Coffee franchises tap into niche markets as competition intensifies

Starbucks Korea's Bukhan River R premium branch in Namyangju, Gyeonggi Province / Courtesy of Starbucks Korea

By Kim Jae-heun

Large chain coffee houses used to open stores nearby subway stations or in popular downtown areas in Seoul with heavy foot traffic. Nowadays, they are focusing on introducing unique and lifestyle-oriented stores to attract customers.

Starbucks Korea is the most prominent in this trend.

Starting with its Yangpyeong DTR (Drive-Thru Reserve) branch in Gyeonggi Province, which opened in July 2020, the franchise has been expanding its "destination stores" throughout the capital area.

A destination store is a place that people are willing to make a special trip to, solely to enjoy the unique experience it offers. They can naturally enjoy the scenery and even bring their dogs.

The biggest reason behind the latest trend among local coffee house chains is to develop niche markets.

The coffee franchise market in Korea is already saturated and competition is severe. According to a market research company Euromonitor, the domestic coffee and tea specialty store market grew from 4.97 trillion won ($3.81 billion) in 2017 to 6.87 trillion won last year. It remains the third largest in the world by sales since 2014.

Korea Agro-Fisheries & Food Trade Corporation data shows the number of coffee shops in Korea reached its highest ever at 99,000, last year.

"There are too many coffee stores in Korea and it is meaningless for large franchises to keep opening new branches in Seoul. Destination stores have come up as a new countermeasure in this sense. Companies can attract customers while sharing their corporate value with them," a local coffee house chain official said.

Located on the outskirts of Seoul, Starbucks Korea's Yangpyeong DTR is the largest coffee store in the country. It represents Starbucks' Reserve brand and exclusively sells the chain's premium caffeinated beverages.

Starbucks Korea's branches The Bukhansan and The Bukhan River R are nestled in the natural scenery of Mount Bukhan and the Bukhan River, respectively, which are popular travel destinations.

Natural scenery of the Bukhan River is seen through a glass wall at Starbucks Korea's Bukhan River R branch in Namyangju, Gyeonggi Province. Courtesy of Starbucks Korea

At Bukhan River R store, customers can enjoy a panoramic view of the river through glass walls on all four floors.

Shinsegae Vice Chairman Chung Yong-jin also visited the store on March 8 and stressed the importance of creating a fulfilling customer experience.

"Shinsegae is not a company that only sells products but also occupies customer's time and space. Starbucks should expand the scope of customer experience and make reasons for them to invest their time at our stores," Chung said during the meeting with staffers at Starbucks Bukhan River R branch in Namyangju, Gyeonggi Province.

Starbucks Korea is operated by SCK Company, which is an affiliate of Shinsegae.

Starbucks Korea also opened its Kyungdong 1960 branch in Gyeongdong Market, a traditional marketplace in northwestern Seoul, last year. The store was remodeled using the infrastructure of the old Kyungdong Theater and it hosts community gatherings and supports various activities.

"It has become a new trend among local coffee house chains recently to open destination stores. They satisfy different needs and demands of customers in accordance with their lifestyles," a Starbucks Korea official said. "We plan to open more of these stores."

A Twosome Place's Magic Island branch at Lotte World in Jamsil, southeastern Seoul / Courtesy of A Twosome Place

Another local coffee chain, A Twosome Place, is focusing on eco-friendliness and special themes for its destination stores.

The franchise opened a branch named Magic Island at Lotte World in southeastern Seoul, on March 8, adopting a hanok-influenced design. The branch's exterior design reflects a traditional Korean house while the renovated interior is modern all the way.

Customers can walk on a path encircling Seokchon Lake and the branch has prepared a terrace with seating for people to take in views of the local cherry blossoms when spring arrives.

A Twosome Place also opened an eco-friendly store in Sinchon, western Seoul, in January 2021.

The coffee house chain used coffee grounds and eco-friendly paint made of herbs and medicinal materials to decorate the green concept store's interior.

"We focused on themes and eco-friendliness to build our destination stores. It is part of our effort to attract MZ generation customers and strengthen our environmental, social and corporate governance management," a Twosome Place official said.

The Gyeongui Line Forest Park branch of coffee chain Hollys in Yeonnam-dong, western Seoul / Courtesy of Hollys

One of the country's very first coffee house chains Hollys saw a growing demand for stores where customers can bring their pets.

The company opened a three-story branch in Yeonnam-dong, Seoul, where people can bring their dogs. It aims to attract customers who walk their pets in the nearby park ― cats are welcome too. The branch offers a designated space for pets on the first floor.