China Consumer

Caffeine fix

South Korean coffee chains become trendy in China

Zoo Coffee w

A place to escape the urban jungle

When the South Korean hit show You Who Came From the Stars went viral in China last year, it sparked a local craze for fried chicken and beer – a culinary combo championed by the heroine in the drama. In Jiangsu a pregnant woman nearly suffered a miscarriage from eating too much fried chicken. Another couple in Liaoning also ordered so much of the stuff they were admitted to the hospital for pancreatitis.

The fried chicken and beer craze may have waned, but Korean coffee chains have now become some of the fastest growing franchises in the country, posing a threat not only to many Taiwanese coffee shop operators like Ueshima Coffee Lounge and Manabe Café but also to casual dining restaurants like Pizza Hut.

Take Zoo Coffee. The South Korean chain has opened over 100 outlets in China in just two years. Caffe Bene, South Korea’s largest coffee chain, says it plans to open as many as 1,000 outlets (it currently has 400) by the end of this year, doing so largely through franchising. Maan Coffee, a domestic coffee chain opened by a South Korean, also boasts 60 stores.

There had long been doubts whether coffee chains would take off in China, where tea, not coffee, is a mainstay. But those concerns have dwindled as younger consumers embrace the coffee-drinking culture. The number of cafes has nearly doubled over the past five years, while the franchise industry has reported a 25% growth rate as of the end of 2013, according to China Business Network.

So what’s so special about Korean coffee chains? Generally speaking, they are more spacious than those operated by the likes of Starbucks and Costa Coffee. One reason is that unlike Starbucks, which tends to select prime retail locations and Grade-A office buildings, Korean coffee chains usually target less busy sidewalks and quieter areas.

Korean cafe operators also pay less attention to the customer turnover rate. In fact, they encourage their patrons to linger for hours. “In Korean coffee shops, customers can sit there all day. It’s a strategy because they will probably call up their friends at some point. When their friends arrive they will also have a coffee, or order something to eat. So our customers will bring us more business. Even a low table turnover rate is not a problem,” Maan Coffee’s Zi Xiangshuo told The Paper.

That also explains why Korean chains won’t pose a direct threat to Starbucks. But Taiwanese coffee chains – whose model is more similar to the lounge-and-linger model – may see their business suffer.

“As soon as you step into a Taiwanese coffee shop it is so noisy. Customers are playing cards and talking very loudly. It is also filled with cigarette smoke. It kills the mood for those wanting to slowly enjoy a cup of coffee,” one patron complains.

Casual dining restaurants like Pizza Hut are also worried, since most Korean chains also offer food. At Caffe Bene, customers can order spicy chicken pizza and bacon cheese toast. Hollys Coffee also offers waffles and soups, says Entrepreneur, a magazine.

Industry insiders say the appeal of Korean coffee chains is also linked to the craze for Korean pop culture, which is considered trendy by Chinese. A decade ago, Taiwanese cafes were also very popular thanks to the proliferation of TV dramas set in Taipei. But some of those chains have seen their popularity wane partly due to poor management and over-expansion.

“The expansion of Korean coffee chains is very similar to what the Taiwanese did 10 years ago, only that the former is the improved version. Taiwanese cafes started to go into decline after the entry of Starbucks and other European brands. It’s only a matter of time before Korean coffee chains also lose their appeal and are replaced by something else,” CBN predicts.

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