The Dilemma of 'Low-Cost Coffee'... Losing Money the More It Sells Due to Raw Material Price Increases

Rapid Proliferation of Openings... Intensified Cutthroat Competition
Differentiation and Competitiveness Further Decline
Burden from Soaring Coffee Bean and Logistics Costs
Fruit Prices Also Rise, Summer Business Faces Hardship

Photo by Yonhap News

[Asia Economy Reporter Moon Hyewon] Low-cost coffee businesses are caught in a dilemma. In recent years, the rapid proliferation of low-cost coffee shops has intensified cutthroat competition, and with raw material prices soaring, the more they sell, the more they lose money.

According to the monthly statistics on lifestyle industries released by the National Tax Service on the 21st, as of the end of last year, there were 77,543 registered coffee beverage stores, an increase of 11,000 in one year. This number far exceeds the number of registered convenience stores nationwide (about 46,937). In particular, the expansion of low-cost coffee, which requires relatively low initial startup costs, is remarkable.

Mega Coffee, which started its franchise business in 2016, had only 41 stores at the beginning, but in just two years, by 2018, the total number of stores increased nearly tenfold to 404, and the following year grew to 801 stores. In 2020, it increased to 1,205 stores, about 30 times more than at the start of the business. As of this month, it has 1,878 stores.

Compose Coffee, which opened its first store in Busan in 2014 and expanded into the metropolitan area, has 1,570 franchise stores nationwide as of June this year. It surpassed Twosome Place (about 1,500 stores), which was previously the fourth-largest coffee franchise, and the industry expects it could overtake Starbucks (1,680 stores) to claim third place within the year.

The Venti, which also opened its first store in Busan in 2014, currently has 937 stores nationwide and is aggressively expanding with a goal of reaching 1,000 stores within this year. Its average annual store growth rate has exceeded 45% over the past three years.

Although the number of franchise stores is rapidly increasing, internal concerns are growing due to soaring raw material costs. The international price of Arabica coffee beans rose from 113 cents per pound in 2020 to 230 cents in December last year, an increase of 103.5%. Additionally, logistics costs have surged due to the impact of COVID-19, adding further burden. On top of that, fruit prices are also skyrocketing.

A store owner, Mr. A, who operates a low-cost coffee shop in Jung-gu, Seoul, said, "Following the headquarters' summer season guidelines, we reluctantly started selling fruit menu items like watermelon juice, but prices have soared recently, so even if we sell them, there is no profit, and we actually lose money the more we sell. Normally, summer would be the peak season with the highest expected sales, but we are already considering closing down."

An industry insider said, "As low-cost coffee shops have sprung up like mushrooms, cutthroat competition continues. With more brands and stores, differentiation and competitiveness are declining, causing slow business growth and increasing difficulties for franchise owners."

This content was produced with the assistance of AI translation services.