Lee Seo-yeon buys freshly brewed coffee at GS 25, a convenience store chain, twice a day — on her way to work and during lunch time.
There’s neither a barista nor ice caramel macchiatos. The part-time cashier at a department store in downtown Seoul gets Americanos at 1000 won (US84 cents) with the touch of a button for the much-needed caffeine hit.
“I think convenience store coffee is drinkable and for that price, it’s actually good,” the 22-year-old said. “Franchise stores’ coffee may taste better, but it’s too expensive for me to drink several cups a day.”
A growing number of convenience stores in South Korea are becoming more convenient for high-frequency, ardent patronage, serving everything from lunch boxes to self-serve coffee to grab a bigger chunk of the market.
Such 24-hour stores standing on every urban street corner have served canned coffee and instant coffee with hot water for years, but it was only recently that local chains have put a priority on coffee services.
The top three chains of South Korean convenience stores, which each have over 7000 outlets nationwide, have growingly launched self-serve coffee bars in major stores over the past year and are set to aggressively expand them.
GS 25, a retail unit under GS Group, has installed Swiss-made espresso machines at about 1000 stores, a service called “Cafe 25,” and plans to open 2000 more this year.
7-Eleven, operated by Lotte’s affiliate Korea Seven, has launched “Seven Cafe” at about 1000 stores across the nation, and will have 3000 by the end of 2016.
CU, a chain by BGF Retail, debuted ‘Get’ coffee last month to join the competition, charging 1200 won for what it calls “premium coffee”.
Industry officials say convenience store coffee fits well with the latest consumption trend in Asia’s fourth-largest economy as more people are taking toned-down approaches to everything amid the economic slowdown.
They say it is not only cheap – even cheaper than typical canned coffee – but also considered drinkable compared with instant coffee sold in vending machines. Plus, convenience stores are everywhere and open 24 hours.
“With more consumers conscious about their budget, convenience store coffee is expected to become a major trend as its prices are about one quarter of franchise brands,” said Hwang Woo-yeon, a coffee business manager at 7-Eleven.
“We will target consumers who want to spend their money smartly during the economic slowdown.”
Coffee has long become the best-selling drink in South Korea and is expected to further grow, but the competition is getting tougher as franchise and independent cafes have bubbled up across the nation.
The coffee market was valued at 6 trillion won last year and was expected to grow about 10 per cent in the next five years.
Amid the coffee craze, convenience stores’ coffee grew at the fastest pace to sip away the market share of other caffeine beverages. Coffee sales at convenience stores amounted to 40 billion won in 2015 and are expected to expand to 100 billion won this year, according to industry data.
Their fast and fresh coffee became a must-have item for stores owners looking for new sources of growth — all without the need for additional employees and space for full-service cafes.
“As convenience store coffee is for take-out customers, it doesn’t require additional rental fees. That’s why they can sell quality coffee at cheap prices,” said Yoo Cheol-hyun, an official at CU, the nation’s largest chain.
Shop owners say the coffee service boosts sales as it draws both new and repeat customers, who typically pick up other items. And it also provides relatively high margins like other fast food.
“We have received positive feedback from store owners that the coffee service helps draw repeat customers, who also bought other things during their visits,” said Kim Si-jae, a public relations official at GS 25.
As major chains are set to expand the coffee service to edge out their rivals, industry officials expect the competition to accelerate polarisation in the market between mini take-out stores and trendy cafes.
Convenience store coffee especially poses serious challenges to smaller franchise chains, which are already struggling with tighter margins due to rising rental fees and tougher competition.
Ediya, a local brand that has the largest number of stores of 1587 stores nationwide, has enjoyed popularity among budget-conscious consumers, selling its regular Americanos for 2800 won.
While the company aims to increase its outlets to 2000 this year, it has to fend off challenges from both mid-price brands and convenience stores next door.
“To survive in the coffee market faced with tougher competition, the company should more actively communicate with store owners,” Ediya CEO Moon Chang-ki said in a New Year’s address, pledging to expand its bakery section and boost the quality of coffee beans.
In contrast, high-end brands and specialty coffee roasteries were less likely to be affected by cheap coffee as many of them serve as popular meeting spots and venues for other activities for city dwellers living in cramped spaces.
“I drink convenience store coffee daily, but I sometimes go to Starbucks and fancy cafes to hang out with my friends and have dessert,” the cashier Lee said.
As convenience stores are upping the ante, cafes are under greater pressure to provide more than just a cup of coffee to draw constantly caffeinated people in the jostling city.
“We roast beans and make hand-drip coffee to serve customers who value good coffee and how they are made,” said Kim Hee-jung, a hand-drip coffee shop owner in Seoul.
“Convenience stores may give a quick caffeine fix, but we try to offer a cozy place for our neighborhood. Price is important, but it’s not all we care about in our business.”
* Original reporting from Yonhap, via Korea Bizwire.