Korea- Coffee Market Brief Update

An Expert's View about Coffee and Tea in South Korea

Posted on: 18 Feb 2013

South Korea’s per capita coffee consumption is five times greater than consumption in the rest of the Asia-Pacific region and the total coffee market is valued at about $3 billion in 2012.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Voluntary Public - Date: 2/5/2013 GAIN Report Number: KS1311 Korea - Republic of Post: Seoul ATO Coffee Market Brief Update Report Categories: Coffee Approved By: Michael Fay, ATO Director Prepared By: YoonHyuk, Park, Intern / Youngsook OH, Ag. Marketing Specialist Report Highlights: South Korea’s per capita coffee consumption is five times greater than consumption in the rest of the Asia-Pacific region and the total coffee market is valued at about $3 billion in 2012. Despite the economic down turn and health concerns, the coffee sector in Korea continues to grow by 30 percent over last four consecutive years. As the younger generation embraces a western coffee culture and consumers demand premium, high quality coffee beans, this trend is expected to continue. In 2012, there were about 12,000 specialty coffee shops, such as Starbucks and Café Bene, a 60 percent increase since 2008. Most roasted coffee beans imported from the U.S. are handled by U.S. based coffee franchises such as Starbucks, Coffee Bean and Tea Leaf. In addition to these chains, fast food restaurants, such as McDonald’s and Lotteria also import roasted coffee beans. Moreover, with demand surging among young Koreans for good-quality coffee served in a modern, comfortable environment leads to the popularity of coffee and spread of coffee franchises. General Information: Section I. Market overview Table 1: Coffee Imports in Korea by Year and by Country (HS:0901 & HS:2101.1) Coun 2010 2011 2012 try $1,000 MT $1,000 MT $1,000 MT World 394,464 114,500 699,306 128,533 581,529 113,556 Brazil 69,645 20,992 146,893 26,204 132,974 23,584 Colombia 69,026 14,740 114,053 17,782 70,671 12,678 Vietnam 51,918 33,754 88,529 38,985 79,093 36,269 Honduras 40,900 12,172 65,828 11,074 42,492 9,111 Peru 32,109 7,333 54,167 9,599 39,090 8,950 United States 27,015 2,466 29,505 2,223 42,651 2,742 Others 103,851 23,043 200,331 22,666 174,558 20,222 Source: Global Trade Atlas, HS0901 (Coffee W/N Roast or Decaff.), 21011 (Coffee Extracts Essence & Concentrate) In 2011, Korea imported roughly $700 million worth of coffee and this is approximately 66.5% rise from previous year. Apart from 2009 when the global economic recession occurred, Korea’s coffee import had been increasing since 2003 due to booming of the coffee franchises such as Starbucks, Coffee Bean and Tea Leafs. Coffee sector in Korea is promising as more people, especially younger generations are adapting to western cultures. Starbucks has served as a key catalyst of popularity of modern specialist coffee shops trend with sales expected to surpass $1.4 billion (1.5 trillion won) in 2011. It introduced many Koreans, particularly young people, to the virtues of high-quality drip coffee and espresso drinks. The American chain remains the leading specialist coffee shop chain in South Korea, with estimated 2010 sales of $230 million (250 billion won), while average annual sales growth has remained in the double digits since the chain's arrival. Numbers of Starbucks coffee shops are recorded over 500 in Korea and broke the record of the most sales value in the world out of one shop sales value competition. Yet the Korean coffee boom goes beyond just a Starbucks-driven fad in a market where consumer trends can reach critical mass and then vanish in a matter of months. Specialist coffee shops fill an important niche in a country where foodservice outlets remain the primary choice for entertaining, socializing, and study, particularly for young people, in a market where living spaces tend to be quite small. Free Wi-Fi also serves as a minor, yet real inducement in a country with one of the highest rates of PC ownership and broadband penetration in the world. Table 2: Bean Coffee (HS:0901:Coffee W/N Roast or Decaff) Import By Year in Korea 2009 2010 2011 2012 Value ($1,000) 276,284 371,612 618,626 477,206 Volume 100,576 111,625 121,855 106,119 (MT) Source: Korea International Trade Association (KITA), HS0901, (Coffee W/N Roast or Decaff) Table 3: Bean Coffee (HS:0901 :Coffee W/N Roast or Decaff)) Import By Country in Korea Co 2009 2010 2011 2012 untry $1,000 MT $1,000 MT $1,000 MT $1,000 MT The U.S. 22,026 2,110 24,693 2,315 26,860 2,074 39,135 2,648 Vietnam 55,974 33,364 51,143 33,639 86,695 38,765 73,828 35,892 Brazil 41,977 17,343 62,104 19,966 123,238 23,884 91,705 20,130 Columbia 49,978 13,767 65,661 14,389 108,796 17,337 61,108 12,137 Peru 19,124 6,538 32,109 7,333 54,167 9,599 39,090 8,950 Source: Korea International Trade Association (KITA), HS0901, (Coffee W/N Roast or Decaff) Table 4: Instant Coffee (2101.11: Instant Coffee) Import By Year in Korea 2009 2010 2011 2012 Value ($1,000) 14,705 22,852 80,712 104,323 Volume (MT) 2,346 2,875 6,678 7,437 Source: Korea International Trade Association (KITA), HS2101.11 Table 5: Korean Coffee Market Opportunities and Challenges Opportunities Challenges Korean coffee market depends entirely Importers and consumers are unaware of the coffee on imports varieties available from the U.S. The U.S. enjoys a good reputation for In general, consumers tend to drink the least high quality coffee expensive instant coffee Coffee is a popular and established Coffee product market is so competitive beverage Low tariffs and exemption from the In terms of health consciousness, coffee has a special excise tax negative connotation Section II. Market Sector Opportunities and Threats Market Sector Table 6: Coffee Market Sector Share Table 7: Korea Coffee Retail Sales in categories Instant Coffee Coffee Mix RTD Coffee Roasted Bean coffee $Million Growth $Million Growth $Million Growth $Million Growth 2008 146.2 11% 845.2 20.7% 366.5 28.2% 127 30% 2009 155.2 6.1% 975.8 15.5% 515.5 40.6% 166 30% 2010 152.4 -1.8% 1,017 4.2% 678.5 31.6% 215 30% 2011 142.1 -6.7% 1,110 9.2% 864.9 27.5% 280 30% Source: Korea Food Year Book 2012 for Instant Coffee Mix & RTD Coffee, The Coffee monthly magazine ‘November 2011’ for Roasted Bean Coffee 1) Instant coffee and coffee mix: The instant coffee has been such a dominant coffee market player since 2002 and it still holds a highest portion of the coffee market share. The growth in the sales of coffee mix primarily depends on its convenience, but recently, the growth is being carried by the premiumization of the instant coffee mix. As the quality of the coffee mix improves and is marketed to the consumers as such, there is a good chance that it will maintain its current popularity. 2) Ready-To-Drink coffee: In 2011, it is estimated that the amount of RTD coffee shares of coffee market was approximately $ 835 million, which is an increase by 15% in total volume terms. RTD coffee shows a strong performance, which is attributed to the substantial growth of specialist coffee shop brands in the retail channel. Due to this popularity of RTD coffee, average unit prices increase by 2% in 2011, mainly as a result of the premiumization trend within the category. Based on consumers’ increasing desire for a good coffee taste, operators of chained specialist coffee shops collaborated with beverage manufacturers in order to produce RTD coffee through the retail channel. These specialist coffee shop branded RTD coffee products appeal to young consumers in their 20s and 30s, as they appreciate being able to enjoy the same coffee flavors and taste at a lower price anywhere. More young consumers who prefer premium coffee are expected to be willing to pay a relatively higher price when purchasing RTD coffee. They enjoy premium RTD coffee from convenience stores, with a cheaper price than the coffee sold in specialist coffee shops. Therefore, manufacturers are expected to follow this trend with more premium products with a high-end positioning. 3) Roasted bean coffee: Most of the roasted coffee bean imported from the U.S. is handled by the U.S. based franchise coffee chains such as Starbucks, Coffee Bean and Tea Leaf, etc. In addition to these stores, even the fast food restaurants, such as Macdonald’s and Lotteria also showcased premium coffee from fresh beans at a lower price compared with that of other franchise shops. This shows that the previous competition between the high end franchise specialty coffee shops has moved into the more accessible arena. Because of the continued penetration of roasted bean coffee into the market, the growth is expected to be sustainable for the near future. Section III. Consumption Opportunities and Threats 1) Premiumization Korea is currently the world’s 11th largest coffee market. At the end of 2011 there were over 12,300 coffee shops in Korea – up a staggering 54% from just over 8,000 in 2010. Sales jumped 59.7 percent from $1.4 billion (1.55 trillion Korean won) to $2.2 billion (2.48 trillion Korean won) in the same one-year period. One of major industry resources expects the Korean coffee market to grow up to about $10 billion market size. Koreans consume an average of 300 metric tons of coffee beans a day, or 37 million cups of espresso. Korea currently imports coffee from 83 countries. Korea’s top importer of coffee beans is Vietnam, providing a huge 88%, followed by Brazil at 15% and Columbia at 11%, while processed coffee is mainly imported to Korea from the United States and Italy. In five years, between 2006 and 2011, the number of coffee shops in Korea has risen by 890% with sales climbing a massive 1600% in the same period. Korea’s coffee industry has doubled over the past three years, seeing an explosion in both import and consumption and catapulting Korea to its place as 11th largest coffee market in the world. South Koreans are now amongst the top global consumers of coffee, and the country is home to over 12,300 coffee shops. Seoul itself boasts the highest concentration of coffee shops in any city in the entire world. Each of the various coffee formats has role to play for coffee lovers. Canned coffees are primarily selected for their low prices, and consumers tend to be loyal to their brands. Convenience was also an important factor. Drip coffee is chosen primarily for its taste, while low price and variety of flavors also rank highly for consumers. Meanwhile, take-away coffee from cafés is selected primarily for their taste, while the outlets are easy to get to and offer a cozy atmosphere. 2) Health and Wellness trend Korean consumers are also very health-conscious. The recent favor for the black coffee also stems from the awareness for the benefit of the black coffee, introduced in media. The use of instant coffee also decreased with the knowledge that prima (the white substance that is used to soften the taste of coffee) is bad for health while roasted bean coffee sales rises dramatically over the past few years. Thus it would be a good strategy to advertize a coffee product with relation to the health benefit it has. On the other hand, experts in coffee industries doubt the potential popularity of decaffeinated coffee because Korean locals are accustomed to caffeinated tastes and giving stimulus to their system is one of the main reasons for their caffeine consumption. Not to mention the fact that decaffeinated coffee is still not very well known in Korea. Nevertheless, considering the recent focus on the health and wellness, if suitably targeted and advertised, may bring decaffeinated coffee into demand. Section IV. Costs and Prices Table 8: Market Price for RTD coffee Brand Company Outlets Pack Price(Won) size Caff il Dairy Industry 2 x 200 é Latte Mild Mae Co Hypermarket Ltd ml $2 (KW2,090) Cantata Original Lotte Chilsung Sweet Black Be Hypermarket 275 ml $1.7(KW1,770) verage Co Ltd Cappu Haitai Beverage Co Convenience ccino For Me 173 ml $0.8(KW800) Ltd store French Café Cafe au Namyang Dairy Convenience 200 ml $1.2(KW1,200) Lait Products Co Ltd store French Café Caramel Namyang Dairy Convenience Macch 200 ml $1.2(KW1,200) iato Products Co Ltd store tte Chilsung 6 x 175 Let's B Loe Be rmarket verage Co Ltd Hype ml $2.2(KW2,200) * Brands with biggest shares of RTD coffee market in 2011. (Exchange Rate: About $1 = W1,000) Most of franchise coffee shops in Korea, are about the same prices as Starbucks Coffee shop as follows: Table 9: Starbucks Coffee Shop – Current Coffee Prices Type Pack Size Price $ (Won) Pack Size Price $ (Won) Café Americano Tall $3.9(KW3,900) Grande $4(KW4,000) Iced Americano Coffee Tall $3.9(KW3,900) Grande $4.4(KW4,400) Cappuccino Tall $4.4(KW4,400) Grande $4.9(KW4,900) Soy Caffe Latte Tall $4.4(KW4,400) Grande $4.9(KW4,900) Cocoa Cappuccino Tall $4.4(KW4,900) Grande $5.4(KW5,400) Caffe Mocha Tall $4.9(KW4,900) Grande $5.4(KW5,400) Caramel Macchiato Tall $5.4(KW5,400) Grande $5.9(KW5,900) White Chocolate Mocha Tall $5.5(KW5,500) Grande $6(KW6,000) Source: Star bucks Coffee Shop Market Survey, 2013 Section V. Market Access Table 10: Tariff Phase-Out Schedule under KORUS: Duties on unroasted coffee will be removed immediately upon implementation of the Agreement. Duties on roasted coffee and instant coffee will be phased-out in five equal annual stages and these coffees will enter duty free in year five of the Agreement. HSK 10 Description Base Rate 2012 2013 2014 2015 2016 0901 11 0000 Caffeinated, unroasted 2% 0 0 0 0 0 0901 12 0000 Decaffeinated, unroasted 2% 0 0 0 0 0 0901 21 0000 Caffeinated, roasted 8% 6.4 4.8 3.2 1.6 0 0901 22 0000 Decaffeinated, roasted 8% 6.4 4.8 3.2 1.6 0 2101 11 1000 Instant Coffee 8% 6.4 4.8 3.2 1.6 0 Source: Tariff Schedules of Korea 2013 by Korea Customs Office ATO Seoul homepage (www.atoseoul.com) also has a special section dedicated to the Korea-U.S. Free Trade Agreement. Section VI. Key Contacts and Further Information 1. For more information: Please contact the U.S. Agricultural Trade Office, U.S. Embassy Seoul, Korea, at atoseoul@fas.usda.gov, Tel: 82-2-397-4188, Fax: 82-2-720-7921, Or visit www.atoseoul.com . Please note that our homepage also has a special section dedicated to the Korea-U.S. Free Trade Agreement. 2. Other Relevant Reports: you may find more information on Korean market reports at www.atoseoul.com: such as 1. FAIRS Country Report 2012 2. Exporter Guide 2012 3. Retail Foods Sector Biennial Report 4. Food Processing Ingredient Market Brief 3. Suggested Marketing Tools: Please let us know if you want to have your product offers featured in the ‘New American Supplier/Product’ section in our quarterly e-newsletter, which is sent out to our 3,000 industry contacts. It is free of charge, and all we need is a brief article about your company/product, contact info, and a couple of graphic images (logos or product photos). Next issue is published in March 2013. 4. Local Show Participation: Seoul Food & Hotel (www.seoulfoodnhotel.co.kr), the leading food trade show in Korea that provides a venue for new to market suppliers to develop contacts with a large number of local distributors and buyers. This is the only show in Korea that is officially endorsed and supported by USDA/FAS. The show schedule for next year is May 14-17, 2013. There will be a sizable U.S. pavilion in the show put together by various American Ag promotion agencies and state departments of agriculture. For registration information, please contact the U.S. pavilion manager, Oak Overseas (Russell Hood, Rhood@oakoverseas.com).
Posted: 18 February 2013

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