Nestlé seeks to open Starbucks brand stores in Korea

Nestlé S.A., the world’s largest food company, is preparing to open small Starbucks brand stores in South Korea to attract budget-conscious Starbucks cafe goers, according to investment banking industry sources on Monday.

The South Korean distributor of the Swiss company is looking to open Starbucks brand stores within small-to-medium-sized supermarkets, grocery stores and university campuses, rather than opening new outlets.

In 2018, Nestlé acquired the rights for $7.15 billion from Starbucks to sell Starbucks coffee and tea drinks at grocery stores and retail outlets.

That allows Nestlé to sell Starbucks coffee capsules for its Nespresso and Nescafe Dolce Gusto coffee machines, as well as a variety of Starbucks food and beverages in 80 countries.

Now it is seeking to make the most of the rights to sell drinks made from Starbucks’ coffee beans and ingredients supplied from the coffee chain in new Starbucks stores it is preparing to open in South Korea.

The sources in Seoul said Starbucks brand stores will be in the form of “a store-in-store” and will not target main streets, where Starbucks runs directly managed outlets.

Nestlé has reached out to several food store operators in South Korea, including fresh food distribution company Oasis, organic food brand Chorokmaeul and the University of Suwon, to discuss setting up Starbucks brand stores within their idle spaces.

Starbucks brand stores will likely have only two to three tables with a minimum of staff, which will allow their operators to reduce coffee prices to around 3,000 won ($2.3) per cup.

Nestlé said the coffee brewed in those stores will be sold under the Starbucks brand and there will be no difference in taste, quality, or brand from that bought at directly managed stores.

Starbucks earns royalties by selling trademark rights by product category. In South Korea, supermarket chain E-Mart Inc., Dongsuh Foods Corp. and Seoul Milk sell Starbucks products under royalty agreements.

E-Mart and its parent company Shinsegae Inc. have the exclusive rights to make and sell Starbucks beverages and operate stores. Dongsuh Foods and Seoul Milk are in charge of producing and selling Starbucks bottled beverages, or ready-to-drink products.

Starbucks coffee beans and coffee capsules are distributed by Lotte Nestlé Korea Co.

Against this backdrop, Nestlé’s plan to open Starbucks brand stores, separate from directly managed ones, could face opposition from South Korea’s retail giant Shinsegae Group.

An official at Starbucks Coffee Korea (SCK), owned by Shinsegae, said the company exclusively owns the domestic business rights for Starbucks stores.

Food and beverage industry observers said that if Nestlé launches small-size, low-price Starbucks brand stores, it will likely change the landscape of the domestic franchise coffee market.
 
“With the domestic coffee market being divided into premium and low-end markets, if Starbucks advances into the low- to mid-price market with its brand awareness, it will threaten existing franchise brands,” said a coffee industry official.

Write to Ye-Jin Jun and Soo-Jung Ha at ace@hankyung.com
 

Yeonhee Kim edited this article.