South Korea - The Future of Foodservice to 2021

24/08/2017 - 13:51

Macroeconomic summary

Korea is a wealthy nation with the world’s 11th largest economy. Due to recent political and economic uncertainty due to high-profile scandals, GDP growth in the Korean economy fell in late 2016. Despite this, as domestic and international uncertainty dissipates, growth is projected to rise to 2.8% in 2018, buoyed by rising consumer confidence and exports. Overall, the economy remains healthy and will accommodate inflation and household debt over 2017. [1]

The Korean population growth rate is low at 0.4% in 2015[2], and is expected to stabilize at 52.6 million people in 2023. A low fertility rate, comparable to the North’s 0.5%, has triggered political concerns regarding the threat of an aging society unable to grow or support its elderly population. Recent governments have prioritized the issue and have promised social reforms that will provide women with increased opportunities to have children.

Profit sector summary

Overall revenue in the South Korean profit foodservice sector grew at a CAGR of 3.5% between 2014 and 2016, growth in overall sector revenue is forecast to 2021 at a CAGR of 3.6%. Growth in all channels between 2014 and 2016 was driven to a greater extent by growth in transaction numbers than growth in outlet numbers. Low outlet growth across many channels is reflective of the maturity of the South Korean economy and demographic trends impacting the sector.

Both convenience and traditional attitudes play significant roes in consumers behavior in the foodservice sector. The FSR channel is the go-to channel for traditional family dining occasions whereas the QSR and coffee and tea shop channels have a convenience focus. Due to South Koreas rapid economic growth, a high number of international branded operators have entered the foodservice sector, resulting in a relatively high degree of consolidation in a number of channels .

Quick service restaurants summary

The QSR channel is the third-largest in the Korean profit foodservice sector, representing 18% of total sector revenue with an overall value of KRW12,975.8 billion in 2016. Growth in the channel is being driven by growth in transactions due to increasing time scarcity amongst consumers, who see this channel as a convenience option.

The channel has a high penetration of chain operators. Both locally grown and international operators have significant shares in the QSR channel. In addition to convenience-based factors, a significant proportion of consumers visiting the channel cited brand familiarity and routine as key drivers for their choice of outlet.

Both international and locally influenced dishes are available in the channel. Popular options include kimchi burgers and Korean barbecue specialties. Frugal convenience seekers purchase more light meals than the average of all other segments, which makes sense as they are frequently young, busy, and in work. This creates an opportunity for quicker, lighter meals and fewer occasions for consuming traditional meals.

Consumers are open to a more diverse offering from the channel. A greater provision of premium offerings and alcohol appeal to younger consumers who want to socialize but value the convenience and familiarity that QSR outlets offer.

Full service restaurants summary

In 2016, the FSR channel was the largest channel in the Korean profit sector by revenue. The channel witnessed a 3.0% CAGR in total revenue between 2014-2016 and is expected to growth at a 2.9% CAGR between 2016-2021. Key FSR players in South Korea include global and local businesses. The five largest FSR brands are VIPS (CJ Group), Outback Steakhouse (Bloomin' Brands), T.G.I. Fridays (Sentinel Capital Partners & TriArtisan Capital Partners), Pizza Hut (Yum! Brands, Inc.), and Seven Springs (Samyang).

Eating out at FSR for family and social gathering is a norm for the majority of South Koreans. Younger consumers tend to eat at FSR for socializing with friends, whilst older consumers do so for family outings. Group dining yields higher transaction values maintaining revenue growth in the channel.

South Korean consumers indicate a preference towards American cuisine when eating out at FSR. The top 2 FSR operators by revenue are steakhouses with American style grill items on the menu. South Koreans tend to plan their dining at FSR before the visit – 51% of consumers stated that the time and place were planned more than a day in advance, and another 21% said these were planned on the day.

A vast majority of South Koreans who visit FSR consume the food on-site – 91% consume most or all of the food or drink at the FSR where they made the purchase. Ordering takeaways from FSR is still not commonly practised in South Korea. Eating out at FSR is generally considered for socializing as outlets provide the space and atmosphere suited for social occasions.

Coffee and tea shops summary

The coffee and tea shop channel is relatively small, accounting for only 4.2% of total sector revenue. Between 2014 and 2016 the coffee and tea shop channel saw the second highest rate of channel revenue growth behind only QSR. However the channel saw among the slowest outlet growth, reflective of a market that is becoming increasingly overcrowded and oversaturated. Despite this the market still has a significant number of larger international and domestic chained operators that have successfully stood out from the crowd. These key players include Starbucks, Ediya, Caffé Bene and Holly’s Coffee.

Whilst consumption of tea is synonymous with Asian culture, coffee is by far the most popular drink offered in the channel. Women are likely to visit for a sweet food option whereas men and older consumers are more likely to purchase a savory snack. ‘Fuller’ meal occasions remain restricted across all demographics.

High growth in transactions in the channel is being driven by an increased focus on socialization from consumers. Many consumers utilize coffee shops as a compromise between the convenience offered by the QSR channel and the relaxation offered by the FSR channel.

Younger consumers are more attracted to unique concepts and innovations that broadcast status. Premium coffee options provide such conspicuous consumption and can integrate with apps and loyalty bonuses for increased success.

To 2021, growth will be driven by an increasing prevalence of non-meal based occasions such as snacking. The channel is also set to branch out into less conventional locations such as within retail to target convenience seeking consumers

Pubs, clubs and bars summary

Pubs, Clubs & Bars is currently the third largest foodservice channel in terms of overall revenue, accounting for 12.2% of total sector revenue. It is also the second fastest growing channel, with a CAGR of 4.3% between 2014-2016, forecast forward at 4.7% between 2016-2021. Westernization of Korean society and the experience-seeking nature of consumers are key drivers behind growth in the channel.

The top three factors that motivate South Korean consumers to choose one particular Pub, Club or Bar are a vibrant atmosphere (37%), Routine (32%), and wanting a specific type of food or beverage. In particular, women are more likely to be motivated by atmosphere than men.

The top three motivations for beverage choice when visiting Pubs, Clubs & Bars among South Koreans are: relaxation (32%), compatibility with food (27%), and taste (24%). Interestingly, relaxation attracts high scores among 16-24 year-olds (58%) and 55-64 year-olds (67%). For cuisines, the most popular choices for South Koreans when they visit Pubs, Clubs & Bars are Korean (77%), Japanese (49%), Pizza & Pasta (45%), Chinese (44%) and American (38%).

There is a strong positive sentiment towards local, family owned business as opposed to chain outlets, due to a more favourable perception towards niche choices of homemade food and drink which are considered better quality.

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