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Korea's homegrown hand-drip coffee brand to enter China

TERAROSA Coffee, a South Korean homegrown brand known for its hand-drip coffees, is gearing up to advance into China this year, as demand for premium coffee products will continue to rise in the world's most populous country, its founder and chief executive said Tuesday.

Kim Yong-duek, president of Haksan Co., which runs the TERAROSA Coffee chain, said that the year 2016 will mark the beginning of his company's overseas expansion and China, the Middle East and Europe are among the first markets to tackle.

"While seeking to strengthen our presence here, we are planning to advance into global markets beginning this year. We will initially enter China and then the Middle East and Europe in the coming years," Kim said in an interview with Yonhap News Agency.

The 57-year-old Kim, who jumped into the coffee business by founding Haksan in 2002 after working as a bank teller for over 20 years, said that his company is now in the final stages of talks with a Chinese business partner to open the first TERAROSA Coffee outlet in China this year. He said the location of his first Chinese outlet, as well as its opening schedule, will be announced later.

TERAROSA, which means a territory of red soil fit for raising coffee trees, currently runs 11 chain shops nationwide, including in Seoul, Busan and Jeju Island.

Haksan is unique in the local coffee market in some aspects. It began its coffee business in Gangneung, an East Sea coastal city in Gangwon Province, 237 kilometers east of Seoul.

Haksan initially provided coffee beans directly purchased from overseas coffee farms to hotels, upscale restaurants and standalone gourmet coffee shops. In 2012, it opened its first TERAROSA Coffee chain store in Busan, a southern port city, to take advantage of local consumers' growing appetite for freshly-roasted premium coffees.

Industry giants Starbucks Coffee and Coffee Bean & Tea Leaf do not offer hand-drip coffee, widely regarded as infeasible for serving to massive number of customers, as it takes time and barista skills. Instead, they mainly serve coffee extracted from machines using beans imported from the United States after being roasted there weeks earlier.

In the past three years, Haksan has grown rapidly, backed by diversified demand from customers. Sales almost tripled to 19.7 billion won (US$17 million) in 2015 from 6.7 billion won in 2013, according to the company. This year, it expects to post 23 to 25 billion won in sales, helped by an increasing demand for roasted beans from businesses and households.  

In Korea, TERAROSA Coffee mainly competes with its bigger rival, the Paul Bassett brand operated by M's seeds, an affiliate of conglomerate Maeil Dairies Co., in the specialty coffee market.

M's seeds plans to increase the number of Paul Bassett chains to 80 this year, targeting 66.8 billion won in sales. M's seeds has said it doesn't have immediate plans to go abroad with the Paul Bassett brand, which is named after the winner of the World Barista Championship in 2003.

Kim said he is also in negotiations with a Dubai-based company that recently contacted Haksan for business ties. On top of these markets, he also mentioned France as a "good market to enter," saying the local demand for hand-drip coffee is growing fast in the expresso-focused French market.  

Industry watchers here say it is rare to see a small homegrown coffee company try to go abroad with hand-drip coffee.

Other mid-sized Korean chains such as Caffe Bene, Cafe Droptop, Hollys F&B Co. and Tom N Toms Coffee went to China with variations made of espresso extracted from machines. But they are reportedly struggling in the Chinese market in the face of stiff competition with global players such as Starbucks Coffee.

Unlike the midsize players, Haksan plans to focus on the premium coffee segment in China. China's coffee market is expected to grow to 550 trillion won ($476 billion) by 2025 from 117 trillion won last year, the president said, citing data from the International Coffee Organization (ICO).

The global coffee market reached 2,600 trillion won in 2014 when Korea's market stood at 5.4 trillion won, showed the ICO data.

Globally, Haksan aims to become a small but strong player in the coffee market that includes hand-drip, extractions from machines, ready-to-drink and other instant coffees.

"Our long-term goal is to become Hermes in the coffee industry.

The brand is unrivaled even when compared to Chanel and Louis Vuitton," he said, referring to the French luxury handbag maker and French fashion and leather goods brands.

Domestically, Haksan plans to limit the number of its domestic coffee outlets to less than 50 to seek "qualitative growth" by offering value-added coffee, said Kim.

To differentiate itself from others, it will stick to the policy of serving coffee made of top-grade beans roasted within the week at its plant in Gangneung, said Kim, who was born in the coastal city.

Haksan directly imports 77 kinds of green coffee beans from 12 countries and, as a rule, opens shops away from the noisy main streets to provide customers with a cozy and sophisticated space for chats and meetings.

Given the company's strict rules and stellar performance, people might think he jumped into the coffee industry 14 years ago with sufficient preparations and deep knowledge of coffee. But Kim said he didn't even know the basics about coffee at the time of his business foundation.

Actually, he was simply considering starting a business to live a "different life" after he retired from a local bank at the age of

40 in 1998 when the Asian financial crisis forced restructuring in the banking industry. He landed a job in Chohung Bank, which was merged into Shinhan Bank a decade or so ago, soon after graduating from high school, and then worked for the bank for 21 years.

"The 21-year banking career has really helped me a lot in setting up business plans and estimating gains and losses from planned investments," said Kim, who taught himself about the coffee business.

Based on thorough studies and surveys, he opted to do business in the higher-quality coffee market to avoid red-ocean competition in the non-premium coffee market where even convenience stores and fried chicken restaurants add coffee to their menus. (Yonhap)
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