According to market research firm Euromonitor, in 2023, the average coffee consumption per adult in South Korea reached 405 cups per year, more than double the global average of 152 cups. This marks the highest consumption rate among major Asian countries, translating to more than one cup of coffee per day per person.
The size of the domestic coffee market has been expanding annually. The Korean Customs Service reported that in 2022, coffee imports amounted to US$1.3 billion, a 42.4% increase from 2021. The annual import volume also hit a record high of 200,000 tons. As of September last year, there were approximately 96,650 coffee specialty stores nationwide, up nearly 4,200 from the same month in the previous year, according to the National Tax Service’s tax statistics portal.
Noticing the growth trend in the Korean coffee market, renowned global coffee brands are increasingly entering South Korea. On Dec. 14, Canadian coffee brand Tim Hortons opened its first store in Korea. Intelligentsia, counted among the top three specialty coffee brands in the U.S., is also planning to enter the Korean market. Peet’s Coffee, another top coffee brand from the western U.S., registered its trademark in Korea last May and is preparing to open its first store. These North American coffee chains are poised to engage in intense competition with domestic coffee shop brands. Industry experts express concerns over the oversaturation of the local coffee market.
In this environment, high-priced coffee shops like Starbucks and low-cost chains like Mega MGC Coffee (Mega Coffee) and Compose Coffee are dividing the Korean coffee market, challenging the survival of individually owned coffee shops.
The retail industry notes that consumers’ preference for Starbucks, seeking psychological satisfaction relative to price, is maintaining, while the growth of cost-effective chains like Mega Coffee continues. With the growth of the coffee market, budget coffee chains are also expanding. Mega Coffee’s operator, Annhouse, achieved a revenue of 1.748 trillion won (US$1.330 billion) in 2022, a 99% increase from the previous year, according to the Financial Supervisory Service’s electronic disclosure system. However, its operating profit decreased by 27% to 310 billion won during the same period, while net profit increased by 46% to 410 billion won.
As of Dec. 21 last year, Mega Coffee had 2,737 franchises, a significant increase from the 1,593 stores in 2022. Notably, Mega Coffee drew attention by appointing soccer player Son Heung-min and girl group ITZY as their models last year.
Compose Coffee is also on an upward trend. According to the Fair Trade Commission and Compose Coffee, the number of its franchises, which was around 400 in 2020, has surpassed 2,400. The number of subscribers to the Compose Coffee app has exceeded 11 million, reaching this milestone in less than three years since launching their app in February 2021. This year marks the brand’s 10th anniversary and they have appointed V from the group BTS as their model.
Despite the growth of low-cost coffee shops, high-priced chains like Starbucks continue to maintain their market influence. The 2022 revenue of SCK Company, which operates Starbucks in Korea, was close to 2.5939 trillion won, nearing 3 trillion won in annual sales. Though their operating profit in 2022 was about 100 billion won lower than in 2021, showing a somewhat sluggish performance, there was a noticeable improvement last year. The company’s revenue for the third quarter was 758.6 billion won, a 15.3% increase from the third quarter of 2022, with an 87% surge in operating profit to 49.8 billion won. This supports the view that consumer preference for Starbucks remains strong despite the aggressive expansion of budget coffee shops.
An industry insider commented, “Korean consumers tend to be open to new experiences and are not afraid to try new things. Global brands are using the Korean market as a test bed to expand into other countries based on their success in Korea.” However, they cautioned, “If brands do not adapt to rapidly changing consumer trends and fail to localize, they may struggle to achieve long-term success, as demonstrated by Blue Bottle, which entered Korea in 2019.”