Soaring coffee bean prices and a high won-dollar exchange rate (decline in the value of the won) have led to price increases among low-cost coffee brands. Amid this, these brands are paying large sums to major stars to promote their products. As their core competitive advantage of price competitiveness reaches its limits, they intend to revitalize their brand image through star marketing and increase coffee consumption, which has declined due to the economic recession, through their loyal customer base.
The effectiveness of advertising featuring stars is seen as an attractive strategy for low-cost coffee brands, as it increases brand awareness and boosts sales. However, there are criticisms that the burden of high advertising costs is being passed on to franchise owners and consumers.
According to the industry on the 27th, low-cost coffee brands are continuing their 'big model marketing.' This is due to the widespread recognition that survival is difficult with price competitiveness alone. In an era of high inflation and soaring exchange rates, there is a consensus that they can no longer compete solely with the image of 'value for money coffee.'
Mammoth Coffee Lab, which operates Mammoth Express, recently announced through a notice to franchise owners that it has signed an exclusive model contract with actor Kim Woo-bin. The company believes that Kim Woo-bin's trustworthy image aligns well with the brand identity that Mammoth Coffee Lab aspires to. Through this, Mammoth Coffee Lab aims to secure loyal customers by improving its brand image. Last year, Mammoth Coffee Lab's sales reached 75.7 billion won, a 14% increase compared to the same period last year (66.8 billion won), but its operating profit decreased from 3.2 billion won to 2.6 billion won, a 24% decline.
Mammoth Coffee made this decision because it appears that the 'big model marketing' led by competing brands Mega MGC Coffee and Compose Coffee has been effective. After selecting soccer player Son Heung-min as a model in 2022, Mega MGC Coffee's number of franchises increased from 2,173 to 3,551 this year. The company's operating profit last year also exceeded 100 billion won. Mega MGC Coffee continues to feature Son Heung-min as its model.
Compose Coffee also selected BTS member V as their model in 2023, increasing its number of franchises from 1,901 to 2,812 this year. Last year's operating profit was reported at 40 billion won, a 9% increase over the previous year. Compose Coffee continues its partnership with V to this day.
Another low-cost coffee brand, The Venti, also joined the big model marketing by selecting Dex, who is active in entertainment, as its model. Idia, a mid-priced coffee brand that was struggling due to ambiguous pricing, has turned to star marketing as a means of brand improvement. It has launched a rebranding effort featuring actor Byeon Woo-seok, who rose to stardom through the tvN drama "Seonjae upgo tueo" last year.
Industry insiders believe that as prices rise, a decrease in consumption is expected, so this is seen as a means to secure competitiveness for survival. An industry official noted, "No matter how much one tries to compete with ultra-low prices, low-cost coffee brands cannot avoid raising prices in an era of high inflation and high exchange rates," adding, "Based on the current economic stagnation, it is crucial to provide attractive factors that can entice consumers to open their wallets."
Jeong Yeon-seung, a professor of business at Dankook University, stated, "Major star marketing is effective in shaping consumer perceptions of the brand positively," and commented, "As a result of feeling the limits of cutting costs during an economic downturn, low-cost coffee brands are seeking alternatives."
Nonetheless, there are criticisms regarding the tendency to pay high advertising fees without contemplating the product itself, as evidenced by the annual advertising fees for Son Heung-min and V, which are reported to be around 6 billion won each. Mega MGC Coffee shares half of this cost with its franchise owners, while Compose Coffee requires franchise owners to cover 20% of the advertising costs.
Lee Eun-hee, a professor of consumer studies at Inha University, remarked, "The costs of using major stars or famous celebrities as models cannot be entirely disregarded when considering product price increases," adding that these costs are ultimately passed down to franchise owners and consumers. She further emphasized that, regardless of how much focus is placed on value for money, there needs to be an effort to improve the quality of the products themselves.