South Korean Coffee Market

The Korean coffee market: Coffee is the fuel of choice for Korean white-collars and students

When thinking of Korean culture, “coffee” isn’t usually the first term to come to mind. Yet, Korean coffee consumption is on-par with Europe, with an average consumption of 12.3 cups of coffee per week (by comparison, Chinese per-capita coffee consumption is 9 cups per year, and in the US it is 21.7 cups). Although consumption is high and market competition is tense, the South Korean coffee market is still growing at about 8.5% a year. Generating 10 billion USD in revenue in 2020, South Korea’s coffee culture is unlike any other country.

Korean coffee consumption is on-par with Europe, yet coffee habits couldn’t be more different

South Korea’s long work hours and demanding education system drives Koreans to drink a lot of coffee. This motivates Korean consumers to not only drink convenient instant coffee, but also drives the popularity of cafes with good study environments.

Instant coffee dominates the Korean coffee market

Instant coffee is the largest segment of the coffee market. It is dominated by market leader Dongsuh Foods and their flagship product, Maxim instant coffee mix. Released in 1976, it became very popular thanks to its convenience, as it gathers in the same stick coffee, sugar and powdered cream. Nowadays, as demand for high quality instant coffees grows, Dongsuh also diversified its range into more premium products, such as their Kanu line.

Kanu is Maxim’s higher-end instant coffee line in Korea
Source: Kanu, Kanu is Maxim’s higher-end instant coffee line.

Roast coffee also represents a large share of the market, especially through cafes. The most popular coffee drink at Korean coffee shops is americano/brewed coffee. There are two types of coffee shops: independent cafés which are often quaint, cozy and a nice meeting spot and franchise coffee shops, such as Starbucks, A Twosome Place or Ediya. According to a 2021 survey on South Koreans’ favorite places to have coffee, 77% of respondents go to franchised coffee shops, while 50% of respondents stated going to non-franchised cafés. As there is a lot of coffee shops in Korea, competition among them can be quite fierce. In 2020, 84,000 coffee shops were listed in Korea and 19,000 Seoul alone, which represents around 1 coffee shop every 524 Koreans.

Canned/bottled coffee is also a growing category of the Korean coffee market. The current market leader is also Dongsuh Foods with its Maxim TOP line, followed by Let’s be and Starbucks ready-to-drink coffee.

In Korea’s saturated coffee market, brands that focus on their image stand out

In order to stand out, brands put a lot of effort into building a nice, warm and relaxed brand image. They tend to choose celebrities known to have a “soft” image and personality to represent them. For example, Maxim has collaborated with the singer IU for their coffee and cream instant coffee and with the actor Gong Yoo for their higher-end line Kanu.

IU is the face of Maxim’s coffee and cream line (left) and Gong Yoo is the face of Kanu (right) in Korea
Source: Maxim and Kanu, IU is the face of Maxim’s coffee and cream line (left) and Gong Yoo is the face of Kanu (right).

For coffee shops, brand image also plays a significant role. Blue Bottle Coffee, known for its premium feel (also called the “Apple of coffee”) drew a lot of customers at the opening of its first Korean outlet in 2019. More than 300 people lined up before the doors opened, and over 1,000 people were reported to have lined up for approximately three hours on that day.

Korean coffee market: Blue bottle Korea market strategy
Source: Blue bottle Korea official Instagram account, Blue bottle coffee Samcheong’s building (left) and interior (right).

Fitting Koreans high expectations is the key to success

Koreans are famous for their “ppalli-ppalli” (빨리빨리) culture, which is an expression to describe Korean’s fast-paced way of life and love for efficiency. Thus, they prefer coffee that is convenient and cafes that are efficient. The most successful brands are those that have accurately responded to this demand.

Instant coffee brand Maxim became popular thanks to the convenience of its coffee mix, but another key to its success lies in its dedication towards meeting Koreans expectations. Even after more than 40 years on the market, they would regularly conduct market research to readapt their products to consumer’s new preferences. Most recent additions to their portfolio are Maxim Mocha Gold Light (25% less sugar) and Maxim Mocha Gold Simple Latte (no sugar).

Cafés have evolved into meeting places for Koreans. As a lot of young people live with their parents until late, sometimes until marriage, and Seoul apartments can be very small due to high real estate prices, coffee shops embody the third social spot separated from home and workplace/school that Koreans need. A lot of cafés are specifically designed for people to work efficiently: they provide sockets to plug in laptops, big tables to work in group, individual tables to work alone, simple meal such as sandwiches and often a second floor or a basement that allows people to work in a quieter and more secluded atmosphere. 

How Starbucks conquered the Korean coffee market

Starbucks Korea is by far the number one coffee shop brand in the country. It represents Starbucks’ 5th largest market (behind the US, China, Canada, Japan) with over 1,500 stores. Their main strategy consists in selling their culture and image alongside coffee, but they also have a deep understanding of Korean market and managed to adapt to it.

Starbucks has created a “premium” brand image

Starbucks has successfully created a premium brand image. Associated to high quality coffee that can be enjoyed in well-design spaces, it has soon become an object of desire. Having a Starbucks coffee in your hand can often be perceived as carrying a luxury product.

Thus, Starbucks’ merchandises have become incredibly popular. Every time a new limited-edition product is released, it sells-out quickly. In June 2020, limited edition small suitcases were launched, available to those who purchased a certain number of drinks. People lined up at dawn to try to get one and there were even resales of the product.

Starbucks in Korea marketing strategy
Source: Starbucks, Cherry-blossom (left) and Christmas (right) exclusive seasonal goods are among Starbucks most popular merchandise

Starbucks has fit its localization strategy to the Korean market

Starbucks localized in Korea thanks to its joint venture with Shinsegae Group (a department store franchise) and has collaborated with local companies for its marketing campaign, allowing it to adapt well to Korean consumers’ taste.

It developed many original Korean products, based on season and local specialties. For example, they released Jeju-exclusive beverages and desserts featuring local ingredients.

Korean coffee market: Starbucks Korea localization strategy
Source: Starbucks, Starbucks released Jeju-exclusive menu

Starbucks also meets Korean’s tech efficiency expectations. In 2014, they launched for the first time the “Siren Order”. This system allows customers within a 2km radius from a coffee shop to order a customized beverage and pay in advance through an app. It has been a huge success since its release, especially among busy workers.

It can be combined with “My DT Pass”, Starbucks’ drive-through system launched in 2018. It consists of a payment system that can recognize and link customer’s vehicle license plate to a Starbucks account, which will be automatically debited. This system saved on average 10% of the waiting time.

Combined, the two systems allow customers to order in advance, drive to a Starbucks drive-through and pick up their drink without having to pay physically.

Key takeaways on the South Korean coffee market

  • Coffee is among the most consumed F&B products by South Koreans and has become the fuel to keep up with Korea’s tense study and work culture.
  • Convenience is a main consumption driver, hence instant coffee is more popular than drip coffee.
  • Brands with a soft, welcoming image and cafes with highly efficient service stand out.
  • Cafés embody the third social space between home and work/school. The venue and design of the space can sometimes be more important than the coffee itself.