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South Korean Foodservice Market Evolution

General Report November 21, 2024
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  • The South Korean foodservice market is undergoing a remarkable evolution, showcasing dynamic trends and insights that both consumers and businesses should be aware of. With the popularity of cloud kitchens skyrocketing alongside traditional cuisines like kimchi and sushi, this report delves into the nuances shaping the culinary landscape. In particular, the full-service restaurant segment is not just surviving but thriving, expected to grow at a commendable CAGR of 4.48%. Meanwhile, the rise of health-conscious eating habits and the increasing demand for vegan options demonstrate a shift in consumer behavior. What does this mean for restaurant owners and food lovers alike? Join us as we unfold the intricacies of South Korea's foodservice industry and discover what lies ahead!

Exploring the Exciting Evolution of the South Korean Foodservice Market

  • What’s the Current State of the South Korean Foodservice Market?

  • The South Korean foodservice market is currently characterized by a high demand for traditional cuisines and increasing spending on dining experiences. Full-service restaurants (FSR) represented the largest share of the market in 2022, with Asian and North American cuisines together accounting for over 50% of the market share. This demand highlights consumer preferences for authentic regional cuisines such as kimchi and bulgogi, alongside popular Japanese dishes like sushi and tempura. Interestingly, while traditional Korean foods are enduringly popular, there's a notable shift in dietary trends favoring new and international options. This evolution is prompting many restaurants to introduce vegan, low-sugar, and gluten-free alternatives to classic dishes.

  • How Do Full-Service Restaurants Shape the Market Share?

  • In 2022, full-service restaurants dominated the South Korean foodservice market, setting a strong precedence for future growth. This segment is projected to achieve a Compound Annual Growth Rate (CAGR) of 4.48% as more establishments focus on enhancing the dine-in experience post-COVID-19. The growth is buoyed by a diverse range of menus that cater to both local and international tastes. Notably, the average order value for full-service restaurants was the highest among foodservice types in South Korea, amounting to USD 21.4. The leading cuisines in this segment are Asian and North American, holding impressive market shares of 34.73% and 15.33%, respectively.

  • Why is the Cloud Kitchen Segment Growing Rapidly?

  • The cloud kitchen segment is the fastest-growing area within the South Korean foodservice market, promising exciting prospects for the future. It's expected to maintain a remarkable CAGR of 35.13%, primarily due to the surge in online food deliveries through smartphone applications. As of January 2022, South Korea had approximately 46.81 million internet users, showing a substantial increase from the previous year. The rapid expansion of cloud kitchens can be attributed to technological advancements, offering operational advantages such as larger profit margins and heightened flexibility in management. Features like Point of Sale (POS) systems, kitchen display systems, and inventory management technologies significantly enhance efficiency and customer service in this thriving segment.

Exploring Consumer Preferences and Trends in the South Korean Foodservice Market

  • Is the Taste for Traditional and International Cuisines on the Rise?

  • In 2022, full-service restaurants took the lead in the South Korean foodservice market, reflecting a robust appetite for both traditional and international cuisines. Asian and North American cuisines have made a remarkable impact, each collectively claiming over 50% of the market share. The allure of authentic dishes like kimchi and bulgogi, alongside Japan’s famous sushi and tempura, serves as a testament to consumers' growing preferences. Despite the enduring popularity of traditional Korean fare, a notable dietary shift is taking place as diners explore new international options. Restaurants are responding with innovative menu enhancements that incorporate vegan, low-sugar, and gluten-free selections. Observers can expect the full-service restaurant sector to experience a compound annual growth rate (CAGR) of 4.48% during this study period, as establishments strive to elevate the dine-in experience, particularly in the post-COVID-19 landscape.

  • Why is the Shift Towards Vegan and Health-Conscious Options Important?

  • The South Korean foodservice industry is embracing a pivotal transformation marked by a growing trend towards vegan and health-conscious dishes. As dietary preferences evolve, many restaurants are revitalizing their menus with a wider array of plant-based offerings. This shift is heavily influenced by increasing consumer awareness surrounding health and wellness, leading to a notable rise in the availability of vegan, low-sugar, and gluten-free alternatives that delight even the most discerning palates.

  • What Drives the Surge in Coffee Consumption and Interest in Decaffeinated Options?

  • South Korea’s coffee consumption is showing remarkable growth, currently representing about 6% of the Asia-Pacific coffee market. In 2021 alone, the country consumed nearly 2.5 million 60-kg bags of coffee, averaging 12.3 cups per person each week for an annual total of 2.3 kilograms in 2022. Major players such as Ediya and Starbucks dominate the landscape with extensive outlets nationwide. Additionally, the rising popularity of decaffeinated coffee has become noteworthy, with Starbucks reporting over 100 million cumulative sales of decaffeinated options since their introduction in 2017. The 2022 sales of decaffeinated Americanos soared by 79% compared to 2019 levels, with the trend indicating a shift in consumer preferences towards caffeine-free varieties. Notably, one in every eleven Americanos sold at Starbucks is now decaffeinated, showcasing a growing inclination for these alternatives.

The Evolving Landscape of Food Delivery Services in South Korea

  • How Essential Are Delivery Apps for Restaurant Owners?

  • Have you ever wondered how much restaurant owners actually rely on delivery apps? It's fascinating to see that many restaurant owners express a significant dependency on these platforms for their sales. For instance, Mr. Bang, who runs a kimbap restaurant, revealed that a staggering half of his total sales come from delivery apps. He contemplated leaving the Baedal Minjok app due to a recent increase in commission rates—from 6.8 percent to 9.8 percent—but soon realized that making such a drastic move could jeopardize the sustainability of his business.

  • Why Are High Delivery Service Costs a Major Concern?

  • Is the cost of using delivery apps putting a strain on restaurant owners? The high commission rates, which typically range between 9.7 and 9.8 percent, certainly cause concern. A survey by the Korea Food Service Industry Research found that 80 percent of the 110 restaurant owners surveyed had considered abandoning these apps due to the soaring costs. However, despite these considerations, 73.9 percent chose not to follow through, primarily due to the lack of viable alternatives in the market.

  • What Do Consumer Behavior Trends Reveal About Food Delivery?

  • How do consumer habits shape the sales landscape for restaurants? The significant role of delivery apps in the restaurant industry is hard to ignore. Many restaurant operators indicate that these services substantially boost their sales. The responses varied widely: while some owners reported that delivery apps contributed between 20 and 40 percent to their total sales, others noted figures between 0 to 20 percent and, in some cases, 60 to 80 percent. Furthermore, expenditures related to delivery apps, including advertising, often surpass the commission fees, highlighting the complex financial interplay in this sector.

Strategic Business Adjustments in the South Korean Foodservice Market

  • What Driven Starbucks' Shift in Marketing and Service Focus?

  • As of October of last year, Starbucks Korea revamped its business approach, reducing the focus on product marketing in favor of enhancing service quality. This strategic pivot came on the heels of a leadership transition from former CEO Song Ho-seop to the new chief, Song Jung-hyun. In previous years, Starbucks emphasized marketing popular consumer products like diaries, calendars, and tumblers, especially during the critical months of January and February. However, after encountering negative media coverage in 2022, the company sought to improve its brand reputation. A notable example of this new approach was the promotional event held from February 22 to February 24, featuring discounted Iced Americano beverages priced at 2,500 won ($1.89) to celebrate surpassing 10 million users in its Starbucks Reward Membership program. By scheduling the event during off-peak hours from 2 p.m. to 5 p.m., Starbucks emphasized customer convenience while minimizing congestion.

  • How Are New Business Models Impacting Community Engagement?

  • Starbucks Korea has also introduced innovative business models designed to cultivate synergy with traditional market merchants. A key initiative includes the reopening of its fifth community store, Kyungdong 1960, found within the historic Gyeongdong Market in eastern Seoul. This location, remodeled from a historic theater built in the 1960s, has succeeded in attracting a younger consumer demographic while revitalizing the traditional market space. To support local infrastructure enhancements and develop beneficial programs for small merchants, Starbucks Korea has implemented a practice of collecting 300 won from each item sold at the community store. This effort underscores the company’s commitment to generating unique experiences that resonate with consumers across all age groups.

  • What Changes Are Occurring with Consumer Preferences in the Coffee Shop Sector?

  • Acknowledging the shift in consumer preferences, particularly towards decaffeinated coffee options, Starbucks Korea has adapted its strategies accordingly. The company has begun offering decaffeinated beverages without additional charges during promotional events, highlighting a broader trend within the coffee shop industry. This move not only caters to a growing health-conscious consumer base but also signifies how businesses are evolving to meet changing demands.

Wrap Up

  • As we conclude our exploration of the South Korean foodservice market, it becomes evident that the industry is not only adapting to change but also embracing it wholeheartedly. Key findings underscore the substantial growth potential of cloud kitchens and the burgeoning consumer interest in decaffeinated coffee options, both reflective of greater technological advancements and shifting cultural values. Yet, this landscape is not without its challenges; the dependence on delivery platforms and their rising costs force restaurant owners to rethink strategies to secure sustainability and profitability. Companies like Starbucks are setting precedent with their innovative community engagement initiatives and a keen focus on enhancing service quality to meet evolving consumer demands. As we look ahead, the opportunity for innovation remains vast—restaurateurs and food entrepreneurs can capitalize on trends for healthier, more diverse menu offerings and redefined dining experiences. Navigating this evolving terrain requires continuous adaptation and a proactive approach, ensuring that as consumer preferences evolve, so too does the foodservice sector’s ability to meet them.

Glossary

  • Starbucks [Company]: Starbucks is a prominent coffeehouse chain in South Korea, known for its innovative offerings and strategic marketing. The company has made significant adjustments to its business model in response to market demands, particularly focusing on improving customer service and community engagement. Its growing popularity of decaffeinated coffee reflects changing consumer preferences within the coffee segment.
  • Cloud Kitchens [Business Model]: Cloud kitchens are a rapidly growing segment in the South Korean foodservice market, leveraging technology to streamline food delivery services. These kitchens allow businesses to operate delivery-focused restaurants without a traditional dine-in space, aligning with consumer trends towards convenience and online ordering.

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