Coffee crazy Koreans counting their coins as prices jump

Economy

Published: 02 Mar. 2023, 19:01 Updated: 03 Mar. 2023, 18:30

Coffee crazy Koreans counting their coins as prices jump

Customers place their orders at a Starbucks branch in Jung District, central Seoul on Feb. 22, when the coffeehouse chain offered a promotion selling a tall size Americano for 2,500 won ($1.92) for three days. [YONHAP]

A 400-won (30 cents) price increase for a cup of coffee is squeezing budgets, as are higher lunch prices.

These days, when office worker Lee Jae-won goes out for lunch, he expects to spend at least 20,000 won.

Lee on average spends between 10,000 to 15,000 won per lunch — and a cup of coffee that typically cost 4,000 won now sells for 5,000 won. Although he believes the price is too expensive, stopping into a cafe for a quick caffeinated beverage after lunch has become a daily ritual that is hard to skip.

In order to cope with the coffee price jump, Lee buys one cup of coffee at a large coffee chain like Starbucks, and if he needs another one, he buys to-go coffee that is cheaper and larger.

“The recent inflation has pushed up coffee prices quite high, and I’m thinking about switching to convenience store coffee or a coffee mix,” the 43-year-old said.

Cafes across the country are raising prices for a cup of coffee after Seattle-based Starbucks increased the prices of their beverages in Korea.

The beloved global coffee chain raised the price of its tall Americano, or espresso with water, by 400 won for the first time in more than seven years starting January 2022. Following the announcement, rival companies similarly raised their coffee menu prices by 300 to 400 won one after another. As of Thursday, the price for a small-sized cup of Americano (354 to 360 milliliters) at Starbucks, Hollys Coffee, Angelinus, Caffe Pascucci and A Twosome Place stood at 4,500 won. An Americano at Paul Bassett was 4,700 won, while that was priced at 5,000 won at The Coffee Bean & Tea Leaf.

The prices of some other types of beverages rose between 200 to 700 won. Buying a cafe latte costs well over 5,000 won now in Korea, with the price set at 5,000 won at Starbucks, 5,700 won at Paul Bassett and 5,800 at The Coffee Bean & Tea Leaf.

“We have no plans to increase coffee prices further as we already had a price increase last year,” an official at Starbucks Korea said.

Following the moves of large coffeehouse chains, mid-priced local brands that have gained popularity for their reasonable pricing are increasing their prices.

Ediya Coffee and Mammoth Coffee each upped their prices by 200 to 700 won in December and January, respectively. A cup of Americano at Ediya (532 milliliters) costs 3,200 won, and that at Mammoth Coffee costs (610 milliliters) is 1,600 won. Namyang Dairy Products also raised the prices of three types of its French Cafe coffee sold at convenience stores by 100 to 200 won starting March 1.

Worthy of its self-proclaimed nickname “The Republic of Coffee,” the country's yearly coffee consumption per adult reached 353 cups in 2018, dramatically higher than the global average of 132 cups.

The Ministry of Economy and Finance waived the 10 percent-value added tax (VAT) on imported coffee beans from June last year. From August, the ministry applied a zero percent import tariff on coffee beans. The government plans to apply tariffs on all imports of coffee beans by the end of this year.

Thanks in part to the tax benefit, the import price of green beans, which stayed around the 7,000 won-range per kilogram since May last year, peaked in October at 7,401 won per kilogram and fell by 24.3 percent to 5,613 won in January.

“The price decline will be steeper from the first quarter of this year,” said Moon Ji-in, director of the Food Service Promotion Division at the Ministry of Agriculture, Food and Rural Affairs. “We will manage coffee prices not to fluctuate like as it happened with the soju prices.”

Unlike the government measures, coffee costs are staying high even as coffee bean prices dip as the cost of beans account for a small portion of a beverage sold in a cafe. The industry believes the cost of coffee beans needed per cup is about 500 won. Furthermore, tariff benefits apply only to coffee bean importers.

"I bring in roasted coffee beans but I can’t feel the lower tariff rate because the prices don’t go down,” said a 54-year-old who runs a coffee store in Songpa District in southern Seoul. “The costs for rent, labor, and logistics, as well as for milk, sugar, straws, and plastic cups are all rising — all of them are factors to elevate prices.”

Coffees are projected to get even pricier.

Brazil, the No. 1 supplier of coffee in Korea, has been suffering a drought, which could affect the harvest.

"Ahead of Brazil's coffee harvest season in April to May, Arabica coffee production forecast would determine coffee prices in 2023," said Ko Chan-young, a research analyst at NH Investment & Securities. "Considering the aftermath of crop damage such as drought and frost, the optimistic coffee production projected from Brazil's National Supply Company — an increase of 14 percent year-on-year — is likely to be lowered."

BY KIM KI-HWAN, SEO JI-EUN [seo.jieun1@joongang.co.kr]