South Korea out to contain cut-throat coffee competition

PUBLISHED : Wednesday, 22 August, 2012, 12:00am
UPDATED : Wednesday, 22 August, 2012, 2:57am


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These days, a stroll on the streets of southern Seoul is just as likely to bring the fragrance of freshly brewed coffee as that of kimchi.

Nearly one in every two buildings boasts a coffee shop, whether Starbucks or local brands such as Caffe Bene and Angel-in-us Coffee. And despite the existence of coffee shops almost every block, it can still be hard to find a seat some evenings, even though a cup can cost more than a meal.

In short, South Korea, third only to the United States and Japan in numbers of Starbucks stores, has become a major battleground for coffee chains - so much so that government restrictions may lie ahead.

"There are few places where I can meet my friends comfortably. So I go to coffee shops," said Ko Sun-bee, a high school teacher in Seoul.

Though coffee was once a luxury drink, the market in South Korea has grown at a dizzying rate: the number of coffee shops jumped nearly tenfold to 12,381 from 2006 to 2011.

The value of the market overall has climbed 17 times to 2.48 trillion Korean won (HK$16.92 billion) in four years, according to a think tank affiliated with KB Financial Group.

The spark was lit by Starbucks, which entered the market in 1999, analysts said. "Without Starbucks, there would be no coffee boom here," said Lee Taek-gwang, a culture commentator and professor at Kyung-hee University in Seoul. "Starbucks is the symbol of US culture and gained widespread popularity among young Koreans, who admire it."

Yeo Seon-koo, who runs a coffee shop called Yeondoo, said: "Koreans were previously used to spending 300 won for a cup of coffee, but Starbucks has made them willing to pay nearly 5,000 won, whether they like it or not."

Asia's fourth-biggest economy, in fact, now has so many coffee shops that regulators are considering whether or not to impose a "distance" between new franchises to protect them from cut-throat competition.

"A franchise operator allows one store to open very close to another under the same brand, which reduces sales at the existing store significantly. This puts a lot of damage on the existing store," said an official at the antitrust watchdog Fair Trade Commission.

The FTC will start talks with operators on distance and other rules, with the aim of announcing guidelines by September.