FLANDERS INVESTMENT & TRADE MARKET SURVEY

A SNAPSHOT OF

THE BAKERY INDUSTRY

IN SOUTH KOREA

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) seoul@fitagency.com

A snapshot of the bakery industry in South Korea | August 2014 1

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

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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.

A snapshot of the bakery industry in South Korea | August 2014 3

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 food such as baked and pastry goods. Demand for baked snack foods 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.

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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

A snapshot of the bakery industry in South Korea | August 2014 5

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 bakeries 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.

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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 Tous Les Jours.

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.

Franchise bakery

Paris Baguette www.paris.co.kr

Tous Les Jours www.tlj.co.kr

Bbanggoomteo www.ppanggoomteo.co.kr

Bread & Co www.breadnco.kr

Shilla Bakery www.shillabakery.com

Shinsegae group, In store bakery

Shinsegae SVN Brands: Day and Day Milk and Honey Dalloyau the Menagerie Payard

www.chosunhotelbakery.com

Lotte group, In store bakery

Lotte Boulangerie www.lotteb.co.kr

Premium bakery (window bakeries)

Napoleon Bakery www.inapoleon.co.kr

Kim Young Mo Bakery www.k-bread.com

Richemont Bakery www.richemont.co.kr

Factory bakery

Samlip www.samlipgf.co.kr/eng/index.asp

Shany www.shany.co.kr

Seoul Foods http://www.seoul-food.co.kr/eng/index.html

Kirin www.lotteconf.co.kr/eng/main.asp 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 franchising chains: Paris Baguette and Tous Les Jours.

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Number of Major Franchise Bakeries as of Jan. 2011 - Source: Korea Bakery Association

Company name Bakery name Number

SPC www.spc.co.kr

Paris Baguette 2.660

Paris Croissant 19

Dunkin Donuts 861

Tapiau 221

Le Pommier 36

Total 3.797

CJ Food Ville www.cjfoodville.co.kr

Tous Les Jours 1.423

Twosome Place 128

Total 1.551

Lotte Boulangerie www.lotteb.co.kr

Bonespe (in Dept stores, supermarket) 139

Bonespe Bread 4

Total 143

Chosun Hotel Bakery www.chosunhotelbakery.com

Day & Day (in supermarkets) 209

Dalloyau 10

Veccia & Nuovo 5

Payard 2

One Cupcake 1

Apres Midi 2

Total 229

Artisee Boulangerie Artisee Boulangerie (in supermarkets) 315

Crown Bakery www.crownbakery.co.kr

Crown Bakery 297

Shilla Myunggua www.shillabakery.com

Shilla Myunggua 200

Bread & Co 49

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.

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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.

A snapshot of the bakery industry in South Korea | August 2014 9

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)

Chapter & Description 2013 2012 2011

World Belgium World Belgium World Belgium

Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere specified or included

721.166 3.155 645.071 8.761 763.244 15.287

Products of animal origin, not elsewhere specified or included

383.353 0 285.584 0 245.387 229

Edible fruit and nuts; peel of citrus fruit or melons

1.396.514 118 1.298.003 82 1.054.276 105

Coffee, tea, mate, spices

492.639 468 578.781 334 718.546 352

Cereals 4.832.224 0 4.603.824 1 4.625.865 213

Products of milling industry; malt; starch; inulin; wheat gluten

254.627 3.964 269.780 3.603 263.414 1.858

Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medicinal plants; straw and fodder

1.756.400 57 1.681.075 35 1.448.260 16

Lac; gums; resins, and other vegetable saps and extracts

169.189 182 160.466 95 145.983 375

Vegetable plaiting materials; other vegetable products

43.868 0 36.932 0 28.376 0

Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes

1.125.637 4.065 1.399.337 2.187 1.463.663 2.676

Sugar and sugar confectionery

1.295.848 8.181 1.369.734 6.538 1.469.237 7.458

Cocoa and cocoa preparations

354.592 23.775 339.886 21.541 339.470 21.764

Preparations of cereals, flour, starch or milk; pastry cooks' products

531.541 12.427 499.274 8.522 457.993 8.980

Preparations of vegetables, fruit, nuts or other parts of plants

884.048 4.554 851.279 3.716 781.522 3.617

Miscellaneous edible preparations

1.174.527 8.623 1.119.575 8.385 1.156.542 10.028

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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.

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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: seoul@fitagency.com

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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 & Fancy Food Festival

www.cafeshow.co.kr November

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

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

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) Seoul@fitagency.com

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)

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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