Coffee Bean Price Surge Forces Compose to 'Surrender'... Will Low-Cost Coffee Chains Follow with Price Hikes?

First Price Hike Among the Three Major Low-Priced Coffee Brands 'Mecomback'
Limited Impact Expected as Only Iced Americano Price Rises
Mega Coffee and Paik's Coffee: "No Plans for Price Increase Yet"

Compose Coffee has finally surrendered to the highest coffee bean prices in 48 years. Among the three major low-priced coffee brands known as 'Mecomback' (Mega Coffee, Compose Coffee, Paik’s Coffee), it is the first to implement a coffee price increase. The strategy is to raise the price only for the best-selling item, the 'Iced Americano,' to minimize the decline in market share. Despite this price hike, Compose Coffee’s Iced Americano remains the cheapest among the three brands, so consumer backlash has been limited so far. However, as the first decisive move by a low-priced coffee brand in the era of 'coffeeflation,' attention is focused on how this will influence future industry decisions.

According to industry sources on the 4th, Compose Coffee will raise the price of its Iced Americano from 1,500 won to 1,800 won starting on the 13th, an increase of 300 won. The Decaffeinated Iced Americano will also increase by 300 won, from 2,500 won to 2,800 won. However, prices for hot Americano and hot Decaffeinated Americano will remain unchanged at 1,500 won and 2,500 won, respectively.

This is the first time in 10 years since the brand’s launch in 2014 that Compose Coffee has raised the price of its top-selling Iced Americano. The decision to increase prices amid fierce competition in the low-priced coffee market was driven by a surge in coffee bean prices caused by abnormal weather conditions. Arabica beans, mainly used by coffee shops, hit a 47-year high price last December. At that time, the price of Arabica coffee futures in the New York market soared to $3.44 per pound, surpassing the previous record of $3.38 set in 1977.

Kim Jin-sung, CEO of Compose Coffee, explained, "Due to the sharp rise in coffee bean prices, along with continuous increases in labor costs, logistics expenses, and raw material prices, it became difficult to maintain the existing pricing policy, leading to the decision to raise prices for the two types of Iced Americano."

With this, Compose Coffee becomes the first among the three major low-priced coffee brands, Mecomback, to raise coffee prices. As coffeeflation has taken hold due to rising coffee bean prices, premium brands such as Starbucks, Paul Bassett, and Hollys have already increased their coffee prices last year and earlier this year.

Compose Coffee’s decision was not easy. Since the domestic low-priced coffee market is already saturated, a price increase could potentially lead to a loss in market share. Korean consumers, accustomed to cheap coffee prices, are known to be sensitive enough to make different choices even with a 100 won increase. This is why other low-priced coffee brands have been stubbornly holding out despite rising coffee bean prices.

However, considering that Compose Coffee’s price increase is limited to the Iced Americano and that its Iced Americano remains the cheapest among Mecomback brands, the market impact is expected to be limited. Both Mega Coffee and Paik’s Coffee sell hot Americano for 1,500 won, but their Iced Americano is sold at 2,000 won with an additional ice charge.

Many consumers responded, "Even with the price increase, Compose Coffee is cheaper than Paik’s Coffee and Mega Coffee," and "They haven’t raised prices for 10 years, so I accept this decision," indicating they will continue to use Compose Coffee. Of course, there are negative reactions as well, such as "Mega Coffee and Paik’s Coffee offer 24oz sizes, while Compose Coffee offers 20oz, so it’s hard to say it’s cheaper," and "Since there are still brands priced at 1,500 won, they must have anticipated backlash." Some also link the price increase to Compose Coffee’s sale last year to the Philippine foodservice company Jollibee Group.

Now, consumer attention has shifted to Mega Coffee, which leads the domestic low-priced coffee market. According to Mobile Index, as of last September, Mega Coffee held the highest market share among low-priced coffee brands based on card payment amounts, with 43.7% (63.9 billion won), followed by Compose Coffee at 26% (38.1 billion won), Paik’s Coffee at 17% (25.4 billion won), The Venti at 7% (10.2 billion won), and Mammoth Coffee Lab at 6% (8.7 billion won).

Mega Coffee maintains its stance of no price increases so far. A Mega Coffee representative said, "We are not currently considering raising consumer prices or franchisee coffee bean supply prices," adding, "Although coffee bean prices are rising in the international market, the headquarters is absorbing the costs." They further explained, "While it is difficult to control international coffee bean prices, we are leveraging the advantage of large volume usage to increase economies of scale and reduce the burden of coffee bean costs."

A Paik’s Coffee representative said, "We are closely monitoring the market situation, but there are currently no plans to raise prices."