more innovative newcomers for a foothold. The Low-Priced Coffee Franchise Arena As of 2022, the total sales of coffee shops were KRW15.5 trillion ($10.8 billion), and the number of employees was 270,000. There were 84,000 stores with 1 to 4 employ- ees, most of which were small-scale. There are approximately 26,000 franchise stores and 886 different coffee brands. According to the 2023 franchise business status statis- tics released by the Fair Trade Commission in April 2024, the number of coffee fran- chise stores in 2022 increased by 13% year over year (YOY). Opening a small coffee shop or cafe requires only a small amount of capital, and easy-to-use machines make the barrier to entry relatively low. However, the business closure rate is also increasing. Over the past 10 years, the number of new cafes has increased by 45%, but the number of closed cafes grew by 180% as of 2023. In addition, according to the Seoul City Commercial District Analy- sis, there were 5,293 newly opened coffee and beverage stores in the first to fourth quarters of 2023, but 4,090 closed during the same period. As of the fourth quarter of 2023, the average three-year survival rate of coffee and beverage businesses in Seoul was 52%, and the five-year survival rate was 35%. While foreign multinationals such as Starbucks, Pascucci, and Coffee Bean have led the coffee market since the 1990s, domestic 'low-price coffee' companies focusing on iced Americanos sold in the KRW1,000 range emerged rapidly since the 2010s. In general, the domestic market was divided into Starbucks and low-priced coffee. The remaining brands had little room to stand. Recently, the competition has started heating up as foreign brands such as Intel- ligentsia (American), Tim Hortons (Canadian), and No Coffee (Japan), which take into One of the fiercest coffee markets in the world, South Korean coffee brands battle for consumers' attention. South Korean Coffee Going Global consideration the segmented and sophis- ticated tastes of domestic consumers, en- tered one after another. The original low- price coffee market leaders, known as the 'Yellow Signboard 3' (YS3) companies (Mega MGC Coffee, Compose Coffee, Paikdabang), now face new, lower-priced challengers, initiating a 'second round' of coffee combat. High turnover and low margins, as well as targeting takeout customers, spurred the success of the Yellow Sign- board 3. As they established themselves, the YS3 gradually began to raise prices. Consequently, they are now being criti- cized for losing competitiveness com- pared to new cafes that use lower prices to entice regular customers from the neighborhood, which increases repeat traffic. The YS3 have also started enlarging the size of their stores to differentiate themselves from the newcomers. Accord- ing to an analysis of the Fair Trade Com- mission's franchise transaction info, Mega Coffee's average store area increased from 50 sqm. in 2020 to around 57 sqm. in 2022. Paekdabang's increased 44 sqm. in 2020 to around 50 sqm in 2023. In the meantime, the number of low- priced coffee shop owners who cannot maintain their franchises and are transfer- ring them has exceeded 100 per year for each of the YS3 players. As of 2023, there were 20 contract terminations, and 108 name changes for Paikdabang, 15 con- tract terminations, and 338 name changes Many South Korean coffee brands capitalize on the massive popularity of Korean culture abroad to market their stores overseas. Photo courtesy Paul Bill

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