South Korea's Coffee Wars
The country has too many coffee shops, and it's causing problems.
All coffee shop owners worry about another cafe opening in their neighborhood. Will you lose customers to the new place? Will they serve better coffee, or if not will you have to lower prices? Nobody likes competition, and margins are already so slim in the coffee industry. What will another rival nearby mean for your shop?
Now imagine that same new cafe is opening just down the street, or possibly right next door—that’s the reality for coffee shop owners in South Korea. In January I read a news story which highlighted the increasing competition that is leading to price wars and closures in the country’s booming coffee industry.
I wrote about it as part of my weekly Fresh Cup Magazine news roundup, but it felt like one of those stories that needed further exploration. This piece was originally also supposed to run on Fresh Cup, but for various reasons it never happened. However, that just means we can explore Korea’s competitive coffee industry here instead.
Thanks for reading The Pourover! Subscribe for free to receive new posts like this one
The Republic of Coffee
It’s fair to say that coffee is pretty popular in South Korea. The media has nicknamed the country the “Republic of Coffee,” and with good reason: the average coffee drinker in Korea enjoys 367 cups per year, second in the world and more than double the global average.
Traditionally a tea-drinking nation, coffee was first introduced to Korea via dabang (literally “tea room” but which mostly sold coffee) in the early 1900s. Dabang were primarily social spaces for the elite, and it wasn’t until instant coffee was introduced in the mid-20th century that consumption among the general public began to climb. Today instant coffee still makes up a large percentage of the market, while the demand for coffee has increased to the point where it is often seen as a necessity.
“Caffeine is needed for our daily lives,” says Cera Jung, Branch Manager at the Specialty Coffee Association Korea. “When you wake up in the morning you need a cup of coffee in order to survive your day.”
By the 1980s dabang were being replaced by more modern cafes, which began popping up all over the country to cater to increasing demand. The growth in the past decade has been startling: in 2011 there were 12,400 coffee shops; by 2015 that number had more than doubled to just under 50,000; today, there are nearly 100,000.
Big Chains and Big Coffees
The coffee market in South Korea is dominated by large chains. Starbucks entered the country in 1999 and now has over 1,600 locations making Korea the company’s third-largest market behind the United States and China. Starbucks and other foreign companies like Coffee Bean and Tea Leaf compete with local chains like Ediya (1,800 stores), A Twosome Place (500+ stores), Paik's Coffee (just under 1,000 stores), and many more.
Coffee drinkers in general are looking for volume and affordability, Jung explains. “You order a cup of coffee and the the capacity is like one liter [~34 oz] per cup, people enjoy drinking those kinds of coffees.” Because of their scale, chains can afford to keep prices lower and thus attract more customers. “They just crave caffeine, so people look for these cheaper, one dollar coffees,” Jung tells me.
Myriad independent cafes are dotted around the chains, sometimes wedged in between on the same street. Coffee shops are relatively cheap and easy to open in Korea, Jung says, as equipment costs are often subsidized by the machinery companies and government approval is easy to get. However they need to compete with larger companies, and often with other small shops right next door, and many have begun lowering prices in order to attract customers.
One of the most popular orders—at big chains and small cafes alike—is for iced coffee, even in the depths of winter. Fans have coined a new proverb to celebrate this trend: “Even if I freeze to death, iced Americano!” A story in France 24 offers a number of theories for iced coffee’s popularity: South Korea’s “ppalli-ppalli”—hurry-hurry—work culture; offices that stay warm and stuffy even in winter; and the country’s cuisine where cold dishes are prevalent.
The chains have taken note—iced drinks made up 76 percent of Starbucks’s Korean sales in 2022—and the trend is also being noticed by independent shops with their hip young clientele. “These youngsters are dying for iced coffee,” Jung says. “I don’t see many hot coffees around.”
Survival of the Fittest
The Korea Joongang Daily piece mentions multiple cafes occupying the ground floor of a single Seoul office building, and these scenarios lead to what it calls “coffee wars,” where the cafes are all competing on price in order to stay afloat. “If the cafe next door sells things cheaper, I have no choice but to cut my prices,” one coffee shop owner told the paper.
This race to the bottom on prices has led to huge turnover. Although the number of new cafes opening has increased, so has the number shutting down—more than 2,000 coffee shops closed in 2022 in Seoul alone, 200 more than the previous year. “Especially when it’s a really popular place in Seoul,” Jung says, “when you go back six months later everything has changed.”
Hyeon-Dong Park, co-founder of Werk Coffee Roasters, agrees. “The total number of cafes is too large for the population,” Park says, “and most of it is concentrated in the same area. It is a market for survival of the fittest.”
Werk is located in Busan, South Korea’s second-largest city, which has also seen an increase in the number of coffee shops closing. “Recently, some cafes seem to be closing due to difficulties in the economy,” Park says. “There are so many cafes near our company's store, but some of them are closed.”
“The culture of cafes has become very popular in Korea,” Park continues, but “it seems that polarization is getting worse in the market now. It is divided into really small individual cafes and huge corporate cafes.”
Same as it Ever Was
In 2012 the Korea Times published a familiar-sounding article bemoaning the number of cafes popping up across the country. “ You can come across a coffee shop every 50 meters as you walk along any street on which office buildings are located in Seoul,” the piece noted.
Just over a decade later the number of cafes has grown exponentially, but the issues remain essentially unchanged.
“You know it may look quite easy to run a cafe,” one coffee shop owner told the paper. “But it’s really a tough job. It was still okay when I saw a steady rise in sales. But things are obviously becoming worse these days due to the increasing number of coffee shops nearby. Sales and margins are falling. I am at a point where I should determine whether to continue it or not.”