Friday, February 17, 2006

Korean Culture and Coffee: Some Insights

My interest in the Korean coffee market comes not only from my study of Western-Korean business, but perhaps since I LOVE coffee shops. Some days I've been know to visit 3-4.

Starbucks is where I start my business day, usually at 5AM pst.
This routine doesn't change much whether at home in San Diego, in Orange County preparing for a day with a client or In Seoul (Korean Starbucks' usually don't open to 7AM.) Next week I'm in Montgomery Alabama, guess what? I'll be at Starbucks when they open.

In fact, in my cross cultural work with Americans and Westerners in describing the vibrant, dynamic Korean workplace, I use Starbucks as linking East and West cultures.... Visit downtown Seoul at lunchtime and it's amazing how many professionals are at Starbucks getting drinks...the lines at times reach outside onto the street.

By the way, most of my Korean friends drink Cafe Americano...they prefer a more watered down drink than I like.

Some stats
Starbucks worldwide, Over 10,000.
In the U.S. Over 7,300.
In Korea, 133.

Here's a recent Chosun Ilbo article on the Korean Coffee Market

How much you pay for a cup of coffee depends on where you get it. From a vending machine it costs just W500 but luxury hotels may charge up to W10,000 (US$10). Foreign franchises such as Starbucks and Coffee Bean, which are mushrooming everywhere, charge W3,000-5000 ($3-5) for a cup and an extra W500 ($.50) for syrup and other flavorings.

But how much does it cost to produce a cup of coffee? Lee, who runs a franchise, says you need about 7 g of coffee beans to make a cup. The price of beans varies according to quality and brand, but it generally costs W140 won ($.14) for a cup and no more than W300 ($.30)even if you choose the highest-quality beans. Adding boiled water, milk, sugar and ice cubes brings the direct cost to W200-400. ( $.20-.40)

The key is indirect cost, which is determined by where and how coffee is served and covers rent and management, depreciation of interior and labor. Direct cost accounts for just 10 percent of the total. The rest is indirect cost and profit.

A multinational franchise in Yeoksam-dong, a business district in Seoul, spends about W2,556 in direct and indirect cost making a cup of coffee assuming it sells about 300 cups a day or 9,000 cups a month. If the chain charges W4,000 on average for a cup, that is a clear profit of W1,500 for every latte.

Coffee lovers who buy two cups a day at the franchises spend about W200,000 a month. Lee Young-suk (40) says cup of coffee costs her more than a decent bowl of the traditional beef stew seolungtang. It makes me think I've got my priorities mixed up, she says.

There is plenty of room for coffee franchises to cut prices. Take Starbucks. The corporation recorded a whopping 17.8 percent in return on investment in 2004, which is astonishing given that the average in the food and beverage industry is 6.5 percent. In short, the franchises are overcharging. Since there is no reason the prices should be uniform everywhere, some say the chains could also cut prices in parts of town where rent and management cost are lower.

The industry hears its share of complaints. One staffer says customers get suspicious when the quality of coffee beans is not clearly indicated.

But the franchises insist the price for a cup of coffee is determined by different market environments as factors such as rent, labor cost and reinvestment vary from country to country. Consumers in countries where coffee has been enjoyed for a long time and by many people may get a cup of coffee at relatively low prices compared to other commodities, but consumers in Asian countries that have just started enjoying coffee have to pay relatively higher prices, an industry official says


No comments:

Post a Comment