With Nongshim stepping up as Nestle Korea's distribution partner, the industry is watching to see whether it will shake up the domestic coffee market. As Nestle reorganizes its lineup with a strategic distribution partnership that leverages Nongshim's nationwide sales network, there is an outlook that competition in the home café market will intensify around capsule coffee in a domestic market long centered on instant coffee.
According to related industries on the 10th, Nongshim will handle domestic offline distribution for about 150 Nestle products starting this month. The lineup includes whole bean, stick, and capsule coffee products such as Nescafe, Dolce Gusto, and Starbucks At Home. These products will be supplied to major distribution channels, including hypermarkets and supermarkets, through Nongshim's nationwide sales network.
Nongshim and Nestle have engaged in strategic collaboration in the past as well. In 2003, Nongshim handled powdered coffee products such as Nescafe and Taster's Choice, and in 2013 it took on distribution for confectionery brands including KitKat. Nestle said, "This partnership with Nongshim goes beyond the previous cooperation limited to specific categories and is a comprehensive and multifaceted collaboration that combines the core strengths of both companies." The company added, "Starting with this partnership, we plan to secure long-term and stable growth drivers across product categories."
The partnership was pursued as Nestle reorganized its strategy for the Korean market. Nestle entered the domestic market by establishing Nestle Korea in 1987. In 2014, Lotte Group and Nestle launched a joint venture, Lotte-Nestle Korea, with each holding half the equity. At the same time as the launch of Lotte-Nestle Korea, a separate entity, Nestle Korea LLC, was established. Lotte-Nestle Korea handled Nestle's powdered coffee business in the Korean market, while Nestle Korea oversaw capsule coffee and confectionery. After Lotte-Nestle Korea entered liquidation procedures last year, Nestle Korea now sells products across a wide range of categories, including coffee, confectionery, nutrition, and pet care.
One reason Lotte-Nestle Korea went into liquidation procedures was the strong influence of Dongsuh Foods in the domestic coffee market. According to market research firm Euromonitor, the size of the domestic instant coffee market (including stick formats) in 2024 is about 1.3037 trillion won. Dongsuh Foods' market share stands at 86.9%. In effect, nine out of 10 consumers drink Dongsuh Foods' Maxim or Kanu products.
Unlike in the past when the joint venture handled production and management directly, Nongshim will focus solely on distribution without taking on manufacturing burdens. The industry expects Nongshim to put weight behind capsule coffee and premium whole-bean product lines, which have greater growth potential than instant coffee. The domestic capsule coffee market is currently estimated at about 500 billion won. Unlike the instant coffee market, Nestle shows strength in capsule coffee. Industry estimates put Nestle's share at around 80%.
Dongsuh Foods is a relative latecomer in the capsule coffee market. However, it is quickly building its presence, led by the capsule coffee machine Kanu Barista launched in 2023. In roughly three years since launch, cumulative sales are on track to top 100 billion won. Aggressive marketing, such as refunding a portion of capsule purchases when buying a coffee machine, has also helped boost sales.
For Nongshim, the partnership could be a springboard for a renewed push into the coffee business. In 2013, Nongshim entered the coffee market with the premium instant coffee Gangglio Coffee but exited after three years due to weak sales. This time, the strategy is to expand the market by distributing global brands instead of using its own brand.
The popularity of capsule coffee is tied to value-for-money consumption amid high inflation. Capsules usually cost about 600 to 900 won each, so even two cups a day are often cheaper than one cup of café coffee. For consumers who drink coffee daily, it can be an economical choice.
The spread of well-known brand capsules has also influenced consumers who want to continue the same brand experience at home. While instant coffee offered a relatively uniform, sweetness-centered flavor, capsule coffee provides a variety of options depending on acidity, body, and aroma, which is cited as a factor in expanding its consumer base.
Industry watchers say the center of gravity in the coffee market is gradually shifting from instant to home café products. A coffee industry official said, "Capsule coffee has a structure in which capsule purchases repeat after machine adoption, so the potential for market expansion is large," adding, "If Nestle expands sales channels on the back of Nongshim's distribution network, competition will intensify further."
Nongshim will also sell Nestle's confectionery brand KitKat and products from Nestle's B2B brand Maggi and Buitoni to expand in food service channels such as hotels and restaurants. A Nongshim official said, "We will focus our capabilities so that Nestle's products can be closer to domestic consumers through Nongshim's distribution know-how, which has successfully established various global brands in the market."