A SNAPSHOT OF THE INDUSTRY IN SOUTH KOREA

FLANDERS INVESTMENT & TRADE MARKET SURVEY

A SNAPSHOT OF THE BAKERY INDUSTRY IN SOUTH KOREA

August 2014

FLANDERS INVESTMENT & TRADE SEOUL c/o Embassy of Belgium 23, Itaewon-ro 45-gil, Yongsan-gu, Seoul 140-893, Republic of Korea (T) 822-790 2480 (F) 822-790 2483 (E) [email protected]

Contents

Contents ...... 1

Before you start reading...... 2

Introduction ...... 3

1. Brief Overview of the Bakery Sector...... 4

1.1. Characteristics and Trends ...... 4

1.2. Players in the Bakery Sector ...... 6

1.3. Information on Imported Bakery Goods ...... 8

2. Tips on How to Approach the Korean Bakery Market ...... 10

2.1. Taking the First Steps ...... 10

2.2. Korean Bakery Importers ...... 11

3. Information on Fairs and Organizations ...... 12

3.1. Overview of Fairs Organized in South Korea ...... 12

3.2. Contact Details of Interesting Organizations...... 12

In Belgium ...... 12

In Korea ...... 13

Sources ...... 14

A snapshot of the bakery industry in South Korea | August 2014 1 Before you Start Reading

We advise you to check the latest Korean legislation and import regulations before sending your goods to South Korea. This can be done by contacting your Koreans importer or inform yourself with the Koreans Customs Authorities. The Korean Embassy in Brussels or Flanders Investment and Trade can also assist you.

Statistical material can vary depending on the source.

The terms “Korea” and “South Korea” are used in this sector overview. Both terms refer to the Republic of Korea.

Exchange rates (19 August 2014): 1 EUR ≈ 1362 Korean Won (KRW) 1 USD ≈ 1017 Korean Won (KRW)

This report was compiled by Flanders Investment and Trade in Seoul, Republic of Korea in August 2014.

The information given in this publication is intended as background information. It is with the greatest of care that we collected this information based on the available data and documentation at the time of publication. This publication does therefore not have the ambition of completeness or validity for your specific situation. They can therefore never be regarded as legal, financial or other specialist advice. Flanders Investment & Trade (FIT) cannot be held responsible in the sense for any incorrect entries, omissions or inaccuracies in this publication. FIT cannot be held responsible for the use or interpretation of information contained in this publication. References in this publication to specific entities, companies and / or individuals have no specific recommendations in which Flanders Investment & Trade could bring some responsibility.

2 Introduction

According to research from Global Industry Analysts, the global baked goods industry is expected to exceed $310 billion in 2015. Because of busy lifestyles and double income households, time to cook and prepare meals is limited. People are looking for convenient, easy and fast to eat such as baked and pastry goods. Demand for baked snack such as wraps or sandwiches are increasing. The global baked goods market has shown strong growth over recent years. Reasons stimulating market expansions include convenience, affordability and health benefits of baked goods products. Because of globalization, the eating pattern in Asia is changing. Asians are eager to try out new foods and wheat products are becoming very popular. Bakery products are becoming a solid food element in the Asian diet. The baked goods industry, encompassing products such as bread, cereals, cakes, biscuits, pastries and scones, has potential in Asia. These trends of busy lifestyles and interest for new foods are also seen in South Korea. In this snapshot, we will have a brief look at the bakery industry, trends in het market, identify the major players and give you some tips on how to approach the market. At the end of this overview, we will give you some interesting information on fairs and organizations.

A snapshot of the bakery industry in South Korea | August 2014 3 1. Brief Overview of the Bakery Sector

1.1. Characteristics and Trends

In 2013 retail value sales of baked goods grew at 5 % to reach KRW 1,927 billion, whilst retail volume sales posted 2% growth. The increase rate was largely due to increasing bread consumption, in line with changes in consumers’ meal habits. More often the traditional rice or noodle breakfast is being replaced by bread. Cakes and pastries posted retail value growth at 5 % and 1 % respectively. Cakes and pastries are consumed during special occasion, to celebrate, to give as a gift or just as a treat. The industry is expected to grow at a compounded annual growth rate (CAGR) of 4,1 % by value and 3,4 % by volume for the same time period, according to Canadean.

The volume sales of baked goods will keep increasing as more and more consumers replace their rice-based breakfast with bread. However, since unpackaged/artisanal bread products have more potential to reflect premium price, their sales will register the higher constant value growth. Koreans find high-quality important in the choice of food and are willing to pay for it. For packaged/industrial bread, constant value growth will not be able to catch up with the volume growth as the majority of local consumers look for value for money products in the category. This packaged/industrial bread is comparable to soft toast bread. These breads are produced locally. Therefore we see many opportunities for Flemish companies active in bakery products. Also there is interest in the knowhow to make good bread. In the Canadean forecast, we see that energy and cereal bars are expected to show strong growth in South Korea, thanks to the country’s increasingly on-the-go lifestyle. It predicts the category will display the highest growth in volume at a CAGR of 4,8 % up to 2017. Convenience is a significant factor for the young and the middle class of South Korea. These clients have hectic lives and require products which can be consumed quickly and easily. Sandwiches are gaining popularity. More sandwich restaurants are opening that offer sandwiches, panini, wraps… Also in this segment quality is important. So to make qualitative sandwiches, they often use Western

4 products like cheese, salmon, smoked ham... The superiority of the bread is essential like a good baguette, ciabatta or whole grain sandwich. Rectangular sandwiches can be bought in convenience stores or supermarkets. They are much cheaper in price and lower in quality. Another important trend is the health aspect. Cookies will show the least growth over the next five years, with value and volume CAGR of 3 % and 2,8 % to 2017 respectively. Consumers are looking for less sugar and salt in their bakery products. Most items that can be found in Korean are salty or very sweet. Korean bakeries offer savory articles like bread or rolls with cheese, sausage, curry, spices, chicken… And these products are often covered with something sweet. Health- conscious consumers are looking for products without these elements. Back to the basics of the bakery: nice, healthy bread. A last trend is the growing popularity of desserts. The variety of desserts, cakes and pastries is rising. Because of globalization, consumers tried many desserts abroad and want this on the Korean market. Waffles, cakes, pies, Danish pastries, cookies, chocolate desserts… are popular. Koreans are eager to learn new types of desserts.

A snapshot of the bakery industry in South Korea | August 2014 5 1.2. Players in the Bakery Sector

In South Korea you can buy bread and rolls from 4 different types of bakeries:

 Franchise bakeries (44 % of market share in 2009-2010). The 2 main players are Paris Baguette and .  Window bakeries (22 % of market share) are non-franchised or small franchise bakeries.

 Factory bakeries stand for 20 % of market share. They are producers of industrial packaged breads that you can buy in retail. Factory bakeries were leading the bakery industry till 1970’s. Other types of bakeries appeared in the market from 1980’s and from 1985, they recorded bigger production volume than factory bakeries.

 And lastly the in-store bakeries (14 %) that bake their own bread and rolls on site in the supermarket.

Here is an overview of the main players in the different bakery categories.

Paris Baguette www.paris.co.kr Tous Les Jours www.tlj.co.kr Franchise bakery Bbanggoomteo www.ppanggoomteo.co.kr Bread & Co www.breadnco.kr Shilla Bakery www.shillabakery.com Shinsegae SVN Brands: Day and Day Shinsegae group, Milk and Honey www.chosunhotelbakery.com In store bakery Dalloyau the Menagerie Payard Lotte group, Lotte Boulangerie www.lotteb.co.kr In store bakery Napoleon Bakery www.inapoleon.co.kr Premium bakery Kim Young Mo Bakery www.k-bread.com (window bakeries) Richemont Bakery www.richemont.co.kr Samlip www.samlipgf.co.kr/eng/index.asp Shany www.shany.co.kr Factory bakery Seoul Foods http://www.seoul-food.co.kr/eng/index.html www.lotteconf.co.kr/eng/main.asp Kirin Since 2013, merged with Lotte Confectionery

In 2011, there were 11.685 bakeries (franchise and window) in Korea. 37% of these bakeries were part of chains: Paris Baguette and Tous Les Jours.

6

Number of Major Franchise Bakeries as of Jan. 2011 - Source: Korea Bakery Association Company name Bakery name Number Paris Baguette 2.660 Paris Croissant 19 SPC Dunkin Donuts 861 www.spc.co.kr Tapiau 221 Le Pommier 36 Total 3.797 Tous Les Jours 1.423 CJ Food Ville Twosome Place 128 www.cjfoodville.co.kr Total 1.551 Bonespe (in Dept stores, supermarket) 139 Lotte Boulangerie Bonespe Bread 4 www.lotteb.co.kr Total 143 Day & Day (in supermarkets) 209 Dalloyau 10 Veccia & Nuovo 5 Chosun Hotel Bakery Payard 2 www.chosunhotelbakery.com One Cupcake 1 Apres Midi 2 Total 229 Artisee Boulangerie Artisee Boulangerie (in supermarkets) 315 Crown Bakery Crown Bakery 297 www.crownbakery.co.kr Shilla Myunggua 200 Shilla Myunggua Bread & Co 49 www.shillabakery.com Total 249 Grand Total 6.581

The main giants in the franchise market are Paris Baguette from the SPC group and Tous Les Jours from the CJ Food group.

A snapshot of the bakery industry in South Korea | August 2014 7 Marking the opening of its 100th overseas store in March, SPC unveiled its goal of having 3000 outlets in 60 countries by 2020 with combined sales of over 2 trillion won ($1,84 billion). SPC also has the industrial bakeries Samlip and Shany in its portfolio. CJ Foodville (Tous Les Jours) is also going global with +- 30 shops already in the US and Southeast Asia. While the number of franchise bakeries of Paris Baguette and Tous Les Jours increased to more than 4000 shops, small window bakeries (non-franchised & minor franchised) are losing their market share every day. Bakeries owned by highly skilled Korean bake masters keep running their business. Also some foreign bakers came to Korea to open bakeries. We have in Seoul a number of German, French and Turkish bakeries. Bakery name Website No. of shops Napoleon & Josephine Bakery www.inapoleon.co.kr 4 Kim Young Mo Bakery www.k-bread.com 2 Richemont Bakery www.richemont.co.kr 2 An’s Bakery www.ansbakery.com 3 Mainzdom www.mainzdom.co.kr 23 Sungsimdang www.sungsimdang.co.kr 1 Kornberg Bakery www.kornberg.co.kr 1

Due to severe competition amongst bakery franchisees, authorities set a rule that multiple franchisee stores should not be built within a certain distance to one another. The rule negatively influences expansion of franchise stores, but growing consumer demand for bread compensates the negative impact.

1.3. Information on Imported Bakery Goods

As the bakery industry is going strong in South Korea, we see several opportunities for Flemish suppliers to this market. Korean companies are looking for high-quality, good priced, safe or new foreign products. This is a competitive market and the consumers are demanding. So Korean companies need to innovate not to lose ground and stay competitive.

8 Some Belgian companies are already doing business in Korea, but we are sure that other business opportunities are luring. Especially because Flemish companies have good products and the knowhow that Korean companies are looking for.

South Korean food imports by sector - Source: KITA.NET, compiled by FIT Seoul (1.000 US Dollars, Base on CIF Value) 2013 2012 2011 Chapter & Description World Belgium World Belgium World Belgium Dairy produce; birds' eggs; natural honey; edible products of 721.166 3.155 645.071 8.761 763.244 15.287 animal origin, not elsewhere specified or included Products of animal origin, not elsewhere 383.353 0 285.584 0 245.387 229 specified or included Edible fruit and nuts; peel of citrus fruit or 1.396.514 118 1.298.003 82 1.054.276 105 melons Coffee, tea, mate, 492.639 468 578.781 334 718.546 352 spices

Cereals 4.832.224 0 4.603.824 1 4.625.865 213 Products of milling industry; malt; starch; 254.627 3.964 269.780 3.603 263.414 1.858 inulin; wheat gluten Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; 1.756.400 57 1.681.075 35 1.448.260 16 industrial or medicinal plants; straw and fodder Lac; gums; resins, and other vegetable saps 169.189 182 160.466 95 145.983 375 and extracts Vegetable plaiting materials; other 43.868 0 36.932 0 28.376 0 vegetable products Animal or vegetable fats and oils and their cleavage products; 1.125.637 4.065 1.399.337 2.187 1.463.663 2.676 prepared edible fats; animal or vegetable waxes Sugar and sugar 1.295.848 8.181 1.369.734 6.538 1.469.237 7.458 confectionery

Cocoa and cocoa 354.592 23.775 339.886 21.541 339.470 21.764 preparations Preparations of cereals, flour, starch or milk; 531.541 12.427 499.274 8.522 457.993 8.980 pastry cooks' products Preparations of vegetables, fruit, nuts 884.048 4.554 851.279 3.716 781.522 3.617 or other parts of plants Miscellaneous edible 1.174.527 8.623 1.119.575 8.385 1.156.542 10.028 preparations

A snapshot of the bakery industry in South Korea | August 2014 9 2. Tips on How to Approach the Korean Bakery Market

2.1. Taking the First Steps

STEP 1: Prepare yourself

When considering the Korean market, exporters should conduct preliminary research to determine if the market is appropriate for their product. It may not be possible to market the exact same product in Korea as in Belgium. Korean consumers may have different demands or tastes. Do your homework by reading about Korea. We advise you to read the country profile on South Korea on the FIT website. In this report you can find information on market approach, business customs, economic information… Check the legislative and import regulations for your product. You can contact your provincial FIT offices or FIT Seoul office to get more information on the South Korean market. Also the Korean embassy and Korean trade agencies (KITA and KOTRA) can be contacted in Brussels.

STEP 2: Meet Korean businessmen

Direct selling to consumers or supermarkets is rare. An agent working on commission is called an offer agent. General traders can also be found in Korea. Most business in the food and beverage market is done via a Korean importer. The main challenges for the seller are language barrier, adaptation to local tastes and import regulations. A well-developed relationship with a Korean importer is an asset when determining how best to market a product.

The best way to find an importer is through introduction. It is very helpful to have a formal introduction to the person or company with whom the seller wants to do business in Korea. Meeting the right person in a Korean company is almost always dependent on having the right introduction. A good place to get lists of contacts of Korean importers is Flanders Investment & Trade in Seoul. “Cold calling” usually doesn’t work with Korean businessmen.

Another way of finding potential importers is to participate in a local food show to showcase your products to a larger audience. (See appendix 1)

Many Korean importers attending these shows are looking to establish reliable long-term trading relationships. Show participation enhances initial contacts with importers, agents, wholesalers, distributors, retailers and others in the food and beverage industry.

Currently, there are several trade shows supported by Flanders Investment & Trade Seoul: Seoul Food & Hotel in Korea and invitation campaigns of Korean buyers to ISM or Anuga. During these fairs we invite Korean buyers to visit the large Belgian/Flemish pavilions. This results in a great match- making opportunity for Belgian exhibitors and Korean importers. FIT Seoul will organize business meetings and translation services on site at Anuga 2015.

The Seoul Food & Hotel fair is held in Ilsan, in the suburbs of Seoul, usually in May every year. The show presents an excellent chance to explore possible market opportunities in Korea. This show is a trade-only show and targets importers, wholesalers, distributors, retailers, hotels, restaurants, food processors, media, etc. It is the only trade-only show in Korea. All other shows cater mostly to consumers. In general, FIT Seoul participates there every year with a booth. Food importers are invited to our booth each year.

10 STEP 3: Develop the relationship and start selling

Once you have met an interesting potential Korean partner take the next step.

This might include sending catalogues, brochures, product samples, and price lists to prospective importers as a way of introducing the company and products. When contact with an importer is established, it is advisable to visit the importer in person. There is no substitute for face-to-face meetings. The supplier or exporter should bring samples as well as product and company brochures including price lists, shipping dates, available quantities, and any other information needed for negotiating a contract. It is very important that all information be available in English.

Develop this into a personal relationship. Personal ties, trust and mutual respect are key words in business affiliations. Koreans will invite you to evening gatherings like dinners…

Korean and Belgian businessmen might have different meanings to the trust in the business relationship. For Koreans a deal is looked at as a guide line. This can clash with the Belgian business culture which likes everything in writing. Be sure to understand each other’s expectations.

Finally in the Korean market, never take anything for granted. Be ready for the unexpected. Be open for new information, be attentive and patient.

2.2. Korean Bakery Importers

Although retailers and producers are massive players, they depend on importers and/or wholesalers. Many of the retail companies do not import neither food nor beverages directly, but rely on independent importers. Some large retailers are increasing direct import for lower cost but only for large volume. Mostly they lack experience and turn to importers. (Costco Korea procures imported products directly through international networks.)

Major retailers encompass the whole spectrum of retail business and food industry. Entry into one part of an integrated retailer can lead to access to the whole system. The importer can facilitate the entry into these conglomerates.

Flemish exporters should contact distributors and importers, along with retailers to market their products. The main challenges for Flemish exporters are the language barrier, adaptation to local tastes and import regulations. A well developed relationship with a Korean importer is an asset when determining how best to market a product. They also have a good access to distribution networks. Large size retailers own well developed distribution centers in Korea. The independent importer will deliver the imported goods via these logistic channels to the retailers or producers. We advise Flemish food exporters to work with Korean importers to tackle this market. FIT Seoul has been working on a bakery importers database and we try to keep it updated. Flemish companies interested in this list can contact us via email: [email protected]

A snapshot of the bakery industry in South Korea | August 2014 11 3. Information on Fairs and Organizations

3.1. Overview of Fairs Organized in South Korea

Name of the fair Website Timing Seoul Food and Hotel www.seoulfood.or.kr May Café & Bakery Fair www.cafenbakeryfair.com October Seoul International Café show & www.cafeshow.co.kr November Fancy Food Festival Seoul International Bakery Fair www.siba-expo.com Every 2 years

3.2. Contact Details of Interesting Organizations

In Belgium Flanders Investment and Trade Koning Albert II laan 37 B - 1030 Brussel (T) +32 2 504 87 12 (F) +32 2 504 88 99 (W) www.flandersinvestmentandtrade.be

Federal Agency for the Safety of the Food Chain (FAVV) Food Safety Center Kruidtuinlaan 55 B - 1000 Brussel (T)+ 32 2 211 82 11 (W) www.afsca.be

Flanders' Agricultural Marketing Board (VLAM) Koning Albert II-laan 35 bus 50 B - 1030 Brussel (T) +32 2 552 80 11 (F) +32 2 552 80 01 (W) www.vlam.be

FEVIA Flanders Kunstlaan 43 B - 1040 Brussel (T) +32 2 550 17 55 (F) +32 2 550 17 59 (W) www.feviavlaanderen.be

12 In Korea Flanders Investment and Trade Seoul 23, Itaewon-ro 45-gil, Yongsan-gu, Seoul 140-893 (T) +82 2 790 24 80 (F) +82 2 790 24 83 (E) [email protected]

Korea Bakers Assocation 4F, Korea Bakery Industry Association B/d, 37, Nambusoonhwan-ro 335-gil, Seocho-gu, Seoul (T) +82 2 2273 1830 (F) +82 2 2255 3349 (W) www.bakery.or.kr (only in Korean)

A snapshot of the bakery industry in South Korea | August 2014 13 Sources

http://www.reportlinker.com/ci02034/Bakery-and-Pastry.html http://www.kita.net http://www.koreatimes.co.kr/www/news/biz/2012/12/602_127729.html http://www.euromonitor.com/bakery-in-South Korea/report FIT Study « Food industry in South Korea » - April 2014 FIT Country Profile South Korea – Spring 2014 The Canadean report, ‘The Bakery & Cereals Sector in South Korea to 2017’, September 2013 2009-2010 Food Annual Report Arirang News

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