Foodservice Profile – South Korea

Consumer behaviour

Consumer trends

The recent official statistics (Statistics South Korea, 2019) indicate that average monthly consumption expenditures recorded 2.5 million South Korean won (US$2,272.9^{Footnote 1}) per household in 2018, declining by 0.8% nominally from 2017 (a 2.2% year-on-year decrease in real consumption expenditures). By category, "food and soft drinks" (14.4%) took the lion's share of the total consumption expenditures, which was followed by "restaurants and hotels" (13.8%). "Alcoholic beverages and cigarette occupied the smallest share of total expenditures (1.4%). In terms of real percent change, the household consumption expenditures on "food and soft drinks" and "restaurants and hotels" dropped 1.0% and 4.2% respectively, whereas the expenditure on "alcoholic beverages and cigarette increased 0.4%.

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	Nominal	Real
Consumption expenditures	−0.8	−2.2
Food and soft drinks	1.8	−1.0
Alcoholic beverage and cigarette	0.6	0.4
Clothing and foodwear	−4.3	−5.3
Housing, water, electricity, gas and other fuels	0.9	0.2
Household equipment and houskeeping services	4.5	2.2
Health	5.1	5.2
Transportation	−5.5	−7.7
Communication	−2.7	1.9
Entertainment and culture	9.8	9.3
Education	−7.9	−9.2
Restaurants and hotels	−1.3	−4.2
Other miscellaneous goods and services	−4.7	−5.2

Source: Statistics South Korea 2019

In 2018, the South Korean government introduced the 52-hour work week aiming to improve work-life balance and boost birth rates (Lam, 2018). So far, the new policy has delivered limited results. A recent poll showed South Koreans were unable to fully profit from their leisure time (Yonhap, 2019). As workers finished work earlier, the foodservice industry forecasted that corporate workers would take fewer office dinners and buy fewer business drinks. The president of the South Korea Food Service Industry Association said to the media: "due to the minimum wage hike, the 52-hour workweek, as well as increases to soju and beer prices, it has become difficult to be in the foodservice industry" (Oh & Kim, 2019) .

On the other hand, the U.S Department of Agriculture (USDA) suggested that South Korean café (other non-alcohol beverage bars) and institutional-feeding restaurant businesses have proliferated since 2014 (Larrabee & Yoo, 2018). Keen consumer interest in new tastes and busier lifestyles are likely to boost the sales in these segments in the coming years (Larrabee & Yoo, 2018).

Consumer segments

In 2017, Global Data conducted a foodservice survey interviewing a thousand South Korean consumers to explore their attitudes and preferences when eating and drinking out. The survey generated the consumer segments below, which may help Canadian agri-food and seafood exporters to better penetrate the South Korean foodservice market.

Consumer segments in South Korea's foodservice market

Frugal convenience-seekers

• 32% of foodservice transactions
• 51% are female, 42% are aged between 35 and 54
• 54% have an annual household income between KRW40 million (US$36,366.4)  and KRW90 million (US$81,824.5)
• Busy, budget-conscious, and regular visitors to the market
• They are the most adventurous segment and would like to break the monotony of consuming the same food and drink options
• They like to indulge when eating out but perceive themselves as health-conscious. This draws them to operators who successfully brand themselves as 'healthy' while still offering indulgent food options

Time-poor experimenters

• 6% of foodservice transactions
• 56% are male,34% are aged between 55 and 64
• 18% have an annual household income between KRW90 million (US$81,824.5)  and KRW150 million (US$136,374.2)
• Time-poor experimenters are busy with work. They are high earners and are not restrained by budgetary issues with respect to spending on foodservice
• Their primary focus is getting high-quality food and service in the quickest and most-convenient way possible. Eating out for them is an inescapable part of their routine
• Offering indulgence and creativity is a must, as are constantly evolving menus

Sporadic splurgers

• 18% of foodservice transactions
• 50% male and 50 % female, 25% are aged  between 55 and 64
• 25% have an annual household income of between KRW20 million (US$18,183.2) and KRW40 million (US$36,366.4)
• Older, less frequent visitors, more interested in healthy and indulgent options
• Sporadic splurgers are mostly older consumers, more likely to enjoy sit-down main meals in restaurants than a bite to eat on the go. They are also healthier and do not find healthy eating a challenge
• Operators providing healthy yet indulgent food and drink options will win with the splurgers

Regimented routiners

• 4% of foodservice transactions
• 52% are male, 26% are aged between 16 and 24
• 22% earn up to KRW20 million (US$18,183.2)
• Infrequent visitors who stick to what they know but have a liking for indulgent food products. Also, they are not particularly interested in healthy options
• More likely to be part time workers and retired, and have moderate financial resources. They mainly eat out at coffee and tea shops during the week
• Price is the most important factor that routiners consider whenever deciding to eat out

Inbetweeners

• 40% of foodservice transactions
• 51% are female, 37% are aged between 35 and 54
• 30% earn an annual household income between  KRW40 million (US$36,366.4) and KRW60 million (US$54,549.9)
• The 'everyman' consumer group. Inbetweeners do not actively seek out any particular types of food or drink, and are not interested in eating out much compared to other segments
• They aren't budget-conscious and eating out for them is more of a treat. As well, they do not favor on-the-go eating; instead, they prefer to enjoy sit-down meals with their family and friends
• They are more likely to prefer tea or coffee shop formats, fast-casual and casual dining formats

Source: South Korea - The Future of Foodservice to 2023, GlobalData 2019

In terms of population share, inbetweeners are the largest consumer group and correspond to their population share in quick service restaurants (QSR) and coffee and tea shop channels. However, inbetweeners under-perform in terms of their share of transactions in full-service restaurants (FSR) and the pubs, clubs and bars channels. Frugal convenience seekers account for 24% of the South Korean consumers. This segment consistently represents a bigger proportion of foodservice transactions than their population share in all the channels. Sporadic splurgers represent 23% of South Korea's population and consistently under-perform in terms of their foodservice transactions in relation to the segments share of population. Meanwhile, time-poor experimenters, although representing only 4% of South Korean people, over-perform in all channels. As with time-poor experimenters, regimented routiners also account for 4% of South Koreans, but over-perform in most of the channels except QSR.

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	South Korean population	Quick service restaurants	Full-service restaurants	Coffee and tea shops	Pubs, clubs, and bars
Frugal convenience seekers	24%	31%	36%	27%	35%
Time-poor experimenters	4%	6%	7%	5%	5%
Sporadic splurgers	23%	15%	15%	21%	16%
Regimented routiners	4%	4%	2%	3%	3%
Inbetweeners	44%	44%	40%	44%	41%

Source: South South Korea - The Future of Foodservice to 2023, GlobalData 2019

The overall foodservice market

Food services in South Korea continue to be restructured as large foodservice companies and broad-based foodservice distributors expand at the expense of small independent companies. According to the U.S. Agricultural Trade Office in Seoul (USATO), even though South Korea is facing economic difficulties, there is still a bright future for foreign agri-food and seafood exporters as South Korea is 60-70 percent directly or indirectly dependent on food imports (USATO, n.d.). Recent trends and events contributing to the expected expansion include:

1. A general globalization and westernization of tastes.
2. The high percentage of younger consumers with a growing taste for imported foods.
3. An increasing number of working women and two-income families who demand more convenience foods.
4. The decline in per capita consumption of rice and moving away from rice-based foods to wheat, corn, meat, and potato-based foods.
5. The spread of conventional ovens, microwaves, and refrigerators.

South Korea, with a population of approximately 51.6 million, is the largest foodservice market in the four 'tiger' economies. South Korea's rising middleclass and evolving urbanized lifestyles have stimulated demand for convenience, consistent quality, added value, and diverse tastes in the foodservice industry. The country's foodservice sector grew at a CAGR of 3.5% from 2014 to 2018, reaching US$87.8 billion sales in 2018, which is US$62.5 billion higher than competing Taiwan. The South Korean foodservice sector is forecasted to reach US$104.7 billion by 2023, growing at a CAGR of 3.6% from 2019 to 2023.

The restaurant subsector is South Korea's largest foodservice subsector, with sales of US$22.5 billion in 2018, for a CAGR of 2.2% from 2014 to 2018. This subsector is expected to reach US$25.8 billion by 2023, with a CAGR of 2.8%. Pubs, clubs & bars ranked the second biggest in terms of value sales (US$4.6 billion) in 2018, followed by retail (US$1.5 billion), accommodation venues (US$1.1 billion) and workplace (US$0.9 billion). All subsectors grew well from 2014 to 2018 and are expected to grow promisingly from 2019 to 2023.

Within the restaurant subsector, full-service restaurants recorded the highest sales of US$16.0 billion in 2018, followed by quick-service food restaurants (US$4.7 billion). These top two outlets accounted for 91.7% of total sales within the restaurant subsector (US$22.5 billion). Both outlets grew well at a CAGR of 2.1% and 2.6%, respectively, from 2014 to 2018 and are forecast to grow at a CAGR of 2.7% and 3.1%, respectively from 2019 to 2023. Coffee & tea shops performed well at a CAGR of 2.1% from 2014 to 2018, reaching sales of US$1.8 billion in 2018.

Within the pubs, clubs & bars subsector, pubs & bars recorded the highest sales of US$4.1 billion in 2018, followed by private clubs (US$370.4 million) and nightclubs (US$92.6 million). These three outlets grew at a CAGR of 3.2%, 2.7% and 2.7%, respectively, from 2014 to 2018 and are forecast to grow at a CAGR of 4.3%, 3.7% and 3.7%, respectively, from 2019 to 2023.

Within the retail subsector, bakeries recorded the highest sales of US$932.2 million in 2018, followed by service station forecourt (US$211.5 million). These top two outlets accounted for 77% of total sales within the retail subsector (US$1.5 billion). Both outlets grew well at a CAGR of 2.4% and 2.2%, respectively, from 2014 to 2018 and are forecast to grow at a CAGR of 2.8% and 2.7%, respectively, from 2019 to 2023.

Within the accommodation subsector, hotel & motel recorded the highest sales of US$891.3 million in 2018, followed by guest house (US$ 78.0 million). These top two outlets accounted for 90.5% of total sales within the accommodation subsector (US$1.1 billion). Both outlets grew well at the same CAGR of 2.4%, from 2014 to 2018 and are forecast to grow at a CAGR of 3.1% and 3.2%, respectively from 2019 to 2023.

Foodservice: chain franchises versus independent operators

The South Korean foodservice market has a substantial amount of small- to medium-sized, family-owned businesses with fewer than five employees. According to the USDA, the restaurant and bar sector in South Korea was a major shelter for retirees during the Asian economic crisis in 1997-2000 and the 2008 global economic downturn (Larrabee & Yoo, 2018). From 2005 to 2015, the percentage of small- to medium-sized restaurants and bars in South Korea dropped from 90% of all restaurants and bars to 86% (Larrabee & Yoo, 2018). Despite accounting for large shares in each channel (except retail), chains are forecast to register faster CAGA growth than the independents (4.0% vs 3.4%), by 2023.

Despite the faster growth of chain franchises, within the restaurant subsector independent restaurant sales accounted for 63.9% of total sales while chain restaurants accounted for 36.1% in 2018. Within the pubs, clubs & bars subsector, independent sales accounted for 63.8% of total sales, while chain franchise sales accounted for 36.2%. Within the retail subsector, independent sales accounted for 43.1% of total sales, while chain franchise sales accounted for 56.9%.

In the South Korean foodservice sector, the highest value per transaction in 2018 occurred in chain hotels & motels (US$24.8), followed by independent nightclubs (US$21.7), and chain full service restaurants (US$20.0). Fast food restaurants recorded the highest CAGR of 1.9% (independent and chain) from 2014 to 2018. Fast food restaurants are also expected to grow the fastest at a CAGR of 3.1% (chain and independent) from 2019 to 2023.

Trend

Asia's four 'tiger' economies

Economists dubbed South Korea, Hong Kong, Taiwan and Singapore Asia's four 'tigers' for their rapid, trade-oriented economic growth since the 1960s. The four 'tigers' have collectively joined the ranks of the world's richest economies. Canadian agri-food and seafood exports to Asia's four 'tiger' markets combined were valued at US$1.5 billion in 2018, accounting for 2.9% of Canada's net exports to the world (US$51.1 billion). Canada's exports to the region were relatively small, with export values from Canada declining by a CAGR of 3.8% from 2014 to 2018. However, South Korea remains an important market for Canadian agri-food and seafood exporters. Canada's agri-food and seafood exports to South Korea grew at a CAGR of 1.5% from 2014 to 2018 with a value of US$600.0 million.

The four 'tigers' are net agri-food and seafood importers from Canada with a net value of US$ 1.2 billion. Canada imported US$311.2 million in agri-food and seafood from the four 'tigers', while Canada's exports were valued at US$1.5 billion in 2018.

Global market

South Korea is a net agri-food and seafood importer from Canada with a net value of US$554.7 million. Canada's imports of agri-food and seafood products from South Korea were valued at US$122.4 million, while Canada's exports were valued at US$677.1 million in 2018. South Korea's total agri-food and seafood imports from the world were valued at US$33.3 billion in 2018, of which US$677.0 million was from Canada, representing 2.0% of South Korea's total agricultural imports. The gap between South Korea's imports from the world and Canada was US$32.6 billion in 2018.

South Korea's top imported products from the world in 2018 were maize (US$2.1 billion), frozen swine meat (US$1.6 billion), food preparations (US$1.4 billion) and wheat (US$1.0 billion). Imports of food preparations (US$ 1.4 billion) grew the fastest at a CAGR of 11.2% from 2014 to 2018, followed by imports of frozen swine meat at a CAGR of 10.6%.

South Korea's agri-food and seafood imports from Canada grew at a CAGR of 3.4% from 2014 to 2018, and reached US$677.0 million in 2018. South Korea's top imported products from Canada in 2018 were crude canola oil (US$83.2 million), followed by frozen swine meat (US$70.6 million) and lobster (US$67.8 million). Canada's canola oil accounted for 98.2% of South Korea's total imports of that product from the world. Canadian lobster accounted for 79.2% of South Korea's total imports from the world. Frozen lobsters had the most substantial import growth with a CAGR of 83.8% from 2014 to 2018, while wheat was in decline with a CAGR of −23.2% over the same period.

Top 10 foodservice companies in South Korea

McDonald's was the top foodservice company with a value sale of US$760.4 million in 2017, representing a 1.2% share of the foodservice market in South Korea. It was followed by Starbucks (US$542.7 million), Mr. Pizza (US$492.8 million), Lotteria (US$404.5 million) and Vips (US$348.7 million). Among the top five companies, two of them are well-known worldwide franchises, and the other three are local companies
(Mr. Pizza, Lotteria and Vips).

Competition and opportunities

South Korea is a growing market for convenience, quality and healthy food products. Canada is perceived as a country with a good environment and quality products and South Koreans are willing to pay for big name brands and quality Canadian products. Canada's low market share of South Korea's imported food shows room for expansion and the CKFTA should improve Canada's competitiveness within the South Korean market.

The prospect for Canadian agri-food and seafood products in the South Korean foodservice sector is promising for multiple products, such as pork, food preparations, beef, wheat and soya beans. The implementation of the Canada-Korea Free Trade Agreement (CKFTA) will continue to offer more export opportunities for wide varieties of Canadian agri-food and seafood products in the coming years.

Cuttlefish (and squid) and animal organs were two of the top three fastest-growing South Korean imports, which grew 494.5% and 128.8%, respectively, from 2017 to 2018. Canada has the potential to increase the exports of these two products to South Korea as its market share for cuttlefish and animal organs were 0.8% and 12.4%, respectively, for the same period.

As of January 1, 2019, 95% of Canada's exports benefitted from duty-free access into South Korea as a result of the CKFTA. This included new duty-free access for a variety of goods, such as lentils; chocolate and chocolate confectionary; and prepared frozen and cold-water shrimp. Upon full implementation of the CKFTA on January 1, 2032, South Korean tariffs will be eliminated on 99.75% of Canada's exports. For more information, please visit CKFTA for Agri-Food Exporters, or consult the Canada Tariff Finder to explore further tariff information for the South Korean market under the CKFTA, and other foreign markets with which Canada has a free trade agreement.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Overview of Trade Commissioner Services in South Korea
• Find a Trade Commissioner

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found on the International agri-food market intelligence page, arranged by region.

For additional information on Seoul Food and Hotel Show 2020, please contact:

Ben Berry, Deputy Director
Trade Show Strategy and Delivery
Agriculture and Agri-Food Canada
ben.berry@canada.ca

Foodservice Profile – South Korea
Global Analysis Report

Prepared by: Zhiduo Wang

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