This is a topic that I’ve been asked to speak on frequently recently, so I decided to write this guideline to entering the food and beverage market in Korea.
Why South Korea?
South Korea has a total of around 51 million inhabitants and interestingly for anyone looking to work in the food industry, around half of the population live in the metro area of Seoul.
Effectively, South Korea is an island as it’s cut off from the rest of Continental Asia by North Korea. That means the country has often looked to both Japan and also China due to historical cultural links. Also many South Koreans have studied abroad in the US, Canada or Europe.
Consequently, you have a highly educated population who are open to new developments and experiences whilst at the same time having pride in their own Korean culture.
What is typical Korean taste in foods?
If you ask Europeans what are typical Korean foods usually you will receive answers like kimchi, BBQ, bibimbap, seafood, noodle soups, seaweed snacks, gochujang sauce and more recently, as a result of a viral Tik-Tok hit, tornado omelette.
So what are those?
Kimchi is a kind of very spicy sauerkraut which might not be everybody’s cup of tea but it’s certainly a tasty vegetable side dish.
Korean BBQ I think needs no explanation: it’s a lot of meat and then some more meat.
Bibimbap is a kind of rice, vegetables and meat dish where all the separate components are presented separately in a bowl with maybe an egg or some seafood or meat as well.
I think noodle soup and seaweed snacks don’t need any explanation and nor does seafood, although I’m sure that in South Korea you will find dishes containing creatures, that you’ve never seen before on a plate.
Gochujang sauce is a spicy sauce used as a condiment with many dishes.
And last but not least a tornado omelette (part of the dish omurice) is prepared using chopsticks to draw the eggs in the pan up to the shape of an inverted tornado funnel.
Does that mean Koreans only like spicy food?
Not at all. Western food, especially high quality products, enjoy increasing popularity in South Korea. Snacks, sweets, health supplements, beer, wine, soft drinks, meat, pasta, tacos… you name it and there is probably a market for it in Korea as people enjoy trying new kinds of food, made from quality ingredients.
There is a rising awareness amongst consumers about how food contributes to health, and especially since the pandemic, this has become a deciding factor for an increasing number of consumers.
According to German statistics, South Korea was the fifth-largest non-EU importer of food in 2020.
From January to April 2021 imports increased by 11.4% on year.
In recent years particularly sweets and ready-made meals accounted for high growth rates. Retail sales in the packaged food market in Korea are estimated to be about 22.63 billion USD (2019)
South Korea is a net food importer, importing more than 60% of its food needs, and this % continues to grow.
What options are there for smaller European or US companies to enter into the market?
For smaller European or US companies who may be thinking of entering the food and beverage market in Korea, I would say that there are 3 main options that can be considered for the beginning:
1) Channel sales via a distributor / general importer
3) Direct sales via the Coupang cross-border e-commerce programme
You should also be aware that for alcoholic drinks, importers need to have a special licence and alcohol is not allowed to be sold via cross-border e-commerce.
Sales via an Importer
This option has the advantage that the importer can help with technicalities such as obtaining import licenses & preparing the necessary back labels for the products. If there are problems with the import of a container, the importer will discuss with the authorities to solve the issue.
However the main advantage of selling via a general importer in South Korea is that you are not limited to just selling via one channel. This may not be such an important point for you in the very beginning, however if you are planning for the long term (as you should be!) then this is a good option.
The right importer can arrange good listings with both offline retail and online platforms and guide you through those processes to get the best deal for your brand. Having an importer who already has a solid portfolio of products will help you as a newcomer get your foot in the door of the most important clients.
You can use their wide network of contacts and in-depth market knowledge to support your brand.
I plan to write a later post on appointing a distributor in South Korea, so all I’ll say here is that whilst companies are generally honest, you should do the usual due diligence before making your final decision.
One time I was interviewing shortlisted Korean distributors on a visit to Seoul, and 2 out of 3 mentioned that they were the new exclusive partner of a well known UK premium biscuit brand. A short call to that company in the evening confirmed that one of those companies was indeed the new partner. The other one had been informed a week earlier that his application had been unsuccessful, but he assumed I either wouldn’t check or wouldn’t care.
Selling directly to a Retailer
Large retail chains in Korea such as Lotte or Shinsegae have their own international purchasing departments, so you may be able to arrange a direct cooperation.
The advantage of that is that you have an automatic listing in the stores of that chain which will provide you with a certain amount of immediate visibility. Also you can possibly increase your profit margins as you are cutting out the importer as a middleman.
This has a few disadvantages though, especially for smaller brands.
- You have limited negotiating power with your far larger counterpart
- Probably you don’t have access to a guiding voice who can tell you whether the terms requested (= demanded) are reasonable and in line with what is usual on the market
- If you want to expand your distribution, you have to then negotiate yourself with further potential partners. This means a huge amount of additional work for you to establish and maintain an additional client, and at the same time, other partners may not be even willing to talk to you if you are directly importing already via one of their arch-rivals.
- You don’t have any synergies in stock management or logistics costs if you are selling to multiple importers.
If your brand is already quite a well-known name at home, it may be worthwhile to consider this option if
- You have the capability to manage several customers
- Your reputation is strong enough to leverage your way into multiple partners
Should that not be the case, you are probably limiting your options by selling direct.
Beware of people approaching you who claim to be able to enable relationships with one of the big conglomerates (chaebols) in Korea. Check that they really have the connections that they claim before signing any letter of intent (LOI). It happened to many companies that they signed such an LOI and the person they had signed with then used this to CREATE the connections he needed in the company concerned.
Direct Sales via the Coupang Cross-Border E-Commerce programme
In a similar way to China, Korea also has a flourishing cross-border e-commerce environment, however the regulations are different than for China.
Coupang (Korea’s e-commerce giant) has now developed a programme whereby they support small brands who are looking to enter into the market.
Brands receive support with labelling, registration (still necessary for cross-border e-commerce in Korea) and visibility on the platform, so this can be a good way to test the market.
If you want to have a broader level of distribution, you probably need to consider one of the other options at least in the medium term, but Coupang can be a great place to start. You can find a lot more details about this on my post dedicated to this topic.
Register your trademark before entering the food and beverage market in Korea!
As with China, (& Japan), Korea is a first to file market, meaning that whoever submits the application for a brand first has the rights. Don’t set yourself up for unpleasant surprises by neglecting this topic.
The Trademark Application Process
The trademark can be registered via a third party or by yourself, but it needs to be handled through the Korean Intellectual Property Office (KIPO). The application process is similar to other developed Asian countries:
- Submission of application
- Formal examination (If the applicant does not have any address or place of business in the country, then it must be written in Korean and submitted by a Korean patent agent )
- Substantive examination (Takes around 11 months. A refusal will require amendments of the application)
- Publication (The trademark application to be published)
- Decision of grant protection
- Registration (Application approved)
- Renewal (A trademark registration needs to be renewed every tenth year)
Costs to Apply for a Trademark
The application fees are determined based on the product class. The costs below are presented in the Korean currency Wong, the exchange rate is around 1350 KRW/EUR as per June 2021. Keep in mind that the fees are for general information only as they change frequently.
You can also visit KIPO’s website for more information regarding the fees to be paid by applicants.
- Application fee: KRW56000 per product class if you submit the application over the internet and KRW66000 for paper applications
- Examination fee: KRW18000 if you submitted over the internet and KRW20,000 for paper applications
- Registration fee: Basic fee KRW211000 and an additional fee of KRW211,000 for each product class added (For multiple-registrations)
- Renewal of trademark registration: Basic fee KRW310,000 and additional KRW310,000 for each added product class
Product Registration Requirements
Overseas Manufacturer Registration
All foreign manufacturing facilities that produce food and food packaging to be sold or marketed in Korea must be registered. This applies to all facilities producing food, food additives, and food packaging. You can’t avoid this if you’re entering the food and beverage market in Korea.
The law further authorises the Ministry for Food & Drug Safety (MFDS) to conduct on-site inspections of foreign facilities and to take corrective action should foreign manufacturers decline to participate in the audits.
Registrations remain effective for a period of two years unless revoked by MFDS. Should MFDS determine that a registration should be revoked, that facility will not be permitted to register again for a period of three years.
The application for registration requires the following information:
- company name, location & contact information
- facility name, location, and contact information.
Companies with more than one factory must provide information on all production facilities that require registration. The final registration portal allows companies to upload documents relating to their products, such as hazards analysis and critical control points (HACCP) Certifications or ISO Certificates relating to each facility.
The facility must be registered before the importer files an import declaration
Your importer should be able to help you with this process, however don’t underestimate the potential complexity. In addition to the factory being listed as an overseas manufacturer, the products and their recipes also have to be registered.
South Korea takes the issue of food safety extremely seriously so you will have to account for 100% of the ingredients in your recipes. For registration purposes you will have to give details that may not be visible on the label.
Eg if you include “natural flavourings” in the label of your snacks, MFDS will require you to tell them exactly WHICH flavourings are used and in which % they are present in the recipes.
Eg 2. If your products contain vinegar, you will be asked about the amount of sulphites present.
New Labelling Law
At the end of May a new labelling law came into effect regulating which foods need to include nutrition tables on their labels (this includes product groups such as bacon, processed sugar, flour, tofu…)
Additionally, foods with functional claims are required to undergo a “voluntary review of labeling or advertising” to ensure that consumers are not being misled in any way. Product groups affected are:
- Food for special purpose (FSP)
- Health functional food (HFF)
- General food with function claims
Companies need to submit documents to prove the contents of their label or advertising are true.
Opportunities in the Korean Food and Beverage Market in 2021
Whilst Korea isn’t simple to enter into, the market can be lucrative for the right kinds of products, and having the right import partner for YOUR business (whichever of the models mentioned above are suitable for you) will certainly ease your way. An importer, be it a distributor or a retailer, can take care of most of those formal requirements for you.
Following the pandemic there is an increased awareness of the role that food plays in a healthy lifestyle, meaning that healthy foods and functional foods, especially snacks have potential in the market.
Organic food is a growing sector and there is an increasing understanding of what this means.
In 2020, meal kits and subscription services grew, so this might provide some opportunities for cooperation.
Non-alcoholic beverages for the hospitality sector and for home consumption are also in demand as some people cut down on the amount of alcohol consumed. On the other side of that, certain consumer groups have been looking for more unique alcoholic drinks and focusing more on quality rather than quantity, providing opportunities with craft drinks.
Meat is always in demand, however this is hugely complicated and requires special registration both at national as well as enterprise level. Your national authorities will have a list of the types of meat which are allowed to be exported to Korea. Any outbreak of disease is likely to result in a complete ban. eg Germany exported a lot of pork in the past but has been banned since cases of African Swine fever were detected.
Finally, I’d like to mention the opportunities in supplements, especially liquid ones. The market for food supplements grew annually by 13% between 2015 and 2019.The market volume is estimated to be between 3.2 bln. USD (according to MFDS) & 4 bln. USD (Korea Health Supplements Association). About half of the health supplements are imported from the US, 8.9% from Canada and 5.1% from Germany. So this could include products such as:
- Anything proven to boost immunity
- Protein supplements
- Products proven to assist with sleep quality
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