Big coffee brands go even bigger to beat out cheap alternatives

Industry

Published: 14 Mar. 2023, 17:44 Updated: 14 Mar. 2023, 19:19

Big coffee brands go even bigger to beat out cheap alternatives

A view from a Starbucks branch at the entrance of Mount Bukhan National Park that opened on Feb. 15 [STARBUCKS KOREA]

Major coffee franchises are opening specialty cafes as they try to differentiate themselves from low-cost coffee brands in the already saturated market.

They are pitching the stores as a leisure destination, rather than quick stop. These shops typically offer a view of the natural landscape and have more spacious seating areas.

A Starbucks store near the entrance of Mount Bukhan National Park in northern Seoul, with glass walls providing a panorama view of the mountainous scenery, boasts a full house day after day after it went viral among cafe lovers.

On March 1, a Starbucks Reserve store, which sells higher quality, more carefully selected coffee than in traditional stores, opened along the Bukhan River in Namyangju, Gyeonggi.

The four-story premium store, with some 300 seats surrounded by glass walls that provide an open view of the river, is the first Starbucks store in Korea with an outdoor pet area.

Shinsegae Vice Chairman Chung Yong-jin visits the Starbucks branch at the hillside of Mount Bukhan on March 8. [SHINSEGAE]

Another dessert cafe, A Twosome Place, opened a branch resembling a hanok (traditional Korean building) in Lotte World in Songpa District, southern Seoul, on March 8. While the outer appearance looks like that of a hanok, the inside is mixed with modern and traditional designs. The store offers an expansive view of Seokchon Lake and outdoor deck seating.

Hollys Coffee opened a three-story store in Yeonnam-dong of Mapo District, western Seoul, last month. Each story has a view of Gyeongui Line Forest Park, a popular strolling area among young Koreans adjacent to the streets of Hongdae, one of the most popular entertainment districts in Seoul. It also has an outdoor pet zone on the first floor.

The rising popularity of low-cost coffee shops is one of the reasons behind the major coffee franchises opening large-scale and specially-themed stores. The number of low-end coffee shops has surged in recent years.

According to the Fair Trade Commission (FTC), there were 1,593 Mega Coffee branches in 2021, double that of 2019.

Compose Coffee had 725 stores in 2020 and 1,285 stores a year later. Paik’s Coffee ran 971 stores in 2021, and now operates 1,276, according to the brand’s website.

FTC data shows that the revenue to store area ratio of these coffee shops beat that of larger domestic coffee brewers A Twosome Place, Hollys Coffee and Ediya Coffee.

These brands compete by brandishing their affordability and easy access, opening small stores in busy city areas. Big coffee companies that sell relatively more expensive drinks may have resort to suburban, large-scale stores to differentiate themselves.

The franchise coffee market in Korea was some 6.9 trillion won ($5.8 billion) as of last year, up some 2 trillion won from five years ago, according to market researcher Euromonitor. In revenue size, the Korean market is third in the world, after the United States and China.

The number of coffee stores in Korea hit an all-time high at the end of last year with 99,000 stores, according to Korea Agro-Fisheries & Food Trade Corporation.

BY YOO JI-YOEN, SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]