Voluntary Report - public distribution

**Date:** 6/15/2004

**GAIN Report Number:** KS4031

KS4031

**Korea, Republic of**

**Product Brief**

**Korean Coffee Market**

**2004**

**Approved by:**

![](media/image1.wmf)Marcus E. Lower, Director

Agriculture Trade Office, Seoul

**Prepared by:**

Susan Phillips, Deputy Director and Oh, Young Sook, Ag. Marketing
Assistant

**Report Highlights:**

The total value of coffee imports in 2003 was \$93 million, a twenty
percent increase over the previous year. The United States has a
sizeable market share of roasted coffee bean imports and a growing share
of instant coffee imports.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Seoul ATO \[KS2\]

\[KS\]

***SECTION I. MARKET OVERVIEW***

The Korean coffee market is estimated at close to \$1 billion in 2003,
with instant coffee representing 95 percent of total sales and roasted
coffee taking the remaining share.

**Table 1. Coffee Sales by Type: 2000-2002**

(\$ Million)

  ------------------------------ ------------- ------------- -------------
                                 **2000**      **2001**      **2002**

  Instant Coffee                 \$260         \$227         \$210

  Coffee Mix                     \$200         \$214         \$275

  Canned Coffee                  \$150         \$171         \$213

  Roasted/Ground Coffee          \$41          \$36          \$35

  Total                          \$651         \$648         \$733
  ------------------------------ ------------- ------------- -------------

> Source: Nielsen Data: Food Distribution Yearbook, 2003

Korea imported \$93 million of coffee in 2003, including unroasted and
roasted beans and instant coffee. Unroasted coffee beans, representing
76 percent total import value, were imported mainly from Vietnam,
Honduras, Columbia and Brazil. Roasted coffee bean imports, valued at
\$7.1 million in 2003, declined four percent from 2002, but otherwise
have showed fairly steady growth. The U.S. holds a 61 percent market
share of total roasted coffee bean imports. Despite the decline in total
imports, the U.S. market share increased two percent over 2002. Italy
and other EU countries are the major competitors.

**Table 2. Coffee Imports by Type: 2000-2003**

(\$ Million)

  --------------------- ------------ ------------ ------------ ------------
                        **2000**     **2001**     **2002**     **2003**

  Unroasted Coffee      \$108.0      \$66.0       \$64.0       \$71.0

  Roasted Coffee        \$4.7        \$6.1        \$7.4        \$7.1

  Instant Coffee        \$5.8        \$6.5        \$6.3        \$15.0

  Total                 \$118.5      \$78.6       \$77.7       \$93.1
  --------------------- ------------ ------------ ------------ ------------

Source: Korean Trade Information Service (KOTIS), Korean Customs Office

Instant coffee imports grew significantly in 2003 to \$15 million, an
increase of 138 percent from the previous year as the economic slowdown
shifted consumer preferences. Convenient and less expensive instant
coffee, as a result, is getting more popular than the higher priced
fresh bean coffee. The U.S. market share, at 27 percent for 2003, is
also growing. Japan, the second largest exporter, had a 19 percent
market share. Other competitors include China, Brazil and Egypt.

Table 3. Advantages and Challenges

  ----------------------------------- -----------------------------------
  **Advantages**                      **Challenges**

  Korean coffee market depends        Importers and consumers are unaware
  entirely on imports                 of the coffee varieties available
                                      from the U.S.

  The U.S. enjoys a good reputation   In general, consumers tend to drink
  for high quality coffee             the least expensive instant coffee

  Coffee is a popular and established Fresh coffee beans are not popular
  beverage                            

  Low tariffs and exemption from the  In terms of health consciousness,
  special excise tax                  coffee has a negative connotation
  ----------------------------------- -----------------------------------

1/ see Tariff Rates Section below

***SECTION II. MARKET SECTOR OPPORTUNITIES AND THREATS***

# Retail Food Sector

Koreans tend to prefer instant coffee at home for its convenience and,
as a result, 90 percent of coffee purchased in retail outlets is
instant. Retail sales of instant coffee reached 616.2 billion Korean Won
(US\$531 million) in 2003, an increase of 11 percent from the previous
year and an increase of 20 percent from 2001. Maxim and Taster's Choice
are the two leading brands sold in grocery stores, hypermarkets,
department stores and roadside retail outlets. In addition, a new
individually wrapped "stick type" instant coffee product, called "3-in-1
instant coffee mix", has become increasingly popular. The product
contains instant coffee, sugar and creamer all in one package.\
\
To meet the South Koreans' particular tastes and desire for variety,
manufacturers are constantly renewing their instant coffee products, as
well as their instant coffee mix products, by adding new flavors to
their existing lines. In 2003 Nestlé, for example, introduced Nescafé
Gold Mocha Instant Coffee Mix, which is now popular among younger coffee
drinkers. Overall, instant coffee sales grew 12 percent in 2003.

Decaffeinated coffee is not very popular in Korea. In a survey done by
Taster\'s Choice, less than 10 percent of polled coffee drinkers stated
a preference for decaffeinated coffee. Although interest in health is
high, few people drink decaffeinated coffee, preferring instead to
switch to green tea. This is attributable to limited promotion and
advertising of the benefits of decaffeinated drinks. It is not
surprising, therefore, that only a few decaffeinated brands are
available locally.

The coffee industry in Korea has a relatively short history. Korea did
not manufacture or legally import coffee beans until 1968 when the
government gave a coffee-manufacturing license to Dongsuh Foods Co.,
Ltd. From 1970 until 1989, when Nestlé Korea was established, Dongsuh
had monopolized local coffee production with its Maxwell House brand
(manufactured under a license from Philip Morris Co., Inc.).

######## Table 4. Share of Retail Sales by Brand: 2000-2002

+-----------------+-----------------+----------+----------+-----------+
| **Company**     | ####### Brand   | **2001** | **2002** | **2002**  |
+-----------------+-----------------+----------+----------+-----------+
| Dongsuh Foods   | Maxim           | 44.5     | 46.9     | 47.2      |
+-----------------+-----------------+----------+----------+-----------+
| Nestle Korea    | Taster's Choice | 17.8     | 15.4     | 15.3      |
+-----------------+-----------------+----------+----------+-----------+
| Dongsuh Foods   | Maxwell House   | 10.2     | 10.2     | 10.9      |
+-----------------+-----------------+----------+----------+-----------+
| Nestle Korea    | Nescafe         | 7.5      | 8.6      | 8.7       |
+-----------------+-----------------+----------+----------+-----------+
| Daesang Group   | Daesang         | 2.4      | 2.2      | 1.9       |
+-----------------+-----------------+----------+----------+-----------+
| Lotte Shopping  | Lotte           | 1.8      | 1.8      | 1.7       |
+-----------------+-----------------+----------+----------+-----------+
| Sara Lee        | Hills Brothers  | 0.8      | 0.7      | 0.7       |
+-----------------+-----------------+----------+----------+-----------+
| Others          |                 | 15.1     | 14.1     | 13.6      |
+-----------------+-----------------+----------+----------+-----------+
| Total           |                 | 100.0    | 100.0    | 100.0     |
+-----------------+-----------------+----------+----------+-----------+

Source: Euromonitor: Hot Drinks, April 2004

# The companies with the largest share of the retail market are still Dongsuh and Nestlé. In addition to these two major coffee players, there are other smaller participants, such as Daesang Group and Lotte Shopping Co., Ltd. The smaller firms' lack of proper coffee processing facilities and relatively low level of investment in advertising inhibit their competitive situation, vis-à-vis, Dongsuh and Nestlé. 

The distribution infrastructure in South Korea for coffee is as follows:

![](media/image2.wmf)

# 

# Vending Machine Sales

Sales through vending machines reached 284 billion Korean Won (US\$244
million) in 2002. Vending machines are still popular in Korea, although
this outlet may not offer future opportunities as Koreans are becoming
increasingly concerned with food safety issues. The dynamic growth of
specialty coffee outlets also impact vending machine sales.

**HRI Food Service Sector**

Coffee specialty shops have grown significantly in the last few years,
with Seattle-based Starbucks leading the pack. Starbucks Korea, co-owned
by Starbucks Corp. and Shinsegae (a major local department store), has
nearly doubled in business volume every year since its foundation in
July 1999. The Korean operation focuses on attaching luxurious images to
the beverages it sells and firmly establishing the take-out coffee
trend. Starbucks Korea is now the largest industry player with a 40
percent market share generating 44 billion Korean Won (US\$37.9 million)
annually. Other U.S. chains have since successfully entered the market,
such as Diedrich Roasters, Coffee Bean & Tea Leaf, and Seattle's Best
Coffee. Local chains, including Rosebud, Whoever, Holly\'s Coffee, are
also doing well.

######## Table 5. Number of Franchise Coffee Chains by Brand: 2001-2003

  ---------------- ---------------------- ---------- ---------- ----------
  **Company**      **Brand**              **2001**   **2002**   **2003**

  Doosan           Café Nescafe           25         28         80

  Starbucks        Starbucks              24         34         80

  Coffeebean       Coffeebean & Tealeaf   6          6          25

  Seattle's Best   Seattle's Best         3          5          11

  UCC              Craytons               1          1          10

  Daesang          Rosebud                77         140        240

  Harley's Korea   Harley's Coffee        12         27         62
  ---------------- ---------------------- ---------- ---------- ----------

Source: Food Economy: Current Coffee Market Structure, 2003

These specialty coffee shops have encouraged premium coffee consumption
and increased interest in fresh coffee. In addition to specialty coffee
shops, imported coffee beans are used at most high-end hotels and
restaurants.

***SECTION III. COSTS AND PRICES***

# Retail Prices -- Instant Coffee

+------------+-------------+----------+--------------+---------------+
| Company    | Brand       | Weight   | Retail Price | Approximate   |
|            |             |          | (Korean Won) |               |
|            |             |          |              | U.S. Dollar   |
|            |             |          |              | Value         |
+------------+-------------+----------+--------------+---------------+
| Dongsuh    | Maxim       | 100      | 3,990        | \$3.44        |
|            |             | grams    |              |               |
+------------+-------------+----------+--------------+---------------+
| Nestle     | Taster's    | 100      | 3,990        | \$3.44        |
| Korea      | Choice      | grams    |              |               |
+------------+-------------+----------+--------------+---------------+
| Dongsuh    | Maxwell     | 500      | 5,590        | \$4.82        |
|            | House       | grams    |              |               |
+------------+-------------+----------+--------------+---------------+
| Nestlé     | Nescafe     | 500      | 5,350        | \$4.62        |
| Korea      |             | grams    |              |               |
+------------+-------------+----------+--------------+---------------+
| Daesang    | Rosebud     | 240      | 2,600        | \$2.24        |
| Group      |             | grams    |              |               |
+------------+-------------+----------+--------------+---------------+
| Dongwon    | Dongwon     | 50 grams | 3,280        | \$2.83        |
|            | Hazelnut    |          |              |               |
+------------+-------------+----------+--------------+---------------+
| Dongsuh    | Maxim       | 300      | 7,900        | \$6.82        |
|            | Mochagold   | grams    |              |               |
+------------+-------------+----------+--------------+---------------+

# Tariff Rates

Import Tariffs on CIF value:

Green coffee beans (H.S. Code: 0901.10.0000) = 2 %

Roasted coffee beans (H.S. Code: 0901.21.0000 and 0901.22.0000) = 8%

Instant coffee (H.S. Code: 2101.12.1000) = 8 %

A 10 percent value added tax (VAT) is applied to all coffee and coffee
products after the tariff has been applied.

***SECTION IV. MARKET ACCESS***

# 

# Labeling Requirements

Imported coffee is required by law to have a Korean language label.
Korean language stickers may be applied in lieu of a Korean language
label. The sticker should not be easily removable and should not cover
the original labeling. The principal display panel must contain the
product name, product type and content information. If this is not
feasible, such information shall be provided in a Korean language
sticker using a 12-point or larger font pitch size. The Korean language
label should contain the following information:

1.  **Product Name:** The label should state the name of the product.
    The product name should be identical to the product name declared to
    the licensing/inspection authority.

2.  **Product type:** This is mandatory for specially designated
    products such as coffee.

3.  **Manufacturing company of origin and address**

4.  **Manufacturing date, month and year**

5.  **Importer\'s name and address, and the address where products may
    be returned or exchanged in the event of defects.**

6.  **Importers' business license number**

7.  **Seller's name, address and phone number**

8.  **Shelf life**

9.  **Weight of product**

10. **Ingredient(s) or raw material(s) and a percent content of the
    ingredient(s):** The name of the major ingredient must be included
    on the label as well as the names of at least the next four
    principle ingredients. These should be listed with the highest
    percentage first followed by the others. Artificially added purified
    water does not count as one of the five major ingredients.

11. **Nutrients:** Only special nutritional foods, health supplementary
    foods, products wishing to carry nutritional labels and products
    wishing to carry a nutrient emphasis mark are subject to nutritional
    labeling.

12. **Other items designated by the detailed labeling standards for food
    et al.:** This includes cautions and standards for use or
    preservation (e.g., drained weight for canned products,
    radiation-processed products, etc.).

13. **Country of origin labeling** is required on food products.

14. **Packaging material**

###### SECTION V. KEY CONTACTS and FURTHER INFORMATION

# 

# U.S. Agricultural Trade Office

**Korean mailing Address:** Rm.303, Leema Bldg, 146-1, Susong-dong,
Chongro-ku, Seoul 110-755, Korea

**U.S. Mailing Address:** U.S. Embassy Seoul, Unit 15550-ATO, APO, AP
96205-5550

**Telephone:** 011 82-2 397-4188

**Fax:** 011 82-2 720-7921

**E-mail:** <atoseoul@usda.gov>

**Website:** [www.atoseoul.com](http://www.atoseoul.com/)

**The best method for new-to-market exporters to enter the Korean
market** is to first find a solid importer, agent or distributor for
their product. Currently, the retail industry does very little direct
importing, although this may change in the future. The US Agricultural
Trade Office in Seoul sponsors an **annual trade-only food show, Food
and Hotel Korea (FHK),** that provides opportunities for U.S. suppliers
to meet the Korean trade. FHK2005 will take place March 16-18, 2005 at
the COEX Exhibition Hall in Seoul, Korea. For more information about
FHK, please contact Mr. OH, Sang Yong via email:Sangyong.oh@usda.gov.

**For more information on how you can register for USDA/FAS's Supplier
List:**

The United States Department of Agriculture's Foreign Agricultural
Service (USDA/FAS) offers information and services that can be
beneficial to both new and experienced exporters. For example, the U.S.
Suppliers Service is a searchable database of over 5,000 U.S. exporters
and their products, which is used by USDA/FAS to help facilitate
connecting potential buyers with U.S. suppliers. This database is used
by more than 85 USDA FAS Overseas offices, such as the ATO in Seoul,
Korea to help export agents, trading companies, importers and foreign
market buyers locate U.S. suppliers. It is also used to recruit U.S.
exporters to participate in market development activities sponsored by
USDA and federal export programs.

You can register online for this service at
**[http://www.fas.usda.gov/agexport/exporter.html]{.underline}**

AgConnections Team

AgExport Services Division, Foreign Agricultural Service, Washington, DC

Phone: 202-690-4172 Fax: 202-205-2963

E-mail: <joyce.estep@fas.usda.gov>

Website: www.fas.usda.gov/agx/agx.html