Terarosa's Seoul Arts Center branch. [Terarosa]
Terarosa's Seoul Arts Center branch. [Terarosa]

South Korea's coffee market is splitting into two distinct camps: premium offerings built around specialty beans, and budget chains competing on volume and low prices. As consumer choice widens, competition has intensified — and brands across both ends of the spectrum are converging on the same strategy: open more stores.

Terarosa, a specialty coffee brand operated by Haksan, plans to open a new Seongsu branch later this month, industry sources said Friday. The chain currently operates 32 stores, having already opened four this year, and plans to add at least five more before year-end — including locations at Dongdaemun Hyundai Outlet, Lotte Department Store Cheongnyangni, Songdo Hyundai Outlet and Shinsegae Department Store Daegu.

Founded in Gangneung in 2002, Terarosa is one of South Korea's best-known specialty coffee roasters. Its operator Haksan posted sales of 55.7 billion won ($40 million) last year, up 22.6 percent from 45.4 billion won the year before. Operating profit rose 36.0 percent over the same period, climbing from 2.3 billion won to 3.1 billion won. The brand has been steadily pushing into major retail corridors, including department stores and mixed-use shopping complexes.

"We plan each store's scale and layout with the characteristics of the local trade area and the needs of visiting customers in mind," a Terarosa official said. "We will continue to expand stores that can effectively deliver the brand experience in line with the traits of each neighborhood and its customers."

Paul Bassett, a premium coffee brand run by Maeil Dairies affiliate MZ Seed, is also broadening its consumer reach. The chain operates 158 stores and opens five to 10 new locations each year; it plans to debut multiple additional stores in the second half of this year. Shinsegae Department Store, meanwhile, has launched a new specialty coffee brand called Categoric at its Gangnam branch and is planning further openings at other locations.

Budget coffee franchises are pushing even harder. Surging demand for value amid high prices has fueled their expansion, and the strategy is clear: grow seasonal menus while adding stores region by region to maximize the benefits of high-volume, low-margin sales.

Budget coffee brands including Mega MGC Coffee, Compose Coffee and Paik's Coffee are driving growth through rapid store expansion. A budget coffee shop in Seoul. [Yonhap]
Budget coffee brands including Mega MGC Coffee, Compose Coffee and Paik's Coffee are driving growth through rapid store expansion. A budget coffee shop in Seoul. [Yonhap]

Mega MGC Coffee leads the charge. From roughly 3,400 stores at the end of 2024, the chain surpassed 4,000 locations in November last year and now stands at around 4,400. Compose Coffee crossed the 3,000-store mark in September last year. Paik's Coffee and The Venti operate approximately 1,800 and 1,700 stores, respectively.

The domestic coffee industry reached a total market size of 3.74 trillion won in 2024, up 35.6 percent from 2018, according to a joint analysis by the Ministry of Agriculture, Food and Rural Affairs and the Korea Rural Economic Institute. The sector has grown at an average annual rate of 5.2 percent over the past six years. The roasted-bean segment alone expanded 14.7 percent year-on-year to 1.32 trillion won.

"The market for budget coffee shops and large-format products is growing in tandem — driven by a rising number of specialty consumers who seek differentiated flavors based on bean variety and roasting method, alongside expanding demand from people who want to enjoy coffee casually on their commute or after a meal," the ministry said.

Even so, the market is showing signs of saturation, and the number of coffee shop operators is actually declining. According to National Tax Service statistics, the number of registered coffee and beverage shop operators nationwide stood at 93,542 as of June — down 1.5 percent from 94,957 in the same month last year. While that figure is still 20.6 percent higher than the 77,543 recorded in June 2021, it marks a second consecutive year of year-on-year declines since June 2024, when the count peaked at 96,385.

Budget brands are absorbing everyday demand by clustering around office districts and residential neighborhoods, while premium brands are targeting high-traffic retail destinations such as department stores and shopping complexes. Whether the diverging expansion strategies translate into stronger earnings remains to be seen. "Simply adding more stores is no longer an easy path to better results," one industry official said. "Brands will need to sharpen differentiation — through beans, food offerings and store ambiance — while carefully weighing the accessibility of each new location."


korean@heraldcorp.com