The Restaurant Association of Singapore Matchmaking Mission to Korea 9 – 13 April 2018 Final Report

THE RESTAURANT ASSOCIATION OF SINGAPORE MATCHMAKING MISSION TO KOREA 9 – 13 APRIL 2018 FINAL REPORT

INTRODUCTION

The Restaurant Association of Singapore (RAS), established in 1980, has more than 350 members representing 600 brands and 3,000 outlets. The RAS’s goal is to propel the industry forward through various programs aimed at driving business success. One of the programs is to regularly visit countries in the region to learn about the country and to interact with food service companies in that country.

The RAS coordinated with IRC, a business development consultancy in Korea to implement the mission. IRC’s remit was to prepare a four-day Korea visit program and to anchor it with an agreed food related exhibition or show.

PROGRAM:

The RAS elected to anchor the program around the International Food Service Industry Show and the visit was scheduled for 9 to 13 April 2018 accordingly.

PROGRAM HIGHLIGHTS: During the program, the RAS delegation experienced: • 5 Workshops pertinent to working in the restaurant business in Korea • 3 meetings with large food service companies: CJ Freshway, Lotte GRS and SPC • 6 site visits to entrepreneur restaurants • 1-on-1 meetings with 12 Korean food service companies • Participation in the International Food Service Industry Show (FISK) • Meeting with 9 executives of food service companies at FISK

PROGRAM DETAILS:

Day 1: AM, Workshops

• Korean Business Culture, Peter Underwood, Managing Partner of IRC Consulting • Restaurant Industry in Korea, Kim, Sung-yoon, Senior Staff Writer, Food & Travel, Chosunilbo Daily • Real Estate and Commercial Property Matters, Kim, Jongjun, Head of Retail, Jones Lang LaSalle Kore

Day 1: PM, Site Visits

• Doekjane Bangatgan, Korean Street Food, Hosted by Jeong Deok-in, CEO and Cho Suk-won, Franchise Division Chief (https://deokja.modoo.at/) RAS Korea Matchmaking Trip Final Report, Revised 4 May 2018 Page 2 of 13

• CJ Freshway, Korea’s 2nd largest food service & catering company, hosted by Ahn Myung-dong, Senior Manager, http://www.cjfreshway.com/en

Day 2: AM, Workshops

• Franchising System in Korea and Legal Issues, Kim Yoon-sun, Foreign Attorney and Hong Dong-oh (Phil), Attorney Yoon & Yang • Accounting Issues in the Restaurant Business, Mr Ethan Cho, Lian Associates

Day 2: PM, Site Visits

• Presentation by LOTTE Global Restaurant Service team, Sung Yongwook, Team Leader • Lunch & Site Visit to Maple Tree House hosted by Paul Hong, Owner, (http://www.mapletreehouse.co.kr/eng) • Tour of D-Tower hosted by Paul Hong including: - Pauli’s Pizza - Pho Chi Minh (now Fat Noodle) - Walk through mid to upper-mid level family themed restaurants including On- the-Border, Mad for Garlic, XXX Station • Ollefood, Grilled fish concept, Hosted by Lee, Hoseong, CEO http://www.ollefood.net/ • GOM 603, Burgers, Hosted by Na, Kijoo, http://www.goms603.com/ • Temple Food, a special site visit was arranged for Alex Tan where he was introduced to Korean vegan fare and related trends were explained by a local, experienced vegan epicurean.

Day 3: AM, Match Making Meetings

RAS Participants

Jumbo Group of Restaurants Ang Kiam Meng Group CEO Mitsu Dining Concepts Choi Jiseon General Manager No Signboard Holdings Cheo Tian Feng General Manager Rabbit Food Van Karen Cheng Director Revenue Valley Group Dickson Low Group COO Royal T Group Rodney Tang Managing Director Select Group Vincent Tan Managing Director Group Managing The ED Designs Group Chong E Min Director Veganfoods Global Alex Tan CEO

Suite 1705, Officia Building, 92, Saemunan-ro, Jongno-gu, Seoul, Republic of Korea 03186 서울시 종로구 신문로 1 가 163 광화문 오피시아빌딩, 1705 호 Tel: +82-2-737-3222, www.ircconsultingkorea.com

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Local Participants

Dareun Park, Do-keun CEO Dareun Kim, Soo-kyung Deputy Manager Dareun Lee, Kyu-hyuk Deputy Manager Dareun Oh, Dae-chan Staff E-Land Ha, Kyung-hwan Team Leader Olle Seafood Lee, Ho-seong CEO Yongmaeul Sung, Ki-suk Senior Manager Yongmaeul Liu Guang-keun General Manager Yongmaeul Kim, Tae-gong General Manager the B.A.C.K Corp. G John Bae CEO International Business GN Food Lee, Dae-young Development Manager Crave Foods Ryu, Abe Director Korea Food Service Institute Byun, Ki-hyo President Corea Culinary Officer Lee, Jung-youl President Occupational Training College Alpa Korea Oh, Min-gyoo Executive Vice President Alpa Korea Lee, S.B. Deputy General Manager GOM's Food Na, Kiju CEO Urban Group Kenneth Park CEO

One-on-one matchmaking meetings.

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Day 3: PM, Visit to the International Food Service Industry Show

The RAS Mission visited the anchor event on 12 April.

At the IFSK, the sponsor, Food Bank media arranged a brief meeting with key members of the industry including:

Group CEO GENESIS BBQ Group Yoon Hong Geun Korea Food Industry Association KFIA Chair EBADOM CEO Group CEO Korea Food Service Kim Hyun Ho KFIK Co-Chair Industry Association Genesis BBQ Global Brian Chung CEO Kimchi Association of Korea Lee Ha Yeun CEO Ko Rae Food Song Myung Eui CEO VICTORY US Kim Keum Ja CEO GENESIS BBQ Group Ko Keum Soo CEO Multi Cafe MEGOZIGO Lim Cheol Joon CEO Korea Kitchen Kang Dong Won CEO Distribution Association Korea Food Service Information Park Hyung Hee CEO YIDOGAM Inc. (Bulgogi Chai Woo Yi CEO Brothers) Ha-Nam F&B Jang Bo Hwan CEO School Food Lee Sang Yun CEO Monthly Restaurant Magazine, Yuk Ju Hee Editor-in-chief

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Media:

At the show, Food Bank reporter Yoon, Sam-gyun interviewed Jumbo Group CEO, Ang Kiam Meng and Select Group CEO Vincent Tan. The resulting article appeared in their magazine on 16 April.

Day 4: AM, Site Visit

• Wrap up meeting • Lunch & Site Visit to Shake Shack managed by the SPC group, hosted by Lee, Kyung-il (Kenneth) www.spc.co.kr

SUMMARY OF SITE VISITS:

Lunch and Site Visit to Deokjane Bangatgan Host: Mr Jeong Deok-in, CEO & Mr Cho Suk-won, Franchise Division Chief Website: https://deokja.modoo.at/

Doekjane Bangatgan is one of the fastest growing Korean street food franchises. It now has 8 stores and is preparing to open 3 more. “Wednesday Food Talk”, a very popular TV show introduced the brand as one of the best Ttoekbokki (rice cake with hot sauce) providers in Korea. As K-Pop and Korean culture becomes increasingly popular across the globe, so are Korean street food restaurants.

Site Visit to CJ Freshway Hosts: Mr Ahn Myung-dong, Senior Manager Website: http://www.cjfreshway.com/en

CJ Freshway Corporation is a Korea-based company engaged in the food distribution business and catering business. The Company's food distribution business primarily distributes processed food, agricultural products, seafood, livestock products and kitchen utensils to food distribution agencies, food service providers, franchised restaurants and general restaurants. Its catering business provides food services focusing on meal services for organizations such as the management of in-house cafeterias in office buildings, companies, factories and hospitals. It also provides design, consulting and engineering of restaurants, as well as restaurant operation consulting services.

CJ Freshway is rumored to be taking over the restaurant business from CJ Foodville. These restaurant brands include:

• Tours Le Jour (window bakery) • Bibigo (bibimbap) • VIPS (family restaurant) • The Place (Italian) • A Twosome Place (cakes, desert, coffee)

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Presentation by LOTTE Global Restaurant Service Host: Mr Sung Yongwook, Team Leader (Manager)

Since opening the Sogong branch of LOTTERIA, the country's first-ever hamburger franchise, in 1979, LOTTE GRS has been creating a new food culture and leading the growth of the Korean restaurant industry under a motto that reflects its corporate philosophy of prioritizing customer satisfaction. By pursuing the highest-quality products, clean restaurant environments, and customer service with kindness and a bright smile, Lotte GRS puts forth continuous efforts to meet society's ever-changing needs. For the past 38 years, it has successfully launched a vast array of Korean restaurant brands aside from LOTTERIA, including Angel-in-us Coffee, Krispy Kreme Doughnuts, Natuur-pop, T.G.I. Fridays, Villa de CharlLOTTE and The Food House.

It is through this that LOTTERIA is growing into a trusted and beloved restaurant business company. In addition, through continuously pursuing overseas expansion and investments, it now operates over 290 taste-bud-grabbing stores in seven countries outside of Korea, including Vietnam, Indonesia, Myanmar, Cambodia, Kazakhstan, Laos, and China. It will continue to utilize the know-how it has accumulated in leading the Korean restaurant industry to take a bigger leap to become one of the most recognized and loved restaurant corporations, not only in Korea, but also around the globe.

Lunch & Site Visit to Maple Tree House Host: Mr Paul Hong, Owner Website: http://www.mapletreehouse.co.kr/eng

Maple Tree House is a premium Korean barbeque restaurant chain operating in Korea since 2005. Starting from a quaint small house in Seoul, they began their journey in becoming a “must go” premium barbeque destination for both Koreans and foreigners alike. With the success of the Samchong-dong location, their growth commenced, leading to strategically opened Maple Tree House locations throughout Seoul. Currently with 3 locations, they have established Maple Tree House as one of the most popular restaurant brands for quality meat lovers who appreciate a modern twist to a traditional Korean dining concept. Other than 3 locations throughout Seoul, Maple Tree House launched international franchise in Makati City, Philippines in 2016 and in Taipei, Taiwan in 2017.

Tour at D-Tower,

An office building spanning 24 floors, D-Tower’s first 5 floors house more than 20 restaurants and is a popular dining destination.

Pauli’s Brick Oven Pizzeria

Pauli’s Brick Oven Pizzeria serves authentic New York pizzas using imported ingredients. All pizzas are baked using a traditional brick oven.

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On the Border

On the Border is an authentic Mexican restaurant that started its operations in Dallas, Texas, in 1982 and has more than 150 stores in the United States. It has grown into a global restaurant, expanding to Puerto Rico, Asia and the Middle East. On the Border, which opened in Korea as the first international store in 2007, is leading the domestic Mexican restaurant market with differentiated taste and service. On the Border serves a variety of Mexican dishes, including fresh salsa and chips made every day, fuita and signature margaritas with a smoky smoked burger on Mexican traditional mesquite grills, as well as a lively Mexican ambience of daily festivals with lively Latin music.

Pho Chi Minh

Pho Chi Minh is a Vietnamese noodle restaurant with a heavy Chinese influence. The name is being changed to Fat Noodle to distance itself from Vietnamese cuisine.

Site Visit to Ollefood Host: Mr Hosung Lee, CEO Website: http://www.ollefood.net/

Olle is an expression from Jeju island meaning ‘on the road home’. In the past, people look most forward to returning home at the end of the long day, where their mothers would have created a table of delicious seafood such as conch, abalone and seaweed. The Olle table invites you to Jeju style grilled fish with warmth likened to that of a mother’s embrace. Olle started as a distributor selling seafood from Jeju in 2005. In 2010, they completed a HACCP approved food processing plant. Olle set up its first restaurant in 2013 at major department stores in Seoul but were not sustainable. They made a comeback in 2016 by relaunching as independent stores and now have 8 restaurants with 3 more on the way.

Site Visit to GOM’s Food Host: Mr Kijoo Na, CEO Website: http://www.goms603.com/

GOM’s 603 started 10 years ago in the Gangnam area which has severe competition among restaurant franchises. Mr. Na said GOM’s 603 has been successful because they are honest in use high quality ingredients and practice continuous self- development. GOM’s 603 started with steak and hamburgers but now they are also selling brunch, fried chicken (and beer) and salad to adopt consumers’ appetite. The franchise now has 8 stores in Korea (6 franchisee and 2 directly managed).

Lunch and Site Visit to SPC Group Hosts: Mr Lee Kyung-il, Senior Managing Director Website: http://www.spc.co.kr/spc/eng/

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SPC Group is a large conglomerate producing food and confectionery products and headquartered in Seoul. Sangmidang, the precursor of Samlip General Food was founded in 1945, and the group was launched in 2004. SPC Group is one of the oldest brands in the confectionery and bakery industry in Korea. In addition to Samlip General Food and Shany, SPC Group has market-leading franchise brands such as Paris Croissant (Bakery), Dunkin doughnuts and BR Korea (Ice-cream) as subsidiaries. The company also has SPL, SPC Capital, Samlip GFS and Mildawon, to name a few, as subsidiary companies, further broadening business scope with overseas establishments in the United States, China, Vietnam, and Singapore. We were hosted to La Grillia but a fire in the kitchen required relocation to Shake Shack.

Brands: • Paris Croissant & Paris Baguette (window bakery) • Baskin Robbins • Dunkin’ Doughnuts • Café Pascucci • Jamba Juice (smoothie) • La Grillia & Vera Napoli (Italian) • Queens Park (western restaurant) • LINA’s and Tamati (sandwich) • Passion5 (dessert) • L’atelier (café restaurant)

FEEDBACK:

The mission participants expressed deep appreciation for the program that was prepared for them. There were a few comments on how the program could have been made even better.

They would have appreciated more opportunities to meet with more mid-sized companies. IRC fully appreciates this sentiment but the mid-sized sector is challenging. The market is dominated by small companies and a few very large companies with a paucity of mid-sized firms. Furthermore, many of the mid-sized companies have existing overseas operations or are in the middle of negotiations with overseas partners. It is the more entrepreneurial restaurants that are seeking overseas partners.

Participants requested more detailed information on how to penetrate the market. We would be delighted to assist any of the firms who would like to consider entering Korea.

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LOGISTICS:

ACCOMMODATIONS:

The mission participants were housed at the Somerset Palace Seoul, a very comfortable but affordable hotel located in Angook-dong in a historic part of Seoul near several palaces and the Insa-dong, traditional shopping and experience street. All meetings and events were held at the Somerset.

TRANSPORTATION:

The group was met at the airport by Dave Yoon of IRC. They traveled to and from the airport and to site visits on a comfortable, limousine bus.

SUMMARY OF FINDINGS:

OVERVIEW:

Korea’s restaurant sector commanded a total revenue of 192 trillion KRW (US$ 169 billion) in 2015 accounting for 13% of Korea’s GDP. The sector breaks down to food materials (84 trillion KRW) and restaurant services, 108 trillion KRW. The materials sector has experienced an CAGR 0f 6.9% while the food service segment has experienced growth of 8.9% over the past decade.

There are more than 675,000 restaurants in Korea as of the end of 2015, up 24% from the 530,000 a decade earlier (one for every 79 people). The industry employs nearly 2 million people. Restaurants are small with 87% employing 5 or fewer people. The average annual revenue is 137 million KRW (S$ 170,000) and only 3.5% have revenue in excess of 500 million KRW (S$ 620,000) per year. Restrictions on the expansion by large companies have further contributed to the growth of small, independent restaurants.

MARKET GROWTH:

The tremendous growth of new restaurants has been driven by several social factors.

Retirees: Traditionally, when an employee retires from a company, he is given ‘severance pay’. This is a one-time payment calculated at the number of years’ service multiplied by the latest month salary. With mandatory retirement between 55 and 65 years old, retirees are still young and productive. Furthermore, severance pay is insufficient to live on for the balance of life. A common solution for retirees is to purchase a franchise and run a restaurant. Unfortunately, with little business experience or food service know how, retirees find themselves working 16- hour days still without enough to live on. Many franchisees fail and close their business. In order to protect these citizens, legislation favors the franchisee at the expense of the brand owner.

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Chef’s: There is a growing pool of highly skilled chefs in Korea, both those that have trained overseas and also, those that have worked at hotels or other upscale restaurants. They too believe that they can open and successfully operate a restaurant. However, running a business is a different skill from being a chef and many newly opened restaurants fail.

Entrepreneurs: The average revenue of a restaurant in Korea is 137 million KRW (S$170,000). Entrepreneurs recognize that they cannot simply open one restaurant to succeed but need to make it scalable to be attractive. Therefore, most start-up restaurants are looking to franchised the concept as soon as possible. Restaurant franchises account for 75% of all franchise businesses. 5,273 brands were franchised and to 218,997 restaurants generating over $70 billion in revenue.

TRENDS:

Cuisine: Restaurants serving Korean cuisine dominate the market with 53% market share however, consumers are seeking new experiences and the market is moving towards international alternatives. However, no other national cuisine has a significant presence. The second most popular cuisine is Chinese with just 3% of the market. Chinese cuisine has been in Korea for decades and could hardly be classified as a new trend. The ‘other’ category accounts for 13% of all restaurants. The ‘fusion’ concept is highly visible, crosses boundaries and defies classification.

Korean Restaurants by Cuisine

13%

19% 53% 9% 1% 2% 3% Korean Chinese Western Japanese Non-alcohol Beverage Drinks Others

A regular survey of restaurant owners polls their opinions on what cuisines will be most popular in the coming quarter. The most recent poll results put “other foreign restaurants” at the top with an index of 100.4. Other segments perceived as

RAS Korea Matchmaking Trip Final Report, Revised 4 May 2018 Page 11 of 13 offering high potential are company cafeterias (90.1), non-alcoholic beverages (89.1), Western restaurants (87.2), pizza shops (84.5), Japanese (81.8).

Choice of Restaurants: Surveys of consumers consistently identify the primary drivers in selecting restaurants to be ‘taste and price’.

The restaurant industry can be segmented into several groups but at the most fundamental level, meals can be either to satisfy hunger or a social occasion. The former segment is driven by price. The market price of a ‘standard’ Korean meal (satisfying hunger) is between 5,000 and 10,000 KRW (US$ 5 to 10). This would consist of some sort of soup (stew) with rice and side dishes. At the higher end of this scale, the meal may include some meat or grilled fish. Some international cuisines compete in this segment, most notably Chinese which are the cheapest meal available. Fast food can also serve the ‘satisfying hunger’ role but overall, fast food is considered a snack rather than an adequately filling meal.

Dining is a social occasion and is driven by the ‘experience’. In this setting, price is less important than taste. As taste is subjective, reputation, ambience, novelty, food variety all drive perceptions of taste. Meals tend to be shared rather than each diner eating what s/he orders. Younger diners will divide the total bill. Older consumers, who tend to be more affluent, are willing to pay more for higher quality and unique experiences. Often, inviting business colleagues to an expensive meal is a status symbol demonstrating wealth.

New and Fresh: Consumers are always seeking new experiences. New restaurants appear suddenly as existing ones close. (The National Tax Service reported in 2010 that 4.7% of restaurants close within the first year and 19.7% within 3 years.) To retain customers, restaurants feel tremendous pressure to continually change and upgrade their menus. The third most important dining motivation (after price and taste) is ‘instagramable’. An important part of one’s identity is how you present yourself to your social network and eating trendy foods is a key component of this.

Well-being: A generation ago, Korea was a poor country and the primary dietary concern was getting enough to eat. The country has transitioned rapidly into an affluent, OECD country and well-being has eclipsed well-fed. Consumers show heightened interest in nutrition, food safety, and healthy alternatives. (Consumers are sensitive to perceived adverse health impact of ingredients. Restaurant chains have experienced dramatic sales declines when media has reported that their offering contains harmful ingredients such as trans fats.) Even at the ‘satisfy hunger’, low-cost segment, consumers are concerned with safety and it is mandatory that restaurants post the country of origin of the major ingredients – meat, rice, kimchee.

Dining Alone: Korea has a rapidly aging population. More young people are rejecting marriage. Married couples often elect not to have children. These changes in Korean society are resulting in more single person households (now at 30% of all households) which in turn is driving changes in consumption of food. The

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HMR segment is growing. Shopping is shifting from hypermarkets to local convenience stores. In the restaurant sector, the trend is visible in the growing frequency of dining alone which grew from 10.8% to 14.7% in just the last year (revenue from single diners divided by total dining revenue).

Delivery: Home delivery has long been an important segment of the restaurant business accounting for an estimated 5.9% of all restaurant sales. Looking at delivery, about 50% of delivered food is chicken followed by Chinese, fast food (including pizza) and Korean food. While most restaurants hire their own (motorcycle) delivery staff, a few professional restaurant delivery service companies have emerged allowing restaurants to focus on preparing the food and leaving the delivery to others.

BUSINESS OPPORTUNITIES:

Large Companies are Looking to Overseas Markets: Korea’s economy suffers from dominance by large conglomerates. In response, the government has imposed severe restrictions on ‘large’ companies. These firms are ‘discouraged’ from opening new brands. Expansion of existing brands is also controlled. New shops must be greater than a specified distance from an existing competitor.

At the same time, these large companies established franchise contracts with Western brands many years ago and have a long history of managing franchise brands. They believe that they have learned how to manage franchises and therefore, rather than introducing new brands from overseas, prefer to develop and grow their own brands.

Given a mature understanding of restaurant franchise management, an overly competitive home market and restrictions imposed by the government, large restaurant chains such as CJ, SPC, Eland, etc., are looking for opportunities overseas rather than seeking to in-license foreign brands. Small and medium sized chains or companies newly entering the food service market may have interest in in- licensing but established firms are focused more on going overseas.

Top 10 Restaurant Companies in 2017 Company Major Brand 2017 revenue (KRW / S$) Paris Croissant Paris Baguette 1,774 billion / $2.2 billion Starbucks Starbucks 1,263 billion / $1.56 billion CJ Foodville VIPS 1,259 billion / $1.56 billion Lotte GRS Lotteria 907 billion / $1.12 billion Eland Park Ashley 682 billion / $843 million BR Korea Dunkin Donuts 523 billion / $647 million Nonghyup Mokwoochon Toreore 520 billion / $643 million BKR Burger King 346 billion / $428 million Kyochon F&B Kyochon Chicken 319 billion / $394 million BHC BHC [chicken] 239 billion / $296 million

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Most Korean franchise chains can already be found across Southeast Asia and beyond. Hallyu or the Korean Wave sweeping across Asia and the rest of the world has generated interest in all things Korean including Korean cuisine. This has opened new possibilities for the Korean chains and they too are expanding overseas. This is the business model most likely to generate interest.

CONCLUSION:

The restaurant sector in Korea continues to grow and demonstrates significant future opportunity, especially for restauranteurs who can offer new, fresh and unique experiences. However, trends shift quickly so restauranteurs must constantly seek to refresh and upgrade their offering to keep customers coming. At the same time, Korean restaurants seeking to expand overseas could also offer opportunities for Singapore based restauranteurs.

PRESENTATIONS:

Copies of all the workshop presentations are provided with this report.