Coffee market in major transition

People are waiting in line to take out coffee at a Paul Bassett coffee chain store in the Koreana Hotel building in downtown Seoul around lunch time, Friday. / Korea Times photo by Choi Kyong-ae

Changing appetite

challenges CaffeBene,

Hollys, Tom N Toms

By Choi Kyong-ae

Koreans’ appetite for coffee is changing as their incomes riseand the coffee chain market reaches saturation, putting pressure on the chain brands to change as well.

Coffee chains have grown sharply since Seattle-based Starbucks Coffee entered Korea in 1999, triggering a coffee chain boom in Asia’s fourth-biggest economy.

Other multinational brands such as The Coffee Bean & Tea Leaf from California and Pascucci from Italy, jumped on the bandwagon as did local conglomerates such as Lotte Group and CJ Group.

In the past decade, the chains have wooed consumers by creating an environment for get-togethers, with customers drinking coffee of a standardized taste.

“Coffee vending machines and soluble instant coffee replaced dabang from the 1980s,”says Starbucks spokeswoman Joyce Park. “We brought the coffee-house culture back to Koreans who are nostalgic for the dabang culture.” Dabang means “tea house” in Chinese.

For several decades through to the 1970s, dabang were popular meeting places for Koreans and they enjoyed a culture of dumping a raw egg into coffee for nutritional reasons. Dabang came from Japan during the colonial rule from 1910-1935.

In today’s coffee shop world, almost every building in Seoul has a coffee shop crowded with people chatting, studying, selling insurance policies or even taking a nap. The scenes do not change a lot, even at night.

But now the chains are facing a newer challenge from coffee enthusiasts – a growing number of Koreans are looking to a more premium coffee; that is, freshly brewed coffee using beans roasted within a week.

Paul Bassett, a domestic coffee chain that the Maeil Dairies conglomerate launched in 2009, is taking advantage of the latest trend, with the small chain winning customers away from Goliaths such as Starbucks and Coffee Bean.

Paul Bassett looks pale alongside the two giants – it has 19 outlets as against Starbucks’ 520 and Coffee Bean’s230.

But consumers’ thirst for a more premium coffee may force a change in a country where the pali-pali culture often leads to a sea change in a short time, analysts say.

Maeil partnered Paul Bassett, the 2003 world barista champion, to launch the brand named after the Australian.

At a coffee class in downtown Seoul last month, Bassett told participants that fresh beans were the “key to extracting top-quality coffee all the time.”

His strategy seems to be working, with people queuing at Paul Bassett outlets for a cup of lungo or caffe latte.

If Paul Bassett continues to expand and offer fresher, thicker coffee at similar prices, the chain may, in the long term, challenge others such as Lotte’s Angel-in-us Coffee, CJ’s A Twosome Place Coffee and CaffeBene.

“If I have to pay the same amount, I don’t want to waste a penny on the kind of coffee served at lots of stores,” says Kim Yun-hye, 35, who works for a Seoul-based food company. She attended the coffee class.

Analysts say chain stores offering sub-standard coffee will find it hard to survive because an increasing number of Koreans care about the condition of coffee beans and the taste.

“As their living standards improve, consumers tend to prefer a more premium product – coffee is no exception,” says Korea Investment & Securities analyst Lee Kyoung-ju. “Whether it is a coffee chain or an independent coffee brand, quality is the key.”

As well as the coffee chains, countless small coffee shops are spread across the country. Some may go under if they fail to meet the changing trend.

But independent brand Jeons Coffee spokesman Kim Jung-gon is optimistic.

“If we continue to provide quality coffee at reasonable prices, our customers will be with us,” Kim says.

Kim Tae-jung, who runs Dadong Coffee House, an independent shop near the Cheonggyecheon in central Seoul, says, “It is rather a blue-ocean market for us if the trend of going premium gains momentum.”

Korea is not a big buyer in the global coffee market, but market size and import value is growing rapidly.

The local coffee market reached 4 trillion won in 2012, up from 3.6 trillion won a year earlier, according to Nielsen Korea. Average annual growth was 20-25 percent during the five years through 2012.

The import value of all forms of coffee soared to $618.63 million in 2011 from $72.25 million in 2001 on a rising demand for unroasted green beans, the Korea Customs Service says.

Of course, Korea still lags far behind giant coffee consumers such as the U.S., some European countries and Japan.

For the six months ended in March, the U.S. topped imports of all forms of coffee, followed by Germany, Italy, Japan and France, according to International Coffee Organization (ICO) data. The U.S. bought 12.53 million bags during the six months. A bag weighs 60 kilograms.

Coffee is the world’s most widely traded tropical agricultural commodity. Global consumption in 2009 totaled 134 million bags, according to the ICO.

Japan is Asia’s biggest coffee consumer.

In 2011, Japan imported 6.95 million bags of green coffee, while Korea imported 1.94 million bags.

In contrast, China and India are not big coffee consumers – they prefer tea.