Decision

Report
Trying to Create a Stir: Opening a
Coffee Shop in Korea
Executive Summary
MG Kim and Kevin Andes wanted to partner to start a coffee shop venture with a difference. Before
them were two options—franchising an existing brand of coffee shops or starting a fresh venture
with a unique, new concept.

Considering costs, risks, gestation period, ease of implementation and degree of control over the
offering, it is recommended that the pair proceed with the first option, i.e. franchising an existing
brand of coffee stores. It is further recommended that they target the student community in South
Korea for greater chances of success.

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Situation Analysis
MG Kim and Kevin Andes wanted to partner to start a coffee shop venture with a difference. The
South Korean market presented a tremendous opportunity for a coffee business. First, the increased
wealth and growing consumption expenditure meant that South Koreans were eating out more than
ever and also spending on coffee. Further, the college market was massive and students were
increasingly spending time in coffee shops to study, take naps, meet friends, etc. Moreover, in South
Korea, coffee shops were becoming ‘the third place’ aside from home and work where people spent
a great deal of time. However, South Korean customers were brand-loyal which meant that any
venture they start would have to be unique to attract and retain customers. There was already a
proliferation of 740 coffee brands in the country. Most of these were single-location stores but there
were many large chains as well, such as Starbucks, Sleepless in Seattle, Coffee Beans, among others.

In this situation, Kim and Andes had to decide whether they wanted to focus more on
differentiation, in which case, they would need a new concept, or the brand, for which franchising
would be the preferred mode of entry. One way of going about a new concept would be to combine
education and coffee, and start a shop in one of the university campuses. Many students choose
according to price and convenience and being located on university campuses would have its
obvious advantages. This would also mean low initial costs. To differentiate their brand and turn it
into a concept others would be interested in franchising, they could offer unique items on the menu,
or provide a different kind of ambience. However, this also poses risks. Franchising an existing brand
would be a much less risky option as the franchisor would provide a tried-and-tested model to
replicate. The issue there would be that franchisors were reluctant to allow franchisees to customize
too much.

Given the background of the two partners, cost is an important consideration. Further, degree of
control over the venture is also an important issue to consider. The degree of risk should also be
considered given that the two partners would be using their personal finances to fund the venture.
Ease of implementation is also a criterion that can be kept in mind. Lastly, the partners should
proceed with the option that has a shorter gestation period.

Problem statement
What is the mode of entry that will allow Kim and Andes to launch a successful coffee shop venture
with a difference?

Current State: No coffee shop

business venture.

Desired State: To own a

successful coffee shop venture
that can differentiate itself.

Options
1. Franchise an existing coffee brand
2. Start a fresh coffee venture with a new concept

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Criteria
The above options can be evaluated against the following criteria:

 Lower costs
 Greater control over the offering
 Lower risk
 Greater ease of implementation
 Shorter gestation period

Evaluation of options

1) Franchising an existing coffee brand

This option would mean lower costs as investment would be lower—the cost of developing
an entirely new offering could be avoided. However, since franchisors are reluctant to allow
franchisees to do a lot of customization, control over the offering would be far lower. There
would only be scope for minor localization. This option also poses lower risk as the
franchisor would provide a tried-and-tested model. Costs of experimentation can be avoided
altogether and probability of success is likely to be greater. Ease of implementation would
also be far more in this option as the necessary expertise and support would be provided by
the franchisor. Lastly, the gestation period for this option is likely to be shorter as it would
be a familiar brand which already has a loyal customer base. Not much organisational effort
would be required in terms of attracting customers.

2) Start a fresh coffee venture with a new concept

This option would require far greater investment—development of the concept, testing it,
designing the business model, etc. However, this option also allows the entrepreneurs to
have greater control over the offering and create something new and unique, which could
then be franchised if proved to be successful. This option poses higher risks than the other
one—both the entrepreneurs are new to this domain. Envisioning a successful, new concept
would be challenging and the probability of success of such a venture would be ambiguous
at best. Ease of implementation would also be lower as greater efforts would have to be
devoted to development, financing, marketing, etc. Lastly, the gestation period for this
option is likely to be longer as South Koreans are a brand-conscious folk and it would take
time for any new player to establish itself, let alone be profitable in the long run.

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Recommendation
As per the above analysis, it is quite evident that the protagonists should proceed with Option (1)—
i.e. franchising an existing coffee brand. Given that the protagonists would be investing in the
venture personally and that they have little or no experience in this field, it would make sense for
them to go with Option (1).

Action Plan
 Franchise a brand that is popular with the college-going population
 To lower costs even further, tie-up with a University campus and set up the shop there
 Design the space in a way that is student-friendly—i.e. access to internet, space to nap,
availability of games, comfortable furniture, etc.
 Choose affordable menu items from the offerings available within the chosen brand
 Repeat this on multiple campuses

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