Ediya Coffee Opens First Store in Malaysia
Amid Domestic Market Saturation... Riding the Korean Wave for Successive Overseas Expansion
Domestic coffee franchises are successively knocking on the doors of overseas markets. With the domestic market reaching saturation, they aim to devise survival strategies based on the recognition and high demand for K-food.
Native Coffee Franchises Expanding Overseas One After Another
Ediya Coffee announced on the 20th that it opened its first store, 'Malaysia Elmina Branch,' on the 19th in the Elmina area near Kuala Lumpur, Malaysia. The Elmina area is known as a representative satellite city of the capital Kuala Lumpur, with good accessibility and a commercial district that attracts a large floating population.
Ediya Coffee is intensifying its overseas market penetration by expanding to Malaysia this year following its entry into Guam last year. Earlier, in June, Ediya Coffee signed a Master Franchise (MF) agreement with a local partner, and starting with this first store opening, plans to expand its franchise stores in Malaysia to 200 by 2029.
This entry into Malaysia marks Ediya Coffee's first Master Franchise agreement. A Master Franchise is a contract method where the brand franchise operation rights are sold in partnership with a company familiar with local conditions. The headquarters can steadily earn royalty income without investing heavily and can relatively easily resolve market trends or legal disputes in the target country with the partner company, which is considered an advantage.
Domestic coffee franchises have been actively expanding overseas this year. Earlier, Hollys opened its first directly operated overseas store, 'Namba Marui Branch,' in Osaka, Japan, in May, opening the floodgates. Hollys, which opened its first store in 1998, had only operated franchises domestically until now. The Namba Marui Branch is Hollys' first overseas directly operated store, located in the Marui Department Store connected to Namba Station, the transportation hub of Osaka, making it one of the busiest downtown areas in Osaka.
Mega MGC Coffee also opened its first overseas store in Ulaanbaatar, Mongolia, in May. The first store was established on the first floor of the headquarters building of its Mongolian partner company, Asia Pharma, covering about 30 pyeong (approximately 99 square meters). A Mega MGC Coffee official explained, "We judged the success potential to be high because Mongolia has a high proportion of young people and a favorable view of Korea." Mega MGC Coffee plans to consider expanding into Asia and the Americas in the future.
This month, The Venti established 'The Venti Vancouver Canada' corporation with a local partner to enter the Canadian market and plans to open its first store in British Columbia in March next year. The Venti explained that Canada was selected as the first overseas market because it is a country that prefers cost-effective products, has a high per capita coffee consumption, and, above all, has many Asian immigrants with a strong interest in K-food.
Additionally, Baek Jong-won, a broadcaster and entrepreneur, operates the brand Paik’s Coffee under The Born Korea, which currently runs eight stores in the Philippines and two in Singapore. Paik’s Coffee ventured overseas early by opening its first stores in China and Singapore in 2016.
The Era of '100,000 Cafes'... Localization Overseas is the Answer
The reason domestic franchise coffee shops are rushing to enter overseas markets is that the domestic market has reached saturation. The coffee franchise industry has complained for several years that the domestic coffee market is saturated. According to Statistics Korea, the number of coffee specialty stores in Korea exceeded 100,000 for the first time at the end of 2022, recording 100,729 stores. This is nearly double the 51,551 stores in 2016 over six years.
As the number of coffee shops surged, the closure rate also soared. According to the Ministry of the Interior and Safety, over the past 10 years as of last year, the number of new cafes increased by 45%, but the number of closed cafes surged by 181%. This is believed to be due to the limited commercial districts. The average operating period of cafes is also shortening. According to the National Tax Service's survey of business survival years over five years (2018?2022), coffee beverage shops lasted an average of only 3 years and 1 month. As the domestic market becomes increasingly competitive, despite high risks, overseas expansion is becoming not a choice but a necessity.
In fact, the management situation faced by Ediya Coffee, which has been intensifying its entry into Malaysia, is not easy. Last year, Ediya Coffee's operating profit was 8.2 billion KRW, an 18% decrease compared to 10 billion KRW in the previous year. During the same period, sales also dropped from 277.8 billion KRW to 275.6 billion KRW. This is the first time in 10 years since 2013 that Ediya Coffee's operating profit fell below 10 billion KRW. Ediya Coffee had recorded operating profits between 10 billion and 20 billion KRW annually until now.
To smoothly land in overseas markets beyond the domestic market's excessive competition, companies are focusing on localization while maintaining the characteristics of K-cafes. Ediya Coffee plans to compete with specialized menus targeting local consumers. Their strategy includes differentiated elements such as menus using tropical fruits like coconut, Korean traditional drinks like Sikhye and roasted sweet potatoes, and K-specialty bakery items such as 'Buldak Panini,' 'Potato Hot Dog,' and 'Krungji.'
Hollys, which announced it had surpassed 60,000 cumulative visitors within 100 days of opening, is also said to have succeeded thanks to its Korean-style cafe interior and menu composition. Amid the ongoing popularity of Korean culture and K-food among Japanese people in their 20s and 30s, the fact that customers can experience the same taste and atmosphere as Hollys stores in Korea provided satisfaction to Japanese consumers.
Hollys Japan offers not only Korean-style cafe interiors but also seats equipped with wireless chargers, which are hard to find in Japanese cafes. Reflecting Japanese consumer preferences, it also offers Osaka-limited menus such as 'Yakgwa Cream Latte' and 'Lucky Mugwort Latte,' which contain traditional Korean ingredients. A Hollys official stated, "We plan to continuously introduce new menus and MD products through our Japanese stores to provide ongoing freshness."
However, despite higher growth potential than domestically, concerns remain significant. An industry insider advised, "Since coffee drinking and dessert consumption cultures vary clearly by country, relying solely on the formulas and strategies that succeeded domestically by leveraging the Korean Wave is likely to cause difficulties. Most local markets already have established famous coffee franchises, so companies must continuously monitor market conditions and flexibly implement localization strategies."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
