Overview of Korea Economy and Franchise Business
“We consider South Korea as a developed market, meaning it is no different to the UK or the US… Korean consumers are demanding and expect high-performing products.” Hari Nair: Managing Director, Kimberly-Clark’s.
Recently everything seems prefixed with a K: K-Pop, K-food, K-beauty, 韓國代購 K-movies; why not go to your local K-culture festival, sure there has to be one in your area, or just around the corner. Korean culture is on fire at the moment and has been warmly received. Domestic franchisors have, quite rightly, been riding this wave and rapidly expanding internationally-China being truly a Korea franchisors first choice. But also for an overseas franchisor looking in, what is this market like?
GDP was US$1.2 trillion in 2013 and predicted to rise as consumer spending and confidence grows through 2014 and 2015. The Hyundai Research Institute latest report predicts Korea will expand by 3.5% in the first half of 2015 and 3.6% in the next half.
Considering Korea’s comparatively slower Asian growth, it remains an excellent target for franchisors due to historical years of stable growth, an affluent consumer base and early advancement of the united states. The common disposable income per household per month was US$3150 in the next quarter 2014, a rise of 2.8% from the next quarter 2013, with significant rises in bakery, confectioneries & snacks, coffee & tea, and juice & beverages sectors (Statistics Korea).
The demand for foreign brands spans a range of sectors and recently a broader selection of channels. 65% of the population is classified as middle-class (OECD) so unlike a great many other Asian countries there is not the overall trend of a new, emerging middle-class. Supported by media and a relatively high amount of travel experience, the Korean consumers are knowledgeable in a developed, globalised market.
Korean consumers have a solid purchase history of foreign brands so as well as valuing money, they will have a high understanding of brand philosophy and marketing channels. They’ll readily try new products and so are always seeking new tastes and ways to improve their lifestyle and image.
For a franchisor, the marketing should be more sophisticated to match the level of the buyer. For instance, nearly 80% of the population is online, making it the most connected country on the planet! and they love their bank cards. Annual credit card transactions are over 65% higher than the united states. This combination means a higher proportion of online spending and retail ecommerce is predicted to the touch $25.3 billion by 2017 (Borderfree). Any marketing strategy must be multi-channel and use areas of social media to advertise brands and utilize the technology to offer better shopping channels and delivery.
Korea’s population is ageing and urbanized. The median age in 2012 was 39.1 years and the over 60 group is predicted to account for nearly 25% of the population by 2020 (Statistics Korea). Some franchisors may already target this older market whereas others may be able to easily adapt or extend to target this group. But also for the rest of us usually do not despair, as PwC reminds us, 70% of the populace remain within most retailers target demographic of 15-64 years old.
With over 90% of the populace living in urban areas, these conurbations are massively populated, wealth dense spaces and retail premises come at a premium. The 4 main population areas: Seoul metro-15 million, Busan metro-4 million, Daegu metro-3 million, and Daejeon metro-2 million.
Key retail players are set to open mega malls outside of the main cities on the coming years but presently Gyeonggi (the area directly surrounding Seoul) and Seoul account for 42% of the full total shop space in every Korea (www.kintex.com). Supermarkets and hypermarkets lead retail channels and this lead will increase since it matches the 3 main purchase drivers of choice, convenience and price.
Despite economies of scale enabling big shopping complexes to effectively compete with smaller stores, operators are always seeking to differentiate themselves from one another. Enhancing shoppers experience by offering the latest trend brands are a main way they do that. They are not merely searching for exciting overseas tenants, these operators are also willing to undertake Master agreements and roll out concepts across their formats.
If that is an entry strategy of interest, bear in mind that these companies are searching for a brand which will drive traffic, so the product or service either has to a recognised name or have a strong unique factor mounted on it. Quirky with long term viability can be good USP and malls, an effective solution to introduce your brand into Korea-mainly as the cost of educating the populace will undoubtedly be borne by the mall operators and you can be assured it’ll be done with a high level of proficiency.
The franchise market in 2013 was estimated at US$89.8 billion with nearly 3,000 franchises. There were 283 retail franchises, 601 service franchises and 2,089 food service franchises (export.gov). . Even with recent downgrades of GDP, the franchise industry has displayed respectable growth over modern times with typically 200 new franchises opening annually since 2010.
Koreans are very available to partnering with overseas franchisors, especially with those that have a preexisting reputation in Korea or core values which reflect their origin country. Koreans aged 55 and over have recently proved themselves to be good franchisees because they have more capital and knowledge, and being truly a family orientated culture, will pass the business right down to their children. The franchise industry regulations ensure business generally runs smoothly and Korea is regarded as a straightforward spot to franchise into.