Opening Coffee Shops No Longer Viable
16 November, 2019
Opening coffee shops is no longer a viable option for retirees and others who dream of running a cozy small business, a report by a major bank suggests.
According to the report by KB Kookmin Bank, coffee shops in Korea earn an average of just W10.5 million a year and the closure rate stands at a whopping 14.1 percent which compares badly even with other lazy business ideas like fried-chicken restaurants (US$1=W1,168).
The number of coffee shops across the country ballooned from fewer than 3,000 in 2009 to 71,000 as of July this year. Some 8,695 closed down last year, but 13,547 sprang up in their place.
KB found that coffee shops racked up average sales of W137.9 million a year but operating profits of a mere W10.5 million as of 2017. That is little more than a quarter of the average office worker's annual salary W36.3 million.
One in 10 coffee shops suffered losses. Still, their operating margin averaged 19.3 percent, which is better than restaurants' 17.5 percent, and people who own their store space achieved an operating margin of 26 percent.
But the average is probably distorted by successful big franchises and the reality for small independent coffee shops is grim. Last year, half of the coffee shops that closed down had been open for less than three years.
Korea already has 15,000 franchise coffee shops, with Ediya Coffee owning the largest number at 2,399 as of last year, followed by Starbucks (1,262) and Twosome Place (1,001).
Gangnam in southern Seoul is home to the densest concentration of coffee shops in the country at 1,739, followed perhaps surprisingly by Changwon, South Gyeongsang Province (1,420). The reason seems to be that Changwon is home to a moribund manufacturing industry, and many workers who were laid off have opened coffee shops or fried-chicken restaurants.
Yet the market continues to grow as Koreans swill coffee like there is no tomorrow. According to the Hyundai Research Institute, per-capita coffee consumption in Korea stood at 353 cups last year, 2.7 times the global average of 132 cups.
Kim Tae-hwan at the institute said, "Even small, non-franchise coffee shops can be competitive if they offer great coffee in a great location, but their numbers are increasing so fast that competition is becoming untenable. Anyone who wants to open a coffee shop should do a lot of research first."
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