Expanding Starbucks Threatens Local Brands in Korea
Image Credit: LWYang via Flickr

Expanding Starbucks Threatens Local Brands in Korea


A recent piece in Quartz reveals that Seoul has more Starbucks outlets than any other city in the world.

According to the article, the coffeehouse chain has 284 outlets in the South Korean capital, seven more than in New York City.

On a national scale, South Korea ranked sixth in the number of Starbucks locations, with 642.

Enjoying this article? Click here to subscribe for full access. Just $5 a month.

With Starbucks expanding aggressively in South Korea, it has become a threat to local coffeehouse brands, prompting calls for regulation to protect local brands and maintain diversity in the coffeehouse business in Korea.

Starbucks opened its first store in South Korea in 1999. Since then, it has expanded rapidly. About 30 outlets opened on average every year in the 2000s, rising to about 80 a year after 2011.

A total of 122 Starbucks stores opened in 2013, and the number already had reached 50 as of April this year, according to Starbucks Korea.

“Since Korean people tend to perceive Starbucks as a luxury brand, a lot of landlords want to have a Starbucks store in their buildings to enhance the building’s image,” said a store manager of Starbucks in Seoul, who preferred not to be named.

“The coffee shop brands are seeking opportunities from local provinces because Seoul and the capital area are quite saturated with coffee shops already. Starbucks is not an exception,” the manager added.

Unlike Starbucks, local coffee shop brands are struggling with growth.

Since the beginning of this year, Angel-in-us Coffee, a major Starbucks competitors, opened 30 new stores while Caffé Bene added 10. The number of new Hollys Coffee outlets increased by five, while Twosome Place added 10, according to the South Korean news agency, News1.

The difference in the number of stores has created a significant sales imbalance between Starbucks and other local brands. Starbucks in Korea has sales of around $470 million, compared to about $294 million for Angel-in-us, its nearest competitor.

In November 2011, the Korea Fair Trade Commission (KFTC) began regulating the number of coffee shops operated by large companies, aiming to protect small and midsize chains.

Under the new rule, coffeehouse franchises with more than 100 outlets, including local brands such as Caffé Bene, Angel-in-us Coffee, Hollys Coffee and Twosome Place, were prohibited from opening new outlets within 500 meters of other coffee shops.

However, Starbucks Korea stores are directly managed by the company, and as such they are not subject to the restriction.

The EFA, an association for owners of small restaurants and snack bars in Korea, announced in March that it would officially ask South Korea’s National Commission for Cooperative Partnership (NCCP) to set up a new regulation for large coffee shop brands, including Starbucks. As yet, the request has not produced a positive response.

The NCCP is a partially government-funded organization, created by Korea’s National Assembly in 2010, with a mandate to mediate complaints of unfair or unequal competition between large and small businesses.

However, the EFA claims that the government is reluctant to apply regulations to foreign brands, because it worries about trade friction.

In fact, NCCP designated the family restaurant sector as reserved for small and medium enterprises in 2013, imposing restrictions that affected U.S. companies by forcing them to choose between significant geographic restrictions on where they could open new stores or a limit of only five new stores a year nationwide for three years.

As a result, the United States raised concerns about NCCP’s activities in its 2014 Foreign Trade Barriers report, published on March 31, urging Korea to consider carefully the effect that NCCP has on Korea’s business climate and on foreign investors.

Meanwhile, KFTC announced on May 21 that it would revise its regulation, which is expected to have positive effects for local brands. For now, though, Starbucks faces no restrictions to its growth.

Sign up for our weekly newsletter
The Diplomat Brief