Intense Competition in the Coffee Industry! Another Round of Price Increases Coming!

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South Korea's Coffee Market Faces Price Hikes Amid Currency Weakness

On October 5, according to media reports, South Koreans consume an average of 352 cups of coffee per year, nearly three times the global per capita consumption level. However, South Korea relies entirely on imported coffee beans. With rising prices and the continued weakness of the Korean won, South Korean coffee companies are struggling to resist the pressure and are preparing for a new round of price increases.

According to reports, as the Korean won continues to depreciate and costs increase, some South Korean coffee chains have already raised the prices of some coffee beverages by about 10%. In fact, South Korean coffee prices collectively rose once in the first half of this year, so this price hike has attracted high attention from the South Korean public.

In the first half of this year, the trend of price increases had already reached South Korea. As the market with the highest per capita coffee consumption in Asia, South Koreans experienced the most expensive moment for coffee. International coffee bean prices rose to a 10-year high, and Starbucks South Korea, which hadn't raised prices in 8 years, couldn't sit still at that time. Multiple coffee brands led by Starbucks adjusted their prices in the South Korean market. The prices of individual items at some South Korean Starbucks stores increased by about 2 yuan. Now, with another wave of price increases emerging, how should South Korea respond?

Factors Driving Coffee Price Increases

Price increases caused by reduced raw material production: the reduction in Brazilian coffee production directly led to higher coffee prices. Natural disasters such as drought and frost caused serious problems in coffee production, and the reduction in coffee beans began to spread globally; then there were rising global supply chain costs, affected by nationwide inflation; as well as rising labor costs and rent costs. More and more coffee companies began to face significant market pressure, ultimately leading to a trend of price increases.

The superposition of these three pressures ultimately led to increasing price pressure in the entire coffee market. In early this year, coffee companies such as Starbucks and Tims could no longer withstand the original market pressure and began to raise their prices one after another.

The continuous rise in international coffee bean prices, coupled with the continued weakness of the Korean won against the US dollar, has exacerbated the cost pressure on South Korean coffee companies. In the Seoul foreign exchange market today, the Korean won to US dollar exchange rate hovered around 1,430 won per dollar, continuing to fluctuate at low levels. The South Korean coffee industry stated that if the won exchange rate reaches 1,500 won per dollar, cost expenditures would increase by approximately 10%.

South Korea's Saturated Coffee Market

Since the outbreak of the pandemic, with people's increased need for mental stress relief and surge in delivery demand, the number of coffee shops in South Korea has grown rapidly. As of June this year, there were over 90,000 coffee beverage shops in South Korea, a 16% increase year-on-year. The total number of stores is nearly twice that of convenience stores nationwide, with Seoul alone having over 25,000 coffee beverage shops.

In South Korea's restaurant industry, coffee shops have low barriers to entry, resulting in extremely fierce market competition and high closure rates. A Seoul survey showed that in the second quarter of this year, the closure rate of coffee shops was higher than that of the entire restaurant industry, with less than 40% of stores able to operate for more than five years. With high prices in South Korea, cost-effective coffee priced at around 5 yuan in convenience stores is very popular. Coffee shops, already under pressure from costs such as raw materials and labor, are seeing their survival space further squeezed, accelerating industry consolidation.

Future Challenges for South Korea's Coffee Industry

Against this backdrop, price increases in the coffee market seem to be an unavoidable choice, but will consumers continue to pay? How to find a unique path in an era of high prices has become a topic for reflection across South Korea's coffee industry.

Image source: Internet

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