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South Korea coffee bubble bursts

South Korea’s once burgeoning franchised coffee shop market has reached saturation point – and the fallout has become extreme.

According to a report in the Korea Herald, one in 10 South Korea coffee shops closed their doors last year – the equivalent of more than 1000 stores.

Lee Kyung-hee of the Korea Business Strategy Institute described the situation as “a coffee war”.

“While restaurants and even convenience stores are adding coffee on the menu to sell, the coffee war is intensifying as now even offices own espresso machines,” he said.

Citing local corporate tracker CEO Score, the paper reported that the number of franchisees in Korea hit 87,540 as of the end of last year, based on a list of 118 franchise brands registered with the Korea Franchise Association.

Of those, 11,198 were coffee and beverage stores, representing the third largest sector of the South Korean franchise market behind convenience stores and fried chicken restaurants.

South Korea coffee franchises are being hit by convenience stores developing takeaway coffee services at prices as low as 1000 won (US90 cents) in the case of 7-Eleven, or about a quarter of the price of a Starbucks coffee. The country’s 1000+ Starbucks stores are not included in the data because they are company owned.

The Korea Herald says local chains have been cutting store networks and staff numbers to remain competitive.  

Seven-year-old chain Cafe Droptop, which has 240 stores, has cut its employee count by about one fifth. Caffe Bene applied for court protection from bankruptcy early this year having struggled in both its home market and abroad and is closing domestic stores.

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