South Korea Country Profile

Market Overview:

Euromonitor reports that the South Korean (hereinafter referred to as Korea) economy is growing at a moderate pace. A significant increase in public spending should be the main driver. Modest gains in private final consumption also provide support. Uncertainty regarding the outcome of trade negotiations with the U.S. and growing geopolitical tensions limit economic prospects. Korea's potential growth rate is around 3%. Annual rates of growth in real Gross Domestic Product (GDP) will gradually fall to around 2% by 2025.

  • Real GDP will rise by 2.7% in 2018, after gains of 3.2% in 2017
  • Private final consumption (in real terms) rose by 2.5% in 2017 and growth of 2.6% is expected in 2018 - Korea's household debt - currently about 77% of GDP - is a drag.
  • Tepid wage growth has also curbed consumer spending but generous increases in the minimum wage should provide much-needed support
  • The jobless rate was 3.7% in 2017 and it will dip to 3.5% in 2018 - The new government is intent on addressing what it sees as Korea's low-wage environment
  • The minimum wage will be hiked by 16.4% in 2018
  • Annual rates of growth in real GDP will gradually fall to around 2.0% by 2025
  • Private consumption should gain traction as the savings rate eases
  • However, a host of domestic and international threats pose problems

Inflows of foreign direct investment (FDI) have been gradually trending downward. One reason is that China, Taiwan and Japan have been all able to attract funds previously destined for Korea. Another is that the government has made little headway in its attempts to deregulate markets. In the longer run, the government hopes to move resources into services and away from manufacturing. Faster growth in services is needed to reduce the economy's dependence on exports and enhance the contribution of domestic consumption.

Demographic problems cloud the longer-term outlook. South Korea has one of the lowest birth rates in the world. The working age population could peak in just a few years and by 2060 Seoul predicts that 41% of the population will be over 65 years. Such rapid ageing will sharply reduce the potential rate of growth. A rapidly ageing population also threatens to slow economic progress in the longer term.

Negotiations between North and South Korea in early 2018, including the Inter-Korean summit which took place on Friday, April 27th, 2018, have excited businesses within the region but also left much unresolved. The Inter-Korean Summit, in which North Korean leader Kim Jong Un crossed over the world’s most heavily armed border to meet South Korean President Moon Jae-in, was a historical moment that carries promise for both Koreas. Topics in the recent negotiations have included nuclear technology, sanctions for separated families, and future economic co-operation. At the end of the summit, the Koreas signed peace treaty, easing military tension and cooperating toward denuclearizing the Peninsula. Future negotiations between North Korea and South Korea, the United States, and other countries are in the works.

USDA’s Foreign Agricultural Service (FAS) Agricultural Trade Office, ATO, in Seoul, hereinafter referred to as “Post” reports that in 2017 the U.S. remained the leading exporter of food and agricultural products to Korea with 25% market share. Under the solid recovery trend of the Korean economy, American exports to Korea showed outstanding outcomes for the basic, intermediate, and consumer-oriented product categories. Despite escalated competition from export-oriented competitors, consumer-oriented American products continued to lead the expansion of export market in Korea, which reflected Korean consumers’ increased demand for better value, quality and diversity. The Korea-United States Free Trade Agreement, implemented in 2012, coupled with on-going recovery of the Korean economy, is expected to generate greater export opportunities for American products in Korea in the coming year.

Imports of American consumer oriented food products into Korea in 2017 ended in a growth mode and totaled US$3.8 billion, an increase of 12% from the previous year and the highest total on record. Korea now ranked 5th as an overall destination for these products. Korea is also a top market for U.S. processed food exports, which totaled nearly US$1.9 billion in 2017 and grew 10% over the previous year. Korea is the 4th largest market for U.S. processed foods. Top U.S. exports of processed foods in 2017 included:

  • Food preparations
  • Prepared/preserved seafood
  • Processed/prepared dairy products
  • Fats and oils
  • Non-alcoholic beverages
  • Processed/prepared vegetables and pulses
  • Prepared/preserved meats
  • Chocolate and confectionery

Korea by nature relies heavily on imports to fulfill its food and agricultural needs. Korea is about the size of the state of Indiana and over 70% of its area is mountainous terrain, unsuitable for commercial farming. Furthermore, a majority of the limited farm land is exclusively dedicated to rice production. Its population of 51 million makes Korea the third most densely populated country in the world among countries with over 20 million in population. What is even more striking is that over 90% of Koreans live in urban areas which account for 17% of the land space. In addition, over 50% of the population lives within or in the direct vicinity of the capital city, Seoul.

Increased vitality in both local processing and retail sectors has led to a remarkable increase in Korea’s agricultural imports in 2017. Provided that the growth trend continues for the remaining months of the year, Korea’s imports of agricultural products from the world are forecast to amount to $34.7 billion in 2017, up 10% from the previous year.

Advantages For U.S. Suppliers of Food Products in the Korean Market Include:

  • Korea is an emerging market where new ideas and trends are eagerly tried and accepted
  • Local processing, retail, and food service industries continue to expand
  • Consumers generate more diversified and sophisticated demand for food as their income level continues to rise
  • Korea by nature depends heavily on imports to satisfy its food and agricultural needs
  • Consumers maintain strong attention to new international food and consumption trends as they are further exposed to foreign food culture
  • Korean consumers pay extra attention to the value, quality and safety of food that they consume
  • Many consumers recognize the United States as a trusted origin of quality agricultural products
  • Implementation of the KORUS FTA generates new opportunities for American suppliers by reducing tariff and non-tariff barriers

Challenges for U.S. Suppliers of Food Products Include:

  • Korean consumers are generally biased toward locally produced agricultural products - Many consumers still maintain an idea that local products are superior in quality and safety over imported products
  • The high cost of shipping, documentation, inspection and labeling deteriorates price competitiveness of imported products
  • Recent economic challenge has heightened value concerns among the general Korean consumers
  • American products face elevated competition in Korea from both old and new competitors who are deploying aggressive export promotions targeting Korea
  • Imported products are subject to complicated labeling and food safety standards in Korea, which change frequently with limited lead time

Post advises that Korea has well established regulations and procedures on food imports, which often makes entry of new-to-market products into Korea a time and resource consuming process. Working with reputable importers is the approach that has been proven most efficient to overcome these regulatory challenges. Established importers are the best source for up-to-date market demand/supply intelligence, local business laws and practices, distribution channels, and most of all government regulations on imported foods. 

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Korea had been estimated to reach nearly US$21.7 billion in 2017. That represents a slight decline of -0.6% or US$132.3 million since 2013. Korea remains the 5th largest packaged food market in the Asia Pacific region and is now the 17th largest market in the world. By the year 2022, the retail sales in the packaged food market in Korea is expected to increase 5% to US$22.9 billion, or over US$1.1 billion. High growth items in the forecast include:

  • Soups
  • Ready meals
  • Confectionery
  • Breakfast cereals
  • Processed meat and seafood
  • Processed fruit and vegetables
  • Spreads
  • Edible oils
  • Dairy products

Post reports that the retail food sector in South Korea (here in after referred as Korea) has evolved dramatically ever since opening of its first large-scale discount retail store in 1993 (E Mart by Shinsegae Group was the first hypermarket launched) and liberalization of retail business to foreign ownership in 1996. Over the last two decades, modern format, large-scale retail businesses such as hypermarket chains, grocery supermarket chains, convenience store chains, and on-line retailers have grown rapidly at the expense of traditional street markets and family-operated small grocers. On-going evolvement of the retail food sector is likely to bring a continuous change in the way Korean consumers purchase daily necessities, including grocery food. The overall retail sector in Korea generated close to US$331 billion of cash-register sales in 2016, up 5.2% from the previous year. The retail sector sales marked a weak growth between 2012 through 2015 as the Korean economy slowed down under unfavorable global economic environment.

Grocery supermarkets were the leading retail channel for food products in the sector with an estimated US$29.6 billion won of food sales in 2016, followed by hypermarkets US$25 billion. However, in terms of growth, on-line retailers marked the highest, 84% percent growth of food sales between 2014 and 2016, followed by convenience stores (53.5%). Considering increased consumer demand for convenience and value, on-line retailers and convenience stores are likely to lead the growth of food sales in the Korean retail sector in the coming years. On the other hand, hypermarkets and department stores are expected to see stagnant food sales growth not only due to escalated competition from on-line retailers but also because of limited room to build new stores in the market. Small-scale, family-oriented grocers and traditional street markets continue to see reduced food sales.

Post indicates it is notable that the aggressive expansion strategy pursued by leading large-scale retail companies has heightened competition in the Korean retail food sector. While maintaining heavy investment to add additional stores and new businesses, leading players have also actively pursued merger and acquisition opportunities to achieve bigger control of the sector. As a result, the Korean retail food sector today is mainly driven by a handful number of leading players. These leading players are in general “conglomerate” retail businesses that participate in all key retail industry segments. For example, the business umbrella of Lotte Shopping Co. (one of the leading large-scale retail companies in Korea) includes supermarkets (Lotte Super), hypermarkets (Lotte Mart), department stores (Lotte Department Store), convenience stores (Seven Eleven Korea), outlet shopping malls (Lotte Outlet), duty free stores (Lotte DFS), health and beauty shops (LOHBs), TV home shopping (Lotte Home Shopping), and Internet shopping mall.

Growth of modern format, large-scale retail businesses coupled with evolving taste of Korean consumers are translated into growing opportunities for imported consumer-oriented food products in the Korean retail sector. Large-scale retail stores such as hypermarkets and grocery supermarkets have become the major retail channel for imported consumer-oriented foods as they offer a favorable shopping environment where imported products can better compete against locally manufactured or grown products. Department stores are likely to remain the leading retail channel for high-end, premium quality imported foods. On-line retailers are expected to play a bigger role in distributing imported foods in the future. In particular, on-line retailing should be an efficient distribution channel for specialty imported products that has limited but diversified demand.

Korean retailers in general rely heavily on independent importers or middleman distributors for imported food products. Although leading players are making increased efforts to expand direct imports from foreign suppliers for lower cost and improved product assortment, their current attention is mainly targeted on a limited number of large volume products such as fresh fruits, livestock meat, and seafood.

Evolvement of the retail sector in Korea has also led to development of modern, large-scale logistics industry. Leading retailers are equipped with a temperature controlled distribution network of trucks and warehouses that cover the entire market. On the other hand, small-to-medium-size retailers in general rely on third party logistics service providers for warehousing and trucking. The logistics industry is likely to continue solid growth in the coming years due to a rapid rise of consumer demand for home delivery service, which is now widely offered not only by on-line retailers but also by conventional retail stores.

Best Product Prospects:

Post reports that the outlook for American food exports to the Korean retail sector is excellent for a wide diversity of products, including:

  • Beef, pork and poultry
  • Seafood
  • Processed vegetables
  • Fresh and processed fruits
  • Nuts
  • Dairy products
  • Juices
  • Alcoholic beverages
  • Condiments and sauces
  • Processed organic foods
  • Bakery goods
  • Snacks
  • Confectioneries

In addition, on-going trade liberalization should create new opportunities for those products that are currently under restrictive import barriers (such as tariff-rated import quota and phytosanitary certification requirements).  

Food Service Sector:

Evolvement of lifestyle and dietary culture coupled with increased income level of Korean consumers have promoted a rapid growth of the Hotel, Restaurant and Institutional (HRI) food service sector in Korea over the last three decades. Monthly per capita household spending on dining outside the home amounted to roughly US$94) in 2015, up 2.7% from the previous year. Each Korean household spent 47.4% of its food expenditure, or 12.9% of its total consumption expenditure on dining out. It is expected that spending on dining-out will continue a steady growth in the coming years as Korean consumers face ever busier lifestyle with increased number of dual-income families and single-member households.

  • Cash register sales for the HRI food service sector in Korea totaled US$79.6 billion as of in 2014, up 5.4% from the previous year
  • Full-service Korean restaurants remained the leading segment of the sector by accounting for 43.6% of the sector sales
  • Bars were the second largest segment of the industry accounting for 13.3% of the sector sales
  • However, the bar segment recorded the least sales growth between 2012 and 2014 in the sector due to elevated consumer health concerns and reduced corporate entertainment spending
  • On the other hand, cafés and non-alcohol beverage shop, quick-service restaurant and institutional feeding restaurant segments led the sales growth of the sector during the period
  • Strong consumer interest in new tastes, busier lifestyles, and concerns for the sluggish economy are likely to further boost the sales of these segments in the coming years

Post had reported that it is notable that the Korean food service sector is still largely composed of small-scale, family-operated businesses as evidenced by the fact that over 90% of restaurants and bars in Korea were small businesses that hired less than five employees as of 2014. In addition, over 70% of the restaurants and bars in the sector earned less than roughly $90,000 of annual cash register sales. Marketers point out that there are too many restaurants in Korea for the population. Roughly speaking, there is one restaurant per every 90 Koreans. As a result, distribution of products in the food service industry still relies heavily on the traditional channel, which involves multiple layers of small-scale middlemen distributors between the producer and the restaurant.

However, restructuring of the sector, mainly fueled by entry of large-scale conglomerates into the sector, has led to a rapid growth of large-scale restaurants and bars, many of them under franchise operation, at the expense of small-scale, independent businesses. The industry restructuring has also coincided with a rapid development of large-scale, broad-line food service distributors that offer streamlined and consolidated product supply to restaurants.

Food-Processing Sector:

Korea maintains a strong food processing industry that manufactures a wide variety of processed food products and food additives. There were over 26,000 food processing companies in Korea as of 2015, which generated roughly US$47 billion of sales, up 8% from the previous year. Alcohol beverages and non-alcohol beverages were the leading categories produced by the Korean processors as of 2015, followed by snacks, bread & bakery products, and coffee & tea. In terms of growth, health functional foods, coffee & tea, snacks led the way in recent years.

The Korean processing industry relies heavily on imports for raw materials, intermediate ingredients and additives because of limited local supply. As a result, the Korean food processing industry offers an outstanding opportunity for imported agricultural products for processing use from basic commodities such as corn and wheat to intermediate ingredients such as whey powder and fruit juice concentrates to food additives such as flavors and coloring agents. About 7% of overall production by the Korean food processing industry is currently exported to foreign markets and Korean processors are making extra efforts to expand their export business. The Korean government is also committed to provide the industry with financial and promotional support to boost industry exports under the “globalization of Korean Food” policy initiative.

Large food processing companies often prefer to purchase from local importers, agents or distributors when the quantities they require are small. These large companies generally tend to buy food ingredients directly from overseas suppliers when their supply quantities become large.

Some Korean food processors like Nong Shim, CJ, Lotte Confectionery, Daelim Corp. and Sam Yang Corp. have investments in China, U.S., Russia, Vietnam and Chile, etc. Some of these companies sell their final products in the foreign countries and also export them to other countries as well as to Korea. Some U.S. companies like Baskin Robbins Korea, Agri Purina, Coca Cola, and Kellogg have invested in Korea to produce food, feed, ice cream and soda products in Korea as sole investors and/or joint ventures.

Many Korean conglomerate business groups have agriculture/food processing business arms, and more of the Korean processors are trying to expand their sales to foreign markets. The Korean government has also been providing the industry with financial and promotional support under the “globalization of Korean cuisine” campaign.

Best Product Prospects:

Post reports that products present in the market which have good sales potential in this sector include:

  • Beef, pork meat, processed meats (pork and poultry origin only) poultry meat, seafood
  • Processed fruits and nuts
  • Tree nuts
  • Fresh fruit
  • Vegetables (fresh, frozen, dried etc.)
  • Cheese and processed dairy products
  • Alcoholic beverages
  • Sauces
  • Bread, pastry and cake
  • Soybean oil.

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