Just desserts for Korea’s convenience stores

Desserts are selling well at convenience stores in line with rising demand for brewed coffee. From left: fresh brewed coffee, CU’s Chocolat Fresh Cream Cake, YouUs’ Mozzi Roll sold at GS25, Orion’s Couche Couche at 7-Eleven. [EACH COMPANY]

For some, the word “dessert” conjures the notion of fancy cafes serving colorful cakes on expensive china, just waiting to be immortalized on Instagram.

But a very different group of players are gaining ground in the Korean dessert space: humble convenience stores.

CU said Thursday that dessert sales across its branches nationwide jumped threefold in the first quarter of the year compared to 2017. Skyrocketing dessert demand was also spotted at GS25, where sales in January and February rose 241.5 percent. Last year, GS25’s dessert sales almost doubled compared to the previous year.

7-Eleven’s not doing bad either: Its cakes and crackers sales rose 42 percent and 16 percent respectively in January and February.

Analysis by CU showed customers in their 20s were the biggest buyers of convenience store desserts, accounting for 33.2 percent of all sales. People in their 30s and 40s came next, with 23 percent and 22.8 percent shares.

In fact, sales of convenience store desserts have been growing at double-digit rates for the last three years.

But growth in the last few months has been extraordinary. One likely explanation is price hikes at coffee and bakery franchises. Chains like Paris Baguette and the Coffee Bean & Tea Leaf raised product prices this year, blaming higher ingredient prices and a 16.4 percent minimum wage hike that went into effect in January.

“The local dessert market is worth 9 trillion won [$8.4 billion] and accounts for 10 percent of sales in the entire restaurant industry, including cafes,” said Kim Shin-yeol, a merchandiser on the snack food team at BGF Retail, CU’s operator. “Recent price hikes elevated the barrier to cafes and restaurants, so consumers seem to be visiting convenience stores to fulfill their needs.”

Another factor is the increasing popularity of brewed coffee at convenience stores.

In 2015, the three leading convenience store chains - CU, GS25 and 7-Eleven - started installing coffee machines and launched in-house coffee brands that sold for one-third the price of coffee franchises. Before, the most popular coffee at convenience stores was sweet coffee in cans. The fresh-brewed strategy was a success as more customers came to perceive convenience store coffee as a reasonable choice with decent quality.

At CU, brewed coffee ranked the second best-selling product in mid-March and 7-Eleven saw sales increase 29.2 percent year on year between January and March. GS25 recently announced that it sold 100 million cups of brewed coffee so far. This means the company sold 85 cups per minute since the product’s launch in 2015.

“We came to realize that there may be a need for desserts when coffee sales were growing,” said a CU spokesman. “About two years ago we started releasing house brand desserts.”

Among items purchased with brewed coffee, desserts ranked high. At CU and GS25, four of the top 10 products sold with coffee were desserts like cake and cookies.

Now, convenience stores are developing their lines of house brand desserts. CU’s best-seller is the Chocolat Fresh Cream Cake. Released in December, it has sold more than one million units, which the company said generated 1.5 times more sales than CU’s best-selling instant noodles, the Yukgaejang cup.

GS25 doubled its number of in-house desserts to more than 20 compared to 2016. Its recent hit was the YouUs Cherries Jubilee sandwich, filled with pink, cherry-flavored cream. It sold over 90,000 units in the first three days of release.

BY SONG KYOUNG-SON, KANG NA-HYUN [song.kyoungson@joongang.co.kr]