The Size of the Korean Coffee MarketExamined through DataAfter Starbucks opened its first shop in Korea in 1999, the Korean coffee shop market steadily grew annually reaching about 9,400 shops at the end of 2010. This is a six fold increase from 1,500 at the end of 2006 which in itself confirms the growth of the market. Monthly Coffee has analyzed here the coffee shop market trends by major cities based on materials provided in the report on “Coffee Shop Market Trends by Regions Nationwide and Districts in Seoul” presented by KB Research and sales data of KB card affiliates.

Korean Coffee Market 2

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Overall trends of the Korean coffee shop market

First of all, the Korean coffee market is clearly rapidly growing. But there are differences in the growth rate and degree of competition between regions that those preparing to start a coffee shop business should take precaution. For example, it would be easier to start a business in cities with a relatively slow sales growth rate, but a high average sales per shop. In addition, while starting a business in regions where sales are growing faster than the increasing number of shops is favorable, starting a business in regions where the average sales growth rate is lower than the market average and where

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the number of shops is rapidly increasing should be carefully considered. That is, for those planning to start a business should consider the different growth rates, degree of competition, and demand base of each region in order to expect greater revenue in the steadily growing Korean coffee shop market. In this regard, the results below of our research center are expected to be very useful.

Changing trends of the coffee shop market compared to other businesses

Cosmetics shops, for example, rapidly grew and held many road shops through star marketing of cosmetics brands. Many shops opened based on

Seoul Busan Incheon Daegu Daejeon Gwangju Ulsan Jeju

Market size(KRW 100 million) 4,763 350 241 275 202 156 42 45

Average sales per shop (KRW 1 million) 164 97 116 55 84 61 45 45

Approximate number of shops 2900 360 207 500 240 255 93 100

Size of coffee shops nationwide (as of 2010)

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2009/06 2009/12 2010/06 2010/12 2011/06

Total sales 74.8% 65.7% 59.6% 66.4% 80.4%

Average sales 28.2% 16.9% 9.7% 10.3% 21.2%

Number of shops 36.3% 41.7% 45.5% 50.9% 48.9%

Growth rate of coffee shops in Seoul

2009/06 2009/12 2010/06 2010/12 2011/06

Total sales 82.9% 70.7% 68.3% 82.1% 100.7%

Average sales 29.2% 15.6% 10.7% 15.3% 24.7%

Number of shops 41.5% 47.6% 52.0% 58.0% 61.0%

Growth rate of coffee shops nationwide the ease of business startup and advantages of brand advertisement heating up competition between shops. Then, as the industry expanded its distribution channel to visit sales and online sales, many shops had to close down and the industry’s size stagnated.

Similar to the cosmetics industry, some coffee franchise companies are known to maintain their sales growth by opening new shops. Although the coffee shop market is clearly largely growing, the rise in business startup by headquarters is not a good growth model because the growth in the number of shops established by headquarters does not guarantee revenue for the shops.

Exacerbating regional competition between individual cafes

An individual starting a coffee shop in a city entails much risk from the start. Not only does the shop lack brand power, but the cost of investment is very high that it may be shoved to the outskirts from competition with large brands. That is why most individuals wishing to start a coffee shop are concentrated in city outskirts. However, while demand in the outskirts is low, the rapid rise in the number of coffee shops there is exacerbating competition. As a result, there is no reason for large franchises to leave cities where profitability has been verified. Large coffee chains planning on increasing their number of shops in the future through aggressive marketing are most likely to focus again on the cities.

Sales of coffee shops in Seoul accounted for over

half of all in Korea. But in view of excessive competition in Seoul, more shops are being established in non-Seoul metropolitan cities and the annual growth rate of the number of shops in Seoul is not high. As such, although the degree of competition in Seoul is not increasing, the average growth rate of sales in Seoul is not largely increasing. The market size of Seoul was about KRW 476.3 billion with estimated sales of KRW 164 million per shop in 2010. However, because the increasing rate of shops is lower than the national average, profitability in the future will largely be determined by the rise in average sales.

(Reference: Data is based on an analysis of sales materials of shops using KB bank cards of all coffee shops nationwide and the share of KB cards of the entire card market. In addition, cash sales were calculated by surveying heads of shops and estimated based on the average ratio of cash use to card use.)

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