Cost of beans just a drop in the cup

Despite falling prices for beans and a stronger Korean won, the cost of java products at local coffee chains remains high.

According to the International Coffee Organization, Arabica coffee, which accounts for 70 percent of the world production, dropped to $1.39 per pound as of Feb. 15, the lowest in two and a half years.

The price rebounded slightly in mid-March, but it continued downward due to abundant supplies from top grower Brazil and falling demand. And thanks to the strong currency, coffee franchises can now get more beans for their won.

Nevertheless, most of the leading coffee franchises in Korea have raised the price of a cup of Americano by an average 300 won ($0.26) since last May.

“Although the international price of coffee beans has been plunging, it is difficult to bring down the coffee price back, due to the steadily increasing rents and labor costs,” said a manager of a popular coffee franchise. “But the falling cost of beans has almost nothing to do with the price of a cup of coffee. Obviously, the price of a cup of coffee does not just reflect the price of coffee beans.”

Franchisees of coffee shop chains vented their frustration that whenever the issue of coffee bean prices surfaces, they are accused of profiteering.

“It is absolutely absurd to say that the production cost of a cup of Americano is 130 won to 150 won. Even if I used the cheapest coffee bean, the cost couldn’t be that low,” said 53-year-old surnamed Lee, who runs a small cafe in Myeong-dong, central Seoul.

At her shop, an Americano is 3,500 won, when the cost of 12 grams of coffee beans, water, a plastic cup with logo, straw and cup holder is about 920 won, excluding the monthly rents, labor costs and other maintenance expenses.

“The price of a kilogram of coffee beans varies from 10,000 won to 50,000 won. The ones I use are 48,000 won. This means a cup of Americano costs about 600 won worth of beans,” Lee said.

The monthly rent she pays for her 30-pyeong (1,067.56-square-foot) store in Myeong-dong is about 4.6 million won and labor eats up 1.8 million won a month. In addition, there are water and electricity bills, and other maintenance costs.

“Some of the larger stores around Myeongdong pay as much as 10 million won every month in rent after putting up 100 million won for a deposit. And that is not all,” said Lee. “Most coffee shop owners are paying high interest on loans for their initial investment, including the deposits, renovation and decoration.”

“Considering all these costs, the price of a cup of Americano is never too expensive.”

Still, consumers find prices unreasonable and are increasingly turning to low-price shops for 1,000 won Americanos.

Consumers Korea urged the state-run watchdog Fair Trade Commission to investigate large coffee franchises and require them to disclose production costs.

“I believe that the price of a cup of Americano at well-known coffee franchises is too high, although the price varies from one shop to another. The price of an Americano at Starbucks, Coffee Bean and Twosome Place is sometimes more than the price of a meal at a small restaurant,” said a college student surnamed Min. “I started buying 1,000 won Americanos at subway stations.”

Low price franchise chains such as Manoffin, Cowafin and Waffle Bant are gaining popularity.

MPK Group’s coffeehouse chain Manoffin introduced a cup of Americano at the unprecedented price of 990 won, breaking the 1,000 won level that had been regarded as the rock bottom coffee price. Manoffin opened 22 stores in 2011 alone, after starting its business at Seoul Station in 2008.

“Currently, there are 38 stores. Manoffin has two types; those located in subway stations and gallery-type stores on the street,” said Kim Jung-hoon, a spokesperson for Manoffin.

Large chain Homestead’s second brand Cowaffin has a similar business model. It opened its first store at the Dongdaemum History and Culture Park Station selling 1,000 won Americano and muffins. In about six months, it opened 15 stores and is now operating 24 stores across Seoul.

Recently, fast food chain Lotteria also has started to offer an Americano for 1,000 won.

However, even low-price chains are burdened with rising costs, as subway stations rapidly develop and rents get higher, according to Manoffin.

“Although consumer demand for low-price coffee is growing more than ever, the rapid development of commerce in subway stations has led to increased competition, operating costs and rent,” said Kim.

By Kim Jung-yoon [kjy@joongang.co.kr]