1) After Starbucks entered the Korean market in 1999, the number of coffee shops grew rapidly from 1,500 in 2006 to around 9,400 by the end of 2010, representing a six-fold increase. 2) While the overall Korean coffee market is growing, there are differences in growth rates and competition levels between regions. Those starting coffee businesses should consider these factors to find areas of lower competition and higher expected revenues. 3) Similar to the cosmetics industry, some coffee franchises focus on opening new shops for sales growth, but this model does not guarantee revenue for individual shops and risks oversaturation in markets like Seoul with over 2,900 shops already.

1. Korean Coffee Market 2
The Size of
the Korean Coffee Market
Examined through Data
After 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.
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2. Size of coffee shops nationwide (as of 2010)
Seoul Busan Incheon Daegu Daejeon Gwangju Ulsan Jeju
M
arket size(KRW 100 million) 4,763 350 241 275 202 156 42 45
A
verage 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
Overall trends of the Korean coffee shop the number of shops is rapidly increasing should be
market carefully considered. That is, for those planning to
First of all, the Korean coffee market is clearly start a business should consider the different growth
rapidly growing. But there are differences in the rates, degree of competition, and demand base of
growth rate and degree of competition between each region in order to expect greater revenue in the
regions that those preparing to start a coffee shop steadily growing Korean coffee shop market. In this
business should take precaution. For example, it regard, the results below of our research center are
would be easier to start a business in cities with a expected to be very useful.
relatively slow sales growth rate, but a high average
sales per shop. In addition, while starting a business Changing trends of the coffee shop market
in regions where sales are growing faster than the compared to other businesses
increasing number of shops is favorable, starting a Cosmetics shops, for example, rapidly grew and
business in regions where the average sales growth held many road shops through star marketing of
rate is lower than the market average and where cosmetics brands. Many shops opened based on
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3. the ease of business startup and advantages of brand Growth rate of coffee shops nationwide
2009/06 2009/12 2010/06 2010/12 2011/06
advertisement heating up competition between shops. Total sales 82.9% 70.7% 68.3% 82.1% 100.7%
Then, as the industry expanded its distribution channel Average sales 29.2% 15.6% 10.7% 15.3% 24.7%
to visit sales and online sales, many shops had to close N
umber of shops 41.5% 47.6% 52.0% 58.0% 61.0%
down and the industry’s size stagnated.
Growth rate of coffee shops in Seoul
Similar to the cosmetics industry, some coffee franchise 2009/06 2009/12 2010/06 2010/12 2011/06
companies are known to maintain their sales growth by Total sales 74.8% 65.7% 59.6% 66.4% 80.4%
opening new shops. Although the coffee shop market is Average sales 28.2% 16.9% 9.7% 10.3% 21.2%
N
umber of shops 36.3% 41.7% 45.5% 50.9% 48.9%
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 half of all in Korea. But in view of excessive
competition in Seoul, more shops are being
guarantee revenue for the shops.
established in non-Seoul metropolitan cities
and the annual growth rate of the number of
Exacerbating regional competition between
shops in Seoul is not high. As such, although the
individual cafes degree of competition in Seoul is not increasing,
An individual starting a coffee shop in a city entails
the average growth rate of sales in Seoul is not
much risk from the start. Not only does the shop lack brand largely increasing. The market size of Seoul was
power, but the cost of investment is very high that it may be about KRW 476.3 billion with estimated sales
shoved to the outskirts from competition with large brands. of KRW 164 million per shop in 2010. However,
That is why most individuals wishing to start a coffee shop because the increasing rate of shops is lower
are concentrated in city outskirts. However, while demand than the national average, profitability in the
in the outskirts is low, the rapid rise in the number of future will largely be determined by the rise in
coffee shops there is exacerbating competition. As a result, average sales.
there is no reason for large franchises to leave cities where (Reference: Data is based on an analysis of
profitability has been verified. Large coffee chains planning sales materials of shops using KB bank cards
on increasing their number of shops in the future through of all coffee shops nationwide and the share of
aggressive marketing are most likely to focus again on the KB cards of the entire card market. In addition,
cities. cash sales were calculated by surveying heads of
shops and estimated based on the average ratio
Sales of coffee shops in Seoul accounted for over of cash use to card use.)
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