Research Portfolio - Vu Hoang Minh

COMPANY AND SOUTH KOREA’S MARKET ANALYSIS

NAME: VU HOANG MINH MODULE TITLE: GLOBAL MARKETING MANAGEMENT STUDENT NUMBER: 21078366

MACRO ANALYSIS – PESTEL MODEL POLITICS

ECONOMIC

South Korea has maintained strong foreign trade through FTAs with the EU, North America and some certain countries (MarketLine, 2021a). On 7th February, 2022, the UK and South Korea signed the contract to strengthen supply chain stages and promote investment cooperation. UK exports to South Korea accounted for 68.8% in goods (Hubbard and Fothergill, 2022).

South Korea is economically regarded as a low-risk country, according to MarketLine Country Risk Index (MarketLine, 2021b). World Bank (2020) estimates that a company may require only eight days to run a business in South Korea, making it one of the easiest countries for foreign firms to invest and enter.

The government also established Free Economic Zones, including 9 areas in South Korea, to attract foreign investors and enhance international business operations.

The relationship between North and South Korea was strengthened in late 2021 at the “Declaration of the End of the War: The Limitations and Prospects” forum.

Hence, there will be little turbulence in the economy. => These conditions are conducive for penetrating the South Korean market.

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UK trade in goods and services, Q3 2021

ENVIRONMENT Since more than 70% of Korea’s land is mountainous, it is challenging to develop farming.

In fact, due to limited natural resources and land suited for farming and agriculture, the vast majority of foods are imported from other countries (Marie, 2018). The main ingredients of Graze’s snack boxes are usual ingredients such as wheat, soybean, nuts, corns,… These fresh foods are very tricky to plant in South Korea (OECD, 2018).

Due to the COVID-19 pandemic, South Korea’s economy dropped off to -1.3% in 2020 (MarketLine, 2021b). However, with an effort of the government to prevent the spread of the virus, the economy is beginning to recover. It is forecasted that the GDP and household expenditure will grow by 3.5 - 3.8% during the 2021 -2023 period (MarketLine, 2021b). => Although negatively impacted by the COVID-19, the support from the government and consumers’ financial situation make South Korea fruitful to enter.

However, Korea's food safety is ranked third globally, which is much higher than the UK ranked 7th. The government allocate a large amount of money to improve productivity and find other farming methods that will pave the way for savoury snacks that contain plantbased food (Euromonitor, 2021)

=> While agriculture in South Korea is improving, Graze also needs to consider either localizing their snack offers or directly importing foods from UK/other countries, which leads to a price hike.

South Korea's risk analysis as opposed to Asia Pacific and world average (0-100: from best to worst) (MarketLine, 2021b)

MACRO ANALYSIS – PESTEL MODEL TECHNOLOGY

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LEGISLATIONS According to Food Export Association of the Midwest USA and Food Export USA–Northeast (2022), there are certain obstacles that food exporters must face when doing business in South Korea. For example, the government frequent changes in food safety and labelling systems, which poses many risks and costs for traders.

Plus, some food additives need to be approved by both UK and South Korea.

In terms of internet usage and broadband penetration rate, South Korea takes pride in one of the world’s highest figures, with 98.3% and 43.2%, respectively (MarketLine, 2021b). An innovative technology combines with high mobile penetration rate, have allowed South Korean consumers to get access to e-commerce at a very early phase. In addition, South Korea has ranked 5th in the list of biggest e-commerce markets (Hong and Peterie, 2021) The COVID-19 pandemic accelerated the e-commerce market in South Korea from $117.7 billion in 2019 to skyrocket to $140.2 billion within a year (Hong and Peterie, 2021). Furthermore, food deliveries are the top one regarding to top 5 online sales in South Korea; therefore, Graze may takes advantage of online food delivery market in business strategy when running operation in South Korean market. => With the advantage of the similarity between South Korea and the UK market, including: the developed e-commerce, internet usage and online food deliveries, Graze does not need to take much time to educate consumers about purchasing its products.

The approval to export many countries’ fresh food items / ingredients to South Korea must be negotiated, which takes a lot of time to process (European Union, 2019) Energy-dense, nutient-poor (ENDP) foods are restricted in terms of advertising (Obesity Policy Coalition, 2018) => Korean government welcome healthy foods Tariffs on goods is removed by 98.7% according to the EU – South Korea free trade agreement (European Commission, n.d.) => If Graze runs a business in South Korea, it will bear some regulations when it comes to labelling guidelines, censorship processes. Nevertheless, Graze’s products are supported by the entry market.

MACRO ANALYSIS – PESTEL MODEL SOCIAL

South Korea is a country with the largest ageing population, the percentage of the older population (+65 years old) increase significantly from 9.1% to 20.3% between 2005 and 2025 (MarketLine, 2021b). As a result, Graze is advantageous because old people tend to choose healthy and organic foods (European Union, 2019), which is consistent with Graze’s positioning.

Graze’s main customer is adults aged 20 to 40, despite the fact that the proportion of adults in this age is high (Euromonitor International, 2021b).

However, it will be a challenge if Graze wants to survive for a long time because the Korean population is expected to age in the future.

According to European Union (2019), nearly 65% of South Korean are middle class. It is clear that Korean consumers are not price–sensitive and mostly favour mid-range brands over budget brands.

COVID-19 pandemic has changed South Korean consumers’ food consumption pattern, as people spend more time staying at home and enjoying their snack, suggesting snack has been on the rise and become the top 10 most frequently bought food categories during and after COVID-19 (IPSOS, 2021). Also, when Graze penetrates South Korean market, Graze has many opportunities to persuade South Korean consumers to buy its snack as the majority of consumers consider safety, high quality, and eco-friendly products (IPOS, 2021).

South Korean government is more careful about imported foods to make sure only safe products would sell in the markets to citizens after the incidents such as the “Fukushima Daiichi nuclear power plant” in 2011. => Graze should have a transparent labelling system to showcase its healthy products when importing goods to South Korea.

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MICRO ANALYSIS MARKET SIZE

GROWTH PROJECTION

The South Korean savoury snacks market did not grow in terms of retail value (pricing) from 2015-2019. Retail value witnessed a slight growth (5%) in 2020 due to high demand during COVID-19 and is forecast to continue increasing post-COVID (Euromonitor International, 2021c).

Nonetheless, it is expected that the figure for sales performance in the savoury snacks will reduce because stringent distancing measures are beginning to ease off and the new normal life will come back very soon.

Hence, South Korean consumers may give up the habits of stocking up snacks to eat at home.

CONSUMPTION

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In terms of retail value for nuts, seeds and trail mixes (main ingredients of Graze), this figure is 364 KRW billion, five times smaller than salty snacks (Euromonitor International, 2021c).

However, Graze also provides different categories of savoury snacks like salty snacks, popcorn, pretzel,… which creates many opportunities to participate in the South Korean market.

As the COVID-19 pandemic is slowly getting under control, in terms of the market value and the market volume for savoury snacks, the figures will stagnate and slowly increase in 2022 - 2024 (MarketLine, 2020).

However, Korean consumers valued savoury snacks with taste and started gaining weight during the pandemic, they are more likely to taste healthy products (Euromonitor International, 2021c). => There is a potential for Graze as a healthy snack brand to enter the market and follow healthy growth trend

DISTRIBUTION Customer experience is enhanced with entertainment facilities such as art galleries, beautiful landscapes (Euromonitor International, 2022). Hence, Graze needs to consider opening large physical stores to provide great a customer experience among young generations. In contrast, this decision may cost a tremendous amount of money.

Quick commerce (Q- commerce) is more prevalent; instead of offering same day or next day delivery, many retailers such as Olive Young and GS retail start providing one-hour delivery (Euromonitor International 2022). This is a turning point in Graze’s delivery system as it normally takes up to 7 days to ship snack boxes into customers’ hands in the UK.

MICRO ANALYSIS

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CUSTOMER TRENDS Healthy snacks will triumph

The rise of subscription model

Experience new cultures

As the population of South Korea ages, more individuals are concerned about their health, and those with a middle to upper income are following the premiumization trend and willing to pay more for healthy, organic snacks (Euromonitor International, 2021c).

Food subscriptions, which began in 2020, have lately become a new trend in South Korea, with F&B businesses such as Paris Baguette and Tous Les Jours creating their own subscription services (IPSOS, 2021). This has prepared the way for a new business model to be introduced by many traditional and e-commerce shops in the future.

South Korean people are more open to new foreign products. It is also suggested that foreign companies should partner with local brand ambassadors to access their target consumers (Euromonitor International, 2021d).

=> Graze should place emphasis on UK healthy leading products to attract customers.

Morning delivery is booming When it comes to food delivery, South Korea is one of the most advanced countries in the world. With the development of online shopping and people being forced to stay at home due to COVID-19, several businesses have begun to offer early morning delivery, adding to the service's popularity (IPSOS, 2021).

=> The entry of Graze when the subscription market is yet to be saturated which help Graze gain a firstmover advantage.

Sustainable living is a trend A high proportion of South Korean consumers tend to purchase and support brands and businesses that champion sustainable products. They choose sustainable packaging that positively impacts the environment (Euromonitor International, 2021d). => Recycled packaging is one of the priorities in Graze’s business strategy. If Graze decides to enter the market, Graze does not consider so much to encourage consumers to buy its snack boxes.

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=> Many of Graze’s snack boxes can be eaten as healthy breakfasts. Thus, this trend could be advantageous for an onlinedelivery retailer like Graze.

=> Since Graze’s target audience is young generation, this is an opportunity for Graze to collaborate with famous local people.

New consumer behaviour: watching live eCommerce broadcasts South Korean consumers nowadays don't just sit and browse. They are increasingly investing their time in watching live eCommerce broadcasts, as 68.7% of people in their 20s and 30s (main target consumers) reportedly have watched live broadcasts before (IPSOS, 2021). => Graze should consider partnering with local Korean e-commerce platforms to start selling through live broadcasts.

MICRO ANALYSIS

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COMPETITIVE LANDSCAPE MAIN COMPETITORS

MARKET SHARE The savoury snacks market in South Korea is very competitive between the big multinational brands such as NongShim Co Ltd, Orion Corp, Haitai Confectionery & Foods,… The leading brand (NongShim) accounted for 18.5% of the market share (Euromonitor International, 2021c) and remained the first position for over 6 years.

NongShim, Orion, and Haitai are the top 3 popular savoury snacks brands in the South Korean market with, 15%, 10.6%, and 7.4% in value shares, respectively (MarketLine, 2020).

It's also evident that during COVID-19, the big and well-known players still managed to grow their market share, whereas private labels and other artisanal brands struggled with a declining market share.

Note: Although Orion is the second-largest player in the market, it is not considered a direct competitor because its product offerings are limited to potato chips only, which do not belong to the same category as Graze's products.

NongShim has a strong presence in the processed snacks and ethnic/traditional snacks category, with 32.6% and 19.9% value shares, respectively (MarketLine, 2020). Founded in 1965, NongShim has a long history of operation in South Korea and established strategic relationship with all major hypermarkets, supermarkets and convenience store chains in Korea, making it the most recognised and beloved food manufacturer in the country. With its strong financial capacity, NongShim also invests a great deal in R&D in order to produce innovative products to meet consumers’ frequently changing demands.

(MarketLine, 2020)

Haitai was founded in 1945 and is most known for its cracker line, biscuits, cake and pie, as well as other confectionaries. Although well-known among Koreans and having a long history, Haitai in recent years suffered a lot from revenue and market share loss despite other big players continuing to gain market share.

Thus, Haitai is a competitor but does not pose a high threat as NongShim. The reasons behind their failing performance are still unknown (MarketLine, 2020)

Acquired by Snyder’s-Lance in 2016, Diamond Foods is a new entrant into the South Korean snacks market. However, in its home country America, Diamond Foods is a very established snack brand that many Americans grow up eating.

Although not gaining attraction in South Korea yet, Diamond Foods is a direct competitor because its product portfolio consists of healthy ingredients (mainly culinary nuts), which are also Graze's staple products

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BUYER POWER To vary their product portfolios, most food manufacturers produce a wide range of products in several categories. Because savoury snacks are frequently just one of several products sold by food makers and are not considered vital, their importance is low, and so buyer power is increased.

Consumers, on the other hand, have fewer options because merchants, retailers favour and stock products from major players due to their strong branding. As a result, buyer power is balanced.

SUPPLIER POWER

To ensure product quality, leading food manufacturers must maintain ties with essential suppliers, boosting supplier power.

However, because ingredient quality varies little between providers, supplier power is weakened.

=> Moderate | 3

=> Moderate | 3

SUBSTITUES Snacks are low-cost food items and thus, have very low switching costs. South Korea's a very fast-paced market as new trends come and go quickly (Food Export Association of the Midwest USA and Food Export USA–Northeast, 2022). As a result, the threat of substitution in this food category is high due to the ease of new product and brand launch

=> Moderate high | 4

PORTER’S 5 FORCES DEGREE OF RIVALRY Large firms control the majority of the market share, making this a highly concentrated market.

There are still independent players around. They can only compete on a small scale and do not pose much of a threat to the leading companies due to their lack of a solid financial base and relationships with distributors and retailers.

Manufacturing's high operating and exit costs, on the other hand, exacerbate rivalry among existing firms.

Degree of rivalry

Buyer Power 5 4 3 2 1 0

NEW ENTRANTS

Supplier Power

Although possible, the dominance of leading multinational players such as Nongshim, Orion Haitai and Lotte on the market makes it rather difficult for new entrants to penetrate the market and gain traction. New entrants often compete on new, innovative flavours or the use of organic, healthy and ethically sourced ingredients (MarketLine, 2020).

=> Moderate | 3

=> Moderate | 3

New Entrants

Substitutes

VALUE CHAIN

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Support activities

HR Management Procurement

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Nuts and fruits from local suppliers and foreign suppliers in Vietnam, etc.

Recyclable plastic is sourced to make packaging.

Carbon neutral electricity from a wind farm in Scotland.

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Total funding: ~$3.3M Revenue: £52.82M

AI algorithm called Darwin which creates each best snack boxes thanks to customers preferences, records order history and monitors stock levels (Lanxon, 2012)

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Inbound logistics

Founded in 2008 Parent Company: Uniliver (M&A in 2019)

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rgin Ma

Technology

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Employees in Linkedin (Feb 2022): ~185 A certified B Corp (pledge to care about workers, community and planet)

Partner and distribute products to physical retailers like Sainbury’s, Boots, WHSmith, Waitrose, Ocado, BOOTHS, TESCO, and ASDA.

Operations

Robots are used for sorting and packing. § Each box's content is sorted based on stock levels, last orders and § ratings, nutrition values and colours of snacks.

Rubbish is recycled and § composted.

Farmers and processors from suppliers are trained to improve their practices.

Food preparation follows FDA guidelines.

Outbound logistics Subscription boxes are delivered by Royal Mai & APCl. Order tracking is not available for standard deliveries.

Standard deliveries are dispatched within 30 days of payment.

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Primary activities

Marketing and sales

In-house feedback system to identify customer insights Rewards program and customer relationship management system are used to improve customer retention.

In-house performance marketing systems to measure marketing metrics.

Give away programs, donate snacks to charity.

After sales service § §

§ § §

Monthly mystery subscription box Send a gift box to customer's chosen recipient Premium delivery Refund policy Email service to deal with problems

Ma rgin

Firm Infrastructure

Note: Good Bad Neutral

Source: (Fletcher, 2019; Graze, n.d.)

ADVANTAGE

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Country specific advantages (CSA)

Transferability

Advanced e-commerce market

Transferable to South Korea as Korea's also among the world's biggest e-commerce markets.

The world's 3rd strongest country in artificial intelligence (AI)

Transferable as South Korea's an technologically advanced country and its recent Digital New Deal also encourages innovation and digitization (Oxford Insights, 2022; MarketLine, 2021a).

Experienced with subscription business model

Transferable this business model aligns with South Korea's emerging interest in subscription model.

Firm specific advantages (FSA)

Transferability

AI algorithm called Darwin, which automates subscription customisation

Transferable as South Korea is ranked 10th in the Government AI Readiness Index (Oxford Insights, 2022).

The world's 3rd strongest country in artificial intelligence (AI)

Transferable as South Korea's an technologically advanced country and its recent Digital New Deal also encourages innovation and digitization (Oxford Insights, 2022; MarketLine, 2021a).

Strong relationships with many foreign suppliers

Transferable because South Korea's unable to produce many needed ingredients for Graze's snack boxes.

Robust in-house performance marketing and CRM tools and systems

Transferable as these systems are built in-house and can be customised for the South Korean market if needed.

SHOULD GRAZE PENETRATE THE SOUTH KOREAN MARKET? YES. South Korea is a developed country that has a lot in common with the United Kingdom in terms of economic growth and technological advancements. The country is relatively open to international trade and offers many benefits for foreign firms to establish their business in Korea.

While consumer behaviour and current trends might differ between the two countries, most of Graze's firm-specific advantages can still be transferable. However, Graze does need to take into consideration of localisation in certain aspects.

Global Marketing Management - 21078366

Global Marketing Management - 21078366

REFERENCES Euromonitor International (2021) Sustainability: South Korea. Available from: https://www.euromonitor.com/sustainability-south-korea/report [Accessed 6 March 2022].

Euromonitor International (2021b) South Korea in 2040: The https://www.portal.euromonitor.com/portal/?sprzB1g1g7PjKPrqlneRTw%3d%3d [Accessed 6 March 2022].

Future

Demographic.

Available

from:

Euromonitor International (2021c) Savoury Snacks in South Korea. Available from: https://www.euromonitor.com/savoury-snacks-in-south-korea/report [Accessed 6 March 2022].

Euromonitor International (2021d) Megatrends in South Korea. Available from: https://www.euromonitor.com/megatrends-in-south-korea/report [Accessed 6 March 2022].

Euromonitor International (2022) Retailing in South Korea. Available from: https://www.euromonitor.com/retailing-in-south-korea/report [Accessed 6 March 2022].

European Commission (no date) EU-South Korea Free Trade Agreement. Available from: https://trade.ec.europa.eu/access-to-markets/en/content/eu-south-korea-freetrade-agreement [Accessed 6 March 2022].

European Union (2019) The Food and Beverage Market Entry Handbook: South Korea: a Practical Guide to the Market in South Korea for European Agri-food Products.

Available from: https://ec.europa.eu/chafea/agri/sites/default/files/handbook-korea-2019_en.pdf [Accessed 6 March 2022].

Fletcher, A. (2019) Learnings from graze and its DTC https://www.warc.com/newsandopinion/opinion/learnings_from_graze_and_its_dtc_strategy/2937 [Accessed 6 March 2022].

strategy.

Available

from:

Food Export Association of the Midwest USA and Food Export USA–Northeast (2022) South Korea Country Profile. Available from: https://www.foodexport.org/exportinsights/market-and-country-profiles/south-korea-country-profile [Accessed 6 March 2022].

Graze (no date) caring for people and our planet. Available from: https://www.graze.com/uk/about/sustainability [Accessed 6 March 2022].

Hong, S. and Peterle, E. (2021) E-commerce Market in South Korea. Available from: https://www.nowak-partner.com/upload/document/2021_np_e-commercemarket_korea.pdf [Accessed 6 March 2022].

Hubbard, B. and Fothergill, D. (2022) Trade & Investment Factsheets Korea.

Available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1055069/south-korea-trade-and-investment-factsheet-2022-02-18.pdf [Accessed 6 March 2022].

REFERENCES

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IPSOS (2021) South Korea 2021 Leading the way: Resilience, Perspective & Innovations. https://www.ipsos.com/sites/default/files/ct/publication/documents/2021-04/ipsosflair-SouthKorea-eng.pdf [Accessed 6 March 2022].

Available

from:

Lanxon, K. (2021) Graze anatomy: the tech behind Graze.com's ultra-customised snacks. Available from: https://www.wired.co.uk/article/graze-anatomy [Accessed 6 March 2022].

Marie, K. (2018) U.S. Agricultural Export Opportunities in South Korea. Available from: https://www.fas.usda.gov/data/us-agricultural-export-opportunities-south-korea [Accessed 6 March 2022].

MarketLine (2020) Savory Snacks in South Korea. Available from: https://store.marketline.com/report/savory-snacks-in-south-korea-5/ [Accessed 6 March 2022].

MarketLine (2021a) Country Analysis Report: South Korea, In-depth PESTLE Insights. Available from: https://store.marketline.com/report/south-korea-in-depth-pestleinsights/ [Accessed 6 March 2022].

MarketLine (2021b) Macroeconomic Outlook Report: South Korea. Available from: https://store.marketline.com/report/south-korea-pestle-insights-a-macroeconomicoutlook-report/ [Accessed 6 March 2022].

Obesity Poilicy Coalition (2018) Policy Brief: Restrictions on Marketing Unhealthy Food to Children – International Comparision. Available from: https://www.opc.org.au/downloads/policy-briefs/restrictions-on-marketing-unhealthy-food-to-children-international-comparison.pdf [Accessed 6 March 2022].

OECD (2018) OECD Food and Agricultural Reviews Innovation, Agricultural Productivity and Sustainability in Korea. Paris: OECD Publishing.

Oxford Insights (2022) Government AI Readiness Index 2021.

Available from: https://static1.squarespace.com/static/58b2e92c1e5b6c828058484e/t/61ead0752e7529590e98d35f/1642778757117/Government_AI_Readiness_21.pdf [Accessed 6 March 2022].

World Bank (2020) Doing Business 2020: Comparing Business Regulation in 190 economies.

Available from: https://documents1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies.pdf [Accessed 6 March 2022].