As Koreans go crazy for coffee, gov't eyes curbs

Posted at 08/21/2012 11:04 AM | Updated as of 08/21/2012 5:04 PM

SEOUL - These days, a stroll on the streets of southern Seoul is just as likely to bring the fragrance of fresh-brewed coffee as that of kimchi or more traditional Korean foods.

Nearly one in every two buildings boasts a coffee shop, from Starbucks to local brands such as Caffe Bene and Angel-in-us Coffee. Despite the existence of shops a mere 70 metres (yards) apart, it can still be hard to find a seat on some evenings even though a cup can cost more than a meal.

In short, South Korea, home to the world's third largest number of Starbucks stores after the United States and Japan, 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 ten-fold to 12,381 during the five years from 2006 to 2011.

South Korean adults consumed an average 338 cups of coffee last year, and coffee imports jumped 44 percent to 130,000 tonnes over the past four years, said the Korea Customs service.

The value of the market overall has climbed 17 times to 2.48 trillion Korean won ($2.19 billion) during the same time, 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 U.S. culture and gained widespread popularity among young Koreans who admire it."

The number of Starbucks stores more than doubled to 367 over the past five years. The company said last year that it plans to raise that number to 700 by 2016.

ESPRESSOS, LATTES IN DEMAND

The market for espressos and lattes turned out to be big enough to help boost the fortunes of other coffee chains and individual shops.

"I am very grateful to Starbucks," said Yeo Seon-koo, who runs Yeondoo, a coffee shop known to aficionados for the quality of its brew and its beans.

"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 coffee franchise operators on whether to impose distance and other rules, with the aim of announcing guidelines by September.

It took a similar step in April with bakeries, mandating that there can be no more than one franchise shop every 500 meters when opening a new store.

The move came amid criticism of bakeries linked to large industrial conglomerates, which critics said were hurting smaller-scale outlets.

But whatever the result, the coffee fever is unlikely to cool any time soon.

Yeo, of Yeondoo, said that while the metropolitan Seoul market for coffee franchises is currently saturated, coffee consumption remains low compared to the national income level, meaning further growth is still possible.

"The market is still at an early mature stage here," he said.