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Korea's Retail Food Sector Rides a Tidal Wave of Change
Picture retail food outlets--so-called hypermarkets--that claim daily visitor counts ranging from 10,000 to 300,000, and you have an idea of the humongous opportunities in Korean food retailing today.
Add to this an increasing taste for imported food and an affluent consumer base, and you can see why U.S. firms are coming down with Korean export ecstasy.
Things there were not always this rosy in retailing. Until the early ‘90s, the only places to buy groceries in Korea were "mom ‘n pop" stores, open-air wholesale markets or the so-called supermarkets at department stores.
But now that discount stores and membership-warehouse outlets are on the scene, food retailing will never be the same. And that spells opportunity for U.S. exporters.
Not only is the national appetite for imported foods larger than ever--it keeps on growing. In 1996, Korea became the fourth-largest market for U.S. agricultural exports.
Meanwhile, what’s become of the traditional leaders in food retailing like Lotte, Samsunt and Lucky Star? All have developed their own discount spin-offs, as have lesser known Korean groups. Foreign groups are taking advantage of recently liberalized investment policies to muscle into the market. Price Club, Carrefour and Makro have established Korean discount stores, all reportedly profitable.
Most strikingly, virtually all these stores plan to expand, increasing both volume and percentage of imported food and beverages. Many firms with only a few outlets today aspire to opening dozens across the country by the year 2000, pushing the entrepreneurial envelope and increasing competitiveness.
Thus, Koreans can buy in increasing high volume and, more often than ever these days, in bulk. Vast shelves invite customers to partake of many options, including multiple brands of similar products.
Now that, for the first time in history, Korean retailing is a buyer’s rather than a seller’s market, the rush is on to improve infrastructure.
And improvement is certainly needed. Everything from clogged ports and bumper-to-bumper traffic to acute shortages of refrigerated and frozen storage serves to limit sales volume and increase the costs of imports at this time.
Stores are taking such steps as building or renting their own storage. Some are large enough to act as their own warehouses.
Many are seriously considering direct imports, although this is still in limited practice--a hesitation that may be due to inexperience in international trade. Like other importers, hypermarkets that import directly are subject to both transparent and nontransparent anti-import policies that, despite reform, still beset Korea.
Until now, most hypermarkets have required that importers take all risks--from goods clearing customs right up through sale--while others have insisted the importer or manufacturer pay to place products in the store. A few even require the importer to supply personnel to help sell--personnel who may be used as store-wide sales clerks.
Although they are making strides, Korean merchants remain frustratingly unfamiliar with the practice of placing advance orders for products that sell well. Some stores continue to expect to sell imported food products on a consignment basis only. And in-store promotion is a concept that is not yet universally understood.
Many Korean purchasing managers openly worry about the risks and hassles of customs clearance and shelf-life, as well as the risk of failing to please customers.
But the pressure is on Korean retailers to produce. As a result, old practices are giving way, though at times grudgingly, as growth-obsessed hypermarkets continue to turn the tide of Korean retailing. #
Fortune Smiles on a Changing Korea
Korea’s large, affluent, educated consumer base is packed into a country the size of Indiana. With a population of 46 million, Korea has the world’s tenth-largest economy.
Increasingly Westernized tastes contribute to a falling consumer resistance to imported food products. Koreans are among the best traveled people in the world; many have eaten foreign food for years.
Aggressive marketing by exporters and importers coincides with increased demand for high-quality foods that are a good value.
And trade barriers are coming down. A member of the World Trade Organization and the Organization of Economic Cooperation and Development, Korea is committed to reducing or eliminating import restrictions on a wide range of foods and beverages.
Tips for Exporting to Korea
It’s difficult to overemphasize the importance of establishing good relationships with importers and retailers in Korea. Having a strong product line is, of course, important. But equally so are your hard work and patience.
Even if you are not selling directly to retailers, visit them anyway. The time may come when you will.
Double-check the credentials and capacity of an exporter. Because so much in Korea depends on the importer’s relationships--from clearing products through customs to securing adequate storage space--you’ll want to ask questions such as how much experience the importer has had with products like yours and who will be targeted as a customer.
Most exporters agree to exclusive distribution contracts with a single importer for a specified length of time. In return, the importer works to develop and tap a market.
The article is based on a report by the Agricultural Trade Office staff in Seoul, Korea. Tel.: (111-82-2) 397-4188; Fax.: (011-82-2) 720-7921; E-mail: ATOSeoul@uriel.net or ShullP@fas.usda.gov
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