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South Korea Food and Drink Report Q3 2011
Business Monitor International, July 2011, Pages: 76
The South Korea Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Korea's food and drink industry.
Publishers View: We maintain our view of a healthy domestic demand picture for South Korea in the near term. Buoyant labour market conditions, strong retail sales growth and positive signs of a pickup in the domestic property market provide ample cause for optimism in the country’s near-term domestic demand outlook. The long-term consumer picture for South Korea also remains broadly sanguine due to a positive macroeconomic growth outlook, healthy population growth and rising incomes. Beyond 2015, however, ageing population woes will start to set in, placing a drag on the country’s long-term domestic demand picture. This coupled with the growing maturity of food and drink sub-sectors in South Korea, such as beer and retail, means that domestic consumer-facing players such as Lotte Shopping are already on the hunt for opportunities abroad.
Headline Industry Data:
- 2011 Per Capita Food Consumption = +3.4%; CAGR forecast to 2015 = +5.4%
- 2011 Alcoholic Drink Sales = +4.1%; CAGR forecast to 2015 = +4.7%
- 2011 Soft Drink Sales = +4.9%; CAGR forecast to 2015 = +5.4%
- 2011 Mass Grocery Retail Sales = +8.4%; CAGR forecast to 2015 = +8.9%
Key Industry Trends & Developments
Product and Geographical Diversification To Gain Prominence – Given the level of maturity in the South Korean beer sector and Hite's overarching reliance on beer, Hite's ongoing portfolio expansions could help grow its market share in the other beverages sub-sectors so it is better placed to deal with the ongoing maturity in beer domestically. Hite's acquisition of Jinro, for instance, has strengthened its foothold in the soju market, allowing it to enjoy an estimated market share of over 50%. Looking to further tap dynamic alcoholic drinks demand in China, Hite signed a deal with South Korea's draft beer franchise 700 Beer to distribute its draft beer products to the franchise's first store in China in May 2010. Meanwhile, South Korean beverage producer Lotte Chilsung acquired a 34.4% stake in Philippine Pepsi bottler Pepsi-Cola Products Philippines (PCPP) for KRW118.4bn (US$108mn), as it shifts its focus towards higher-growth emerging markets in order to bolster its long-term growth potential.
An Increasingly-Regulated MGR Environment – In an attempt to curb competitive pressures from largescale retailers, the South Korean parliament is reviewing a bill that would require retail chains to seek approval from the local government before setting up large-scale supermarkets of around 1,000-3,000 square metres within 500 metres of a traditional market. Another bill, currently making its way through parliament, would allow smaller retailers to demand the temporary closure of a large-scale supermarket or hypermarket on the basis of limited room for growth and expansion. We believe these legislative measures are likely to negatively impact retailers with large-scale supermarkets, although the impact on hypermarket retailers – most of which are likely to operate stores of this size – is likely to be a far more severe one.
Risks To Outlook
Elevated oil prices pose a major downside risk to South Korea's economic growth. South Korea is one of the world's largest net oil importers, leaving the economy particularly exposed to high prices. Given the domestic economy's high levels of oil usage, economic activity is likely to moderate as raw material costs surge, and this presents negative implications for consumer sentiment and household spending.
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