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The Korean food market is currently $45.7 Billion and expects to grow at 5.6% to $53.5 Billion by 2013 Growth of per capita expenditure on food Fast economic recovery Increased needs for high quality products-organic and premium food Rapid growth of mass grocery retail Market Size Unit : $ billion 53.5 Per Capita Food Consumption Unit : $ 1069 45.7 47.9 49.4 921 940 989 39 40.9 830 835 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Source: Business Monitor Source: Business Monitor 3
Food imports showed a high growth rate(cagr 12.9%), reaching $25 Billion in 2008 US: $6.5 billion (27%); China: $3.6 billon(15%); Australia: $2 billion(8%) Food Imports Unit : $ million 20,516 24,526 6,532 (27%) Three major import sources Unit : $ million 11,030 14,561 15,337 13,145 12,366 17,311 3,696 (15%) 1,898 (8%) 2001 2002 2003 2004 2005 2006 2007 2008 U.S China Austrailia Source: Korea international trade association Source: Korea international trade association 4
Imports from U.S. and 10 Major Products South Korea is the 5 th largest market for U.S. food products 10 Major Products Unit : $ million Unit : $ million 6,532 Product Amount Market Share Wheat 730 63% 2,686 2,698 2,761 3,040 3,050 2,523 3,094 3,820 Corn 461 85% Soybean 284 35% Pork 250 29% Beef 197 19% Orange 104 94% Cheese 55 23% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Korea international trade association Chicken 53 34% Fruit Juice 52 37% Wine 35 21% Source: Korea international trade association U.S. market share will increase after the Korea-US Free Trade Agreement 5
FTA Tariff Removal Cost of imported products $0.72 $8.1 $5.4 $0.48 $7.5 $3.7 California Orange (1ea) California Almonds (600g) Green Grapes (750g) $70 $9.8 $60 $6.7 Robert Mondavi Cabernet Sauvignon(1bottle) California Walnuts (500g) 6
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Korean consumers are well exposed to US culture and food Korean Students studying in the US Hollywood movie market share Popular US soap operas STARBUCKS & McDonald s 8
COSTCO is highly successful in Korea Number of Stores : 7 Average sales per store : 205 million dollars Sales Net Operating Income Unit : $ million 1,103 1,236 1,314 1,456 32 44 48 79 2006 2007 2008 2009 Source: Korean Financial supervisory service 9
Growing income and aging population present growth opportunities for organic and health and functional products Demographics of Korea 15,082 Per Capita GNI Unit : $ 19,722 21,695 17,531 Age Group 0-14 2000 2010 2030 Number Share Number Share Number Share 9,911 21.10% 7,907 16.20% 5,525 11.40% 2004 2005 2006 2007 15-64 33,702 71.70% 35,611 72.90% 31,299 64.40% 65 + 3,395 7.20% 5,357 11.00% 11,811 24.30% Source: Korea statistics office Unit : 1,000 people (Source : Korea statistic Office) 10
Red Ginseng is dominating the market, taking the lion s share at 54% Natural vitamins and multi-vitamins appealed to consumers, growing 44% Sanofi-aventis and Bayer Healthcare released Cenovis and Veroca Performance Major Products Unit: $ million Unit : $ million Market Size 906 2008 2009 Growth Rate Red Ginseng 380 409 8% 623 637 658 730 Vitamins 48 69 44% Aloe 58 59 2% Ginseng 38 33-13% Omega3 24 30 25% 2005 2006 2007 2008 2009 Probiotics 17 23 35% Glucosamine 18 15-17% Source: Korea Food and Drug Administration Source: Korea Food and Drug Administration 11
Organic food market expects to increase substantially in the future. 2006 2007 Growth Rate Organic agricultural food 101 128 27% Organic processed food 129 160 25% Total 230 288 26% Source: Korea rural economic institute Unit: $ million Organic Food Imports 56 21.3 Major Imported Products Unit: $ million 27 40 3.8 2.2 2.1 1.7 1.1 1 18 Unit: $ million 2005 2006 2007 2008 Source: Korea Food and Drug Administration Source: Korea Food and Drug Administration 12
Sales volume of major food companies in Korea (2009) Unit : $ million Company Sales Company Sales CJ 3,120 Dongsuh 1,073 Lotte 2,063 Korea Yakult 879 Nongshim 1,500 Coca Cola 486 Samyang 1,216 Amway 379 Ottogi 1,108 Nestle 287 Major Player in Korea 13
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One-stop shopping hypermarkets are now the single largest retail force On-line retail business is one of the fastest growing segments (high speed internet connectivity and mobile phone use in Korea) Sales and market share of retailers in Korea Segment 2005 2007 sales share sales share Growth Hypermarkets 2.2 11.6% 2.63 12.5% 19.4% On-line Retails 1.62 8.5% 1.94 9.2% 19.7% Department Stores 1.56 8.2% 1.7 8.1% 8.7% Supermarkets 1.00 5.3% 1.1 5.1% 10.0% Convenience Stores Source: The year book of retail industry 2008 Unit : US$ billion 0.36 1.9% 0.4 2.1% 19.6% 15
Hypermarkets and large supermarkets are the two major retail channels for imported food, as they offer a more favorable shopping environment Food product sales of Retailers (2007) Unit : $ million Proportion of food sales Total Food Sales Hypermarkets 37.4% 982 Department Stores 10.3% 173 Convenience Stores 47.8% 209 Supermarkets 84.5% 909 On-line Shopping 4.7% 91 Source: The Year book of retail industry 2008 Hypermarket Chains in Korea 124 Stores 111 Stores 64 Stores 16
Horizontal integration Major retailers encompass the whole spectrum of retail business Entry into one part of an integrated retailer can lead to access to the whole system Lotte Department Store Lotte Super (Supermarket) Lotte TV home shopping Lotte Mart (Hypermarket) Seven Eleven (Convenience store) Lotte.com (Internet Shopping) Dependence on importers Many of retail companies do not import food directly, but rely on independent importers Costco Korea procure imported products directly through international networks 17
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Wal-Mart failed to capture the hearts of Korean consumers, withdrawing in 2006 Stores were placed outside instead of in the cities Location Koreans were used to easily accessible shopping facilities without the need to travel Product shelves are too high for Koreans Display Korean ladies do not like the warehouse-style lay out Koreans prefer to purchase smaller units (Small house with limited storage and freezing) Product Mix Lack of fresh vegetables and fruit 19
Sales Members Nutrilite $ 636 million (2009) Entered Korean market in 1991 1.2 million people Brand power number one in health and function food Sales: $ 250 million Key Success factors Localization One for One program changed a negative image into a trustworthy one Customer Satisfaction Quality products and a pioneer in return policy Beyond Customer Satisfaction IBO as an evangelist 20
Date April 26-29, 2011 Venue Host Exhibiting companies Visitors KINTEX(Seoul) Korea Trade & Investment Promotion Agency 1,095(393 foreign companies) 42,590 (Retailers, Wholesalers, Importers, Restaurant, Hotel) Remarks Trader s only show The only show in Korea endorsed by USDA 21
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The major food industries are moving toward the Asia-Pacific Region 2020 $ 6,400 billion 30% 23% 40% EU North and South America Asia-Pacific Region 2010 - $ 4,400 billion 31% 26% 36% 2003 - $ 3,500 billion 33% 28% 33% International Data Group(2005) 23
Gateway to Northeast Asia Markets Northeast Asia is expected to grow steadily into a huge food market focused around China FOODPOLIS 1 2 3 60 cities with over one million population within a two-hour flight Located on the West Sea, closest to Chinese food markets Ensuring food safety and lower food production costs than ijapan 24
Traffic infrastructure of the National Food Clusters Highways & Railroads Seoul Incheon 4Highways : Seoul(140 minutes), Incheon(150 minutes), Busan(210 minutes) Korea Bullet Train: Seoul(68 minutes), Daedeok(30 minutes) Pyeongtaek West coast highway KTX railroad Kunsan Muan Mokpo Iksan Honam Highway Gwangju Cheongju Daejeon Jeonjun Daegu Iksan~Pohang Pohang highway Gwangyang Busan Airport Kunsan Airport(60 minutes), Gwangju Airport(90 minutes), Cheongju International Airport(90 minutes), Muan International Airport(120 minutes), Gimpo airport(160 minutes), Incheon International Airport(180 minutes) Harbor Kunsan Port(60 minutes), Pyeongtaek Port(120 minutes), Gwangyang Port(150 minutes), Busan port(210 minutes) 25
Development Strategy Location: Gunsan, Gimjeh, Buahn Size: 401 km2 Will be completed in 2020 (First part of the plan) Building the complex for processing of agricultural products, logistics, and an R&D core base for North east Asia - Planning to build a seaport centered food industry -Supplying raw materials from the agricultural complex with equipped high-tech systems Saemangu m District Saemangeum New Seaport Gunsan seaport Large-scale Glass Greenhouses Gunsan Buahn IC Gunsan IC East Gunsan IC West Kimjae IC Kimjae IKSAN Nonsan Korea National Food Cluster FOODPOLIS Jeonju IC Agrobio Technology Innocity Nonsan JCT Iksan IC Jeonju Moving Plan in 2012 - Korean Food Research Institute - Rural Development Administration - National Academy of Agricultural Science - National Institute of Crop Science - National Institute of Horticultural & Herbal Science - National Institute of Animal Science 26
Development Plan First Step : 2010~2015 Size to Complete: 2,390,000 m2 Operator: Korea Land & Housing Corporation Contents: Industrial zone, Supporting zone, Logistics zone and Public Care zone Second Step The industrial zone will be catered in high energy efficiency system First Step The systems will fit the needs of food companies (Clean water systems and water drainage system) Second Step : After 2015 Size to Complete : 1,580,000 m2 The local government will complete residences and commercial areas 25 27
Major Focus Select and foster for high-valued food segments Target Segments(50%) Korean s traditional fermented foods High valued functional foods Processed organic foods Other general foods(50%) 28
Qualifications High-Tech Status Business within the category of - Industry support services Advanced technology businesses Foreign Investment Zone (FIZ) Manufacturing: FDI over $30M / New Establishment of Plant R&D Centers: FDI over $2M - Hiring more than 10 employees with Master's degree Tax Reductions Corporate Tax and Local Tax*: 100% for 5 years, 50% for next 2 years Local Tax : Acquisition, Registration, Property Tax (extendable up to 15 years) Customs Tariffs: 3 years after the day of foreign investment notification Procedures High-Tech Status - Application to Ministry of Strategy and Finance - Evaluation by relevant ministry of the applied technology Foreign Investment Zone - Documentation with Local Government - Application to Ministry of Knowledge Economy - Evaluation by Foreign Investment Committee 29
Qualifications FDI with 30% or more foreign investment ratio Manufacturing Facility : Greenfield FDI over $10M High-technology business Parts and materials industries R&D center with over 10 qualified researchers Procedure Application by investor Evaluation by MKE* Decision by FDI Committee (Yes/No, Upper limit of cash grant) Negotiations b/w foreign investor and MKE Handling Period : 60 working days upon application ( extendable by 30days ) To be reviewed Granted Cash can be used for Employment & Training Land Acquisition & Rent Construction Cost Set-up Cost for Basic Infrastructure Purchase of Capital Goods, R&D equipment & materials Eligibility : - High-technology business - Parts and materials industries - R&D Targeted Business Areas Increase amount of Cash Grant * MKE : Ministry of Knowledge Economy 30