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A 1500 won coffee shop, more than a convenience store… all die like this

As demand for packaging and delivery of coffee increases in the aftermath of COVID-19, low-cost coffee shops are on the rise. On the 3rd, a view of the first floor of Le Mayer Jongno Town shopping district in Cheongjin-dong, Seoul, where low-cost coffee shops are concentrated. / Reporter Kim Byung-eon

It is expected that the number of newly opened coffee shops nationwide this year will exceed 16,000 for the first time ever. That is an average of 44 cafes per day. 3 out of 10 are small, low-cost coffee shops with a size of less than 33 square meters. With the boom in packaging and delivery culture, low-priced coffee shops surge in a short period of time, raising concerns about excessive sugar competition.

According to local administrative licensing data from the Ministry of the Interior and Safety on the 5th, 14,813 coffee shops opened nationwide until November this year. It has already surpassed 14,060 newly established coffee shops last year. At the current trend, it is expected that the number of open cafes will increase by more than 10% compared to 2019 (14,628) before Corona 19.

Small, low-cost coffee shops specializing in takeout are growing rapidly. Among the cafes established this year, the proportion of takeout and delivery stores with a store area of ​​33 square meters or less accounted for 29.1%. It increased by 9.9 percentage points from two years ago (19.2%).

Although Korea is nicknamed the ‘Coffee Republic’ as it has the third highest amount of money spent at cafes per person per year ($99.9, about 118,000 won), experts say such a short-term surge could be a primer in the domestic franchise industry. close your mouth This is because there are concerns that profitability will inevitably deteriorate due to excessive competition as several low-cost coffee shops are built in the same commercial district. International coffee bean prices more than doubled compared to the previous year due to abnormal climate and logistics disruption, fueling the deterioration of profitability.

Of the coffee shops that have been established in the last three years (2018-2020), the proportion of the stores that have been closed is 26.5%. This means that one in four cafes went bankrupt within three years of opening. Small and medium-sized franchises are already suffering from sluggish earnings. B Brothers and BK Company, which operate less than 200 franchisees, turned to losses last year.

Seo Yong-gu, a professor of business administration at Sookmyung Women’s University, said, “As the number of low-cost coffee shops with relatively low start-up costs has increased significantly, cafes have reached saturation in every commercial district.

A 1500 won coffee shop, more than a convenience store...

Three ‘1500 won coffee shops’ side by side on the first floor of the shopping mall

On the 3rd, Le Mayer Jongno Town in Cheongjin-dong, Seoul. On one side of the first floor of the shopping mall, three low-cost coffee shops, such as Compose Coffee, Mega Coffee, and Ediya Coffee, were operating side by side. As customers flocked to Ediya Coffee, which opened in 2012, Compose Coffee entered the store in 2016 with a store in between. Mega Coffee started operating right next to Compose Coffee earlier this year to target the increased demand for takeout coffee in the aftermath of strengthening social distancing. These stores, which are similar in size and shape, menu structure and price, are in fierce competition with office workers in the Gwanghwamun area at lunchtime every day.

○Largest low-cost coffee shop in history due to takeout boom

According to local administrative licensing data from the Ministry of the Interior and Safety on the 5th, as of the end of last month, the number of coffee shops operating nationwide exceeded 76,000. The scale far exceeds that of the five major convenience stores in Korea (47,884 as of the end of last year).

As of this year and last month, there are 7,290 cafes alone. 14,813 new cafes opened and 7523 of the existing cafes closed. Low-cost coffee franchises are driving the growth of the cafe market. New stores are popping up like bamboo shoots to meet the demand for takeout, which has greatly increased since the COVID-19 crisis. The average price of a cup of Americano from a low-cost coffee brand is around 1,500 won, which is only a third of that of existing large coffee brands such as Starbucks, making it particularly popular in university districts and office commercial areas.

Even from the standpoint of prospective founders, low-cost coffee shops have relatively low initial investment costs and therefore have less risk. Low-priced coffee shops that focus on take-out sales can operate in small stores of 33 square meters, so it is generally possible to start a business for around 100 million won. Compared to A Twosome Place Angel-in-us, which has to open large stores in major commercial areas, the initial investment cost for interior design as well as the rent burden are much lower. If you have a kiosk to take orders, you can reduce the burden of labor costs. An official from the franchise industry said, “Compared to large franchise cafes, the cost of starting a low-cost coffee shop is on average one-fifth.”

Amid the low-cost coffee boom, franchisees are aggressively increasing their number of franchisees. Mega Coffee surpassed the 1500th store in September, five years and eight months after starting the franchise business. In the number of stores, it ranked third after Ediya Coffee and Starbucks. Only 380 new stores opened this year. The Venti broke through the 800th store at the beginning of last month. The average store growth rate for this brand over the past three years is 45%.

○“Becoming the second great king castella”

As the number of low-cost coffee franchises surged this year, concerns about excessive competition are growing. Many self-employed entrepreneurs are jumping into cafe business because of the rumor that “coffee is money”, but the business environment is not going well, such as intensifying competition due to a short-term surge and rising raw material prices. Experts point out that the low-priced coffee market with no features and low prices has reached its limit. There is even a gloomy prospect that it can follow the precedent of the ‘Great King Castella’, which was once a pandemic and now disappeared.

The profitability of low-priced coffee shops is gradually deteriorating due to aggressive store expansion. Recently, as competition between brands has intensified, there are many cases where other brands set up stores next to existing stores that are doing well. In the shopping mall on the first floor of Seosomun Apartment in Migeun-dong, Seoul, where the demand for coffee packaging from nearby office workers has increased since Corona 19, low-priced coffee shops with different brands are lined up in a row.

An official from the franchise industry said, “The opening of stores of the same brand in the same commercial district is restricted, but there are no restrictions when other brands with similar concepts open stores. “There are a lot of cases where sales are cut in half,” he said.

As competition in the low-cost coffee market intensifies, a number of franchisees are turning to losses. As a result of analyzing the disclosure of franchise business transactions by the Fair Trade Commission, B-Brothers, the headquarters of emotional coffee, a low-cost coffee brand with 199 franchise stores across the country, recorded a loss of 75 million won last year from a surplus in 2019. BK Company, the affiliate headquarters of Amasbean (166 franchise stores), also turned to a loss of 189 million won last year.

By Park Jong-gwan, staff reporter pjk@hankyung.com

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