Summary of Korea Economy and Franchise Business

“We consider South Korea as a developed market, meaning it really is no different to the UK or the united states… 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, K-movies; you will want to go to your neighborhood K-culture festival, sure there has to be one in your area, or just around the corner. Korean culture is burning at the moment and has been warmly received. Domestic franchisors have, quite rightly, been riding this wave and rapidly expanding internationally-China being 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 go up as consumer spending and confidence grows through 2014 and 2015. The Hyundai Research 韓國代購 Institute latest report predicts Korea will expand by 3.5% in the initial 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 country. The common disposable income per household per month was US$3150 in the second 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 variety of sectors and recently a broader range of channels. 65% of the populace 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 comparatively high degree 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 knowledge of brand philosophy and marketing channels. They will readily try services and so are always seeking new tastes and methods to enhance their lifestyle and image.

For a franchisor, the marketing has to be more sophisticated to match the level of the buyer. For instance, nearly 80% of the populace is online, making it probably the most connected country on earth! and they love their credit cards. Annual credit card transactions are over 65% greater than the USA. This combination means a high proportion of online spending and retail ecommerce is predicted to touch $25.3 billion by 2017 (Borderfree). Any marketing strategy needs to be multi-channel and use aspects of social media to market 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 might be able to easily adapt or extend to target this group. However for the rest of us do not despair, as PwC reminds us, 70% of the populace remain within most retailers target demographic of 15-64 yrs . old.

With over 90% of the population living in cities, these conurbations are massively populated, wealth dense spaces and retail premises come at reduced. 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 over the coming years but presently Gyeonggi (the area directly surrounding Seoul) and Seoul take into account 42% of the total shop space in all Korea ( Supermarkets and hypermarkets lead retail channels which lead will increase since it matches the 3 main purchase drivers of preference, convenience and price.

. Despite economies of scale enabling big shopping complexes to effectively compete with smaller stores, operators are always wanting 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 only 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, be aware that these companies are searching for a brand that may 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 way to introduce your brand into Korea-mainly as the cost of educating the population will undoubtedly be borne by the mall operators and you will 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 have been 283 retail franchises, 601 service franchises and 2,089 food service franchises ( Even with recent downgrades of GDP, the franchise industry has displayed respectable growth over recent years with on average 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 undoubtedly a straightforward place to franchise into.

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