BMI 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 & Development
s 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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BMI Industry View 5
SWOT Analysis 7
South Korea Food Industry SWOT 7
South Korea Drink Industry SWOT 8
South Korea Mass Grocery Retail Industry SWOT 9
Business Environment 10
BMI’s Core Global Industry Views 10
Table: BMI Food & Drink Core Views 15
Asia Pacific Business Environment Ratings 16
Table: Asia Pacific Food & Drink Risk/Reward Ratings -Q3 2011 20
South Korea Food & Drink Business Environment Rating 21
Macroeconomic Outlook 22
Table: South Korea - Economic Activity 25
Industry Forecast Scenario 26
Consumer Outlook 26
Food. 30
Food Consumption 30
Table: Food Consumption Indicators - Historical Data & Forecasts 31
Canned Food 31
Table: Value/Volume Sales of Selected Food Sub-Sectors - Historical Data & Forecasts 32
Confectionery 32
Table: Value/Volume Sales of Selected Food Sub-Sectors - Historical Data & Forecasts 33
Trade 33
Table: South Korea Food & Drink Trade Indicators - Historical Data & Forecasts 34
Drink 35
Hot Drinks 35
Table: South Korea Beverage Sub-Sectors - Value Sales - Historical Data & Forecasts 35
Alcoholic Drinks 36
Table: South Korea Beverage Sub-Sectors - Value Sales - Historical Data & Forecasts 37
Soft Drinks 37
Table: South Korea Beverage Sub-Sectors - Value Sales - Historical Data & Forecasts 38
Mass Grocery Retail 38
Table: South Korea MGR Indicators - Sales Value by Format - Historical Data & Forecasts 40
Table: Grocery Retail Sales by Format - Historical Data & Forecasts 40
Food 41
Key Industry Trends And Developments 41
Government Taking Measures To Curb Inflationary Pressures 41
EMs Attracting Domestic Food Companies 41
Market Overview 42
Agriculture 42
Organics 43
Food-Processing 43
Drink 45
Key Industry Trends And Developments 45
Product and Geographical Diversification To Gain Prominence 45
Positive Outlook For Both Alcohol Imports and Exports 46
Bottled-Water Demand Rises Over Groundwater Contamination Fears 46
Market Overview 46
Alcoholic Drinks 46
Soft Drinks 47
Mass Grocery Retail 48
Key Industry Trends And Developments 48
South Korean Retail Potential Borne Out In Strong Results 48
Looking Afield For More Exciting Opportunities 48
An Increasingly-Regulated MGR Environment 49
Market Overview 49
Table: Structure of South Korea's Mass Grocery Retail Market by Estimated Number of Outlets 52
Table: Structure of South Korea's Mass Grocery Retail Market - Sales Value by Format (US$bn) 52
Table: Structure of South Korea's Mass Grocery Retail Market - Sales Value by Format (KRWbn) 52
Table: Average Sales per Outlet by Format - 2010 52
Competitive Landscape 53
Key Players 53
Table: Key Players in South Korea's Food Sector 53
Table: Key Players in South Korea's Drink Sector 54
Table: Key Players in South Korea's Mass Grocery Retail Sector 55
Company Analysis 56
Food. 56
Maeil Dairy Industry 56
Nong Shim Co Ltd 58
Drink 60
Hite Brewery 60
Oriental Brewery 63
Mass Grocery Retail 64
Lotte Shopping 64
Samsung Tesco HomePlus 67
BMI Food & Drink Methodology 69
Food & Drink Business Environment Ratings 69
Table: Rewards 70
Table: Risks 71
Weighting 71
Table: Weighting 72
BMI Food & Drink Industry Glossary 73
Food & Drink 73
Mass Grocery Retail 73
BMI Food & Drink Forecasting & Sourcing 75
How We Generate Our Industry Forecasts 75
Sourcing 76
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