Market Information
Asia Pacific

5. Confectionery Products

HS 1904 Cereals or cereal products
HS 1904-10-2000 Corn Chip
HS 1905-30-1000 Sweet biscuits
HS 1905-90-1040 Biscuits, cookies and crackers
HS 1704 Sugar confectionery
HS 1704-90-20 Candies
HS 1704-90-2010 Drops
HS 1704-90-2020 Caramels
HS 1806 Chocolate & other food preparations containing cocoa

1. Opportunities: Strengths and Attractions of the Korean Market

1.1. It's a Big Market

The total market size of the confectionery market in Korea in 1999 is estimated at about US$1.3 billion at March 2000 exchange rates. The market size forecast to grow by up to 10% in 2000. Imports made up about 6% of sales in 1997 and about 3% of estimated sales in 1998. Imports are likely to recover to close to 1997 levels by the end of 2000, and to grow further in the future as the consumer's desire for a greater variety and higher quality confectionery grows.

Source: Korea Food Year Book, Office of Customs Administration

Of the four categories into which the market is conventionally divided, snacks are the largest, about 45% of the total, and biscuits about 30%.

The market for breakfast cereals and related products is dominated by local production of Kelloggs and Post. Imports amounted to about US$6 million in 1997, and less than US$3 million in 1999. Local sales in 1999 were an estimated 80 billion won. As the traditional Korean breakfast consists of neither milk nor cereal, but rice and soup, the market has considerable limitations.

1.2. It's Recovering Fast

The Korean economy grew 10.7% in 1999 after a contraction of 5.8% in 1998. By December 1999 retail and wholesale sales were 10% above the December 1997 (onset of crisis) figures. First indications for 2000 are of a 12% growth rate in the first quarter and 7-8% for the whole year. Retail and wholesale sales are likely to be up 10-15% for 2000. Imported products are still going to be more expensive in won terms with the US$ at 1050 - 1150 compared with 840 in 1997 and 800 in 1996.

The recent history of imports of confectionery (including base materials) shows that Korea is a large market, which peaked before the crisis in 1997 with imports of US$146 million, declin ing in 1999 to US$87.6 million).

Two thirds of the value of imports were chocolates and most of the remainder were candies.

Korea has undergone dramatic changes during the last two years due to the economist crisis, so that in general the imports of 1998 and 1999 broke the trend with the past Recovery is expected in 2000 and 2001.

1.3. There is a Premium Sector

The evidence of the Korean market is that consumers are looking for quality and do not distinguish between Korean made and foreign made. The performance of two imported products confirm this trend, Ferrero Rochard chocolates amongst chocolates, and Pringles Chips amongst snacks.

Focus groups confirmed the preference of Korean women for better quality and different products.

Three focus groups were conducted especially for this study of young women, women in their early thirties and those in their forties. The income range was moderate to well to do. As most food is almost exclusively purchased by women in Korea this was felt to give an indicative response to the issues arising from the products in question. However confectionery has a much wider range of purchasers than many food products, especially young people of both sexes, and to a lesser extent older men. The subjects discussed by the groups were food purchasing habits, attitudes to Canadian food and reaction to a small sample of products supplied by exhibitors to the Canadian Food Fair of March 2000. Further details are available from eabckr@kornet21.net

1.4. Koreans Love Snacks

The nature of the Korean diet leads Koreans to eat snacks between meals. This is explained as the size and composition of the typical Korean lunch meal making a hungry moment in the late afternoon. However snacks are consumed on all occasions both within the home and outside it.

In the focus group, snacks were the category most universally purchased. Koreans in the groups reported that most of them bought both biscuits and corn chips several times a month. In describing their favourite product they tended to name biscuits which were "not too sweet" or "less sweet."

The arena of snack foods runs well beyond conventional potato chips or other bagged snacks to include instant noodles and dried fish as well as bakery products. However the conventional foil bagged snack product of about 50g and the biscuit pack of g form the basic product.

1.5. Importers and Customers Looking for Something New

Importers are looking for new ideas and new products. They are reflecting the fact that the Korean housewife is always looking for new and quality products. In purchase of confectionery products there was little difference between young Koreans and older Koreans. Heavy users are likely to be in their 20s or over 40 years old.

Products which look like bargains become of the quantity such as super of jumbo packs are being launched because of their popularity in discount stores.

Changing preferences

Korean consumers tend to prefer high-class products to old style products. This favors well packaged high quality products that suit Korean tastes.

1.6. The Distribution System is Changing

Until now the distribution of confectionery goods has been through 130,000 stores plus perhaps 50,000 other outlets such as kiosks, restaurants and tourist area refreshment places.

The retail structure of Korea is changing. The major feature is the rapid growth of hypermarkets, several of which are foreign owned and might be more willing to take or showcase foreign products.

The only hypermarket actively soliciting foreign products at the time of writing is Costco which has only three outlets. Only container loads will be accepted.

For Canadian confectionery product producers to exploit this opportunity they must make contact with the purchasing departments of the chains. However if the brand or product do not yet sell in Korea, there will be a demand for heavy advertising support. There will also be placement fees.

It has been estimated that the percentage of Fast Moving Consumer Goods(FMCG) passing through the hypermarkets could reach 40% within 3-4 years. The main impact will be on large supermarkets and some small supermarkets and Ma and Pa shops. However Korea is a high-density country and consumers prefer to shop at the supermarket within their apartment complex or near their home rather than travel for 40 minutes to an hour each way to a hypermarket.

Large volumes of low price candies and confectionery items are being handled by these outlets.

Table 3. Market Size of Hypermarkets

In provincial areas and cities the share of hypermarkets appears to be significantly higher than their share in Seoul. This is the conclusion from Taylor Nelson Sofres consumer panel purchase data which samples 6000 households every month.

The hypermarkets biggest threat is e-commerce working through the convenience stores. This is a model of e-commerce developed in Taiwan and Japan and about to be applied in Korea, where the consumer pays and receives their order at the local convenience store. Lotte aims to be the leader in this having bought 7-11, Lawson and Best Store. The press reports Lotte will also seek to buy the LG-25 chain, giving it a near monopoly.

Source: Food Distribution Year Book ((1) Excluding e-commerce effect)
* Voluntary chain convenience stores do not belong to the major chains and do not have central distribution

CVS sales are much more concentrated on convenience foods than hypermarkets which sell more household products. For food products CVS probably sell the equivalent of 22% of the value sold by hypermarkets.

Some authorities believe that in Korea this model will overtake the hypermarket model, which means that the amount passing through the hypermarkets will reach nowhere near 40%.

For confectionery product, the opportunities to exploit this new form of retailing depends on relations with the retail chains, since they practice central distribution, unlike the present system where 130,000 store keepers make their own decisions.

CVS sales are much more concentrated on snacks and convenience foods than hypermarkets which sell more household products. For food products CVS probably sell the equivalent of 25% of the value sold by hypermarkets.

Creating business opportunities out of these changes will not be easy in the confectionery sector without close relations with the hypermarket and e-market chains. This cannot be done at a distance or by fax or e-mail alone, though an attractive website will help. The website should contain products, ingredients, specifications, minimum order quantities and packaging alternatives.

The growth of the hypermarkets, convenience stores and e-commerce clearly offers a future opportunity for Canadian exporters. However accessing hypermarkets at the present time will be difficult.

Hypermarket

Opportunities:

• Hugely simplified sales channel
• Access to very large market share

Problems:

• Chains are exclusive about products
• Demand high discounts
• Demand advertising and promotion support

Accessing CVS stores is much simpler as CVS are always willing to churn product to put something new on the shelf alongside the best sellers. This gives a narrow window of opportunity to prove that the product will be a best seller.

CVS

Opportunities:

• Simplified sales channel
• Access to a sizeable market share
• No resistance to new products

Problems:

• If product does not sell well, then will be replaced.
• Supplier will probably be asked to take back unsold product
• Advertising campaign to back up window of opportunity required

If access to the hypermarket or e-market system is achieved then sales should grow rapidly. This will require considerable work to build relations and incentives with the buying chains.

1.7. Tariffs are Reasonable

Tariff rates are gradually being brought down under WTO agreements. Compared with many food products, the range of 6.84% for corn chips- 8% for packed chocolates and candies tariff is no deterrent. Chocolate materials of prepared dry milk however carry a 40% tariff designed to protect the dairy industry.

2. Weaknesses and discouragement

2.1. Inspection Services May Have Some Problems

Compared with many food products, the import process for confectionery products is relatively simple and automatic. Customs clearance on a documentary basis may be started before the product arrives, and it may be subject to physical inspection on arrival.

During 1999 and early 2000, the Korean customs and quarantine system works on a "reliability" basis. A new importer, a new exporter or a new product will normally attract a full inspection, which should take a maximum of 18 days including any relevant testing. Once the bone fides of the importer, exporter and product are established, documentary inspection should be sufficient and the product should clear within 5 days.

Because of resumed concerns about the balance of payments, in May 2000, the Customs Service reinstated full inspection for all food commodities over 100 kgs. It is not known at the time of writing how long this will be in operation.

Importers of all food products report occasional disruptions due to new procedures, new officials or complaints from competitors.

All foreign food importers indicate that unpredictable delays in food imports occur from time to time, and this is largely the result of the action of individual officials who have wide discretionary powers, rather than government policy. Success in a market may however lead to official complaints to the authorities by competitors.

The importers of chocolate and candies have reported within the last year continued problems with the import authorities over the size and typography of the labels attached to imports. Nestle reports some coloring ingredients for candies prohibited in Korea.

2.2. Korean Competitors are Strong

The Korean market is dominated by four large confectionery companies, Lotte, Tongyang (trade mark Orion), Haitai and Crown. These four companies share the snack market with several other large Korean food companies, notably Nongshim, Samyang and Bingrae.

Each of the companies named has sales of more than 300 billion won, and dedicated sales organizations.

2.3. Distribution Tends to be Tied to Manufacturing Companies

The new distribution systems described in section 1.6 are only affecting about 12% of the market for confectionery products at the current time. (23% if CVS are classed as new distribution systems as well).

This means that at the present time to reach 77% of the market, the old distribution system must be used, which is in the hands of the large competitors.

Each of the companies named in 2.2 has its own proprietary distribution system of logistics, sales force and exclusive agents. This represents a considerable barrier to practical mass distribution of new products except in partnership with a Korean manufacturer. As a result there are few professional distribution companies which can reach achieve national distribution. The estimated percentage of sales by type of outlet for confectionery product is as follows:

Source: Trade and Industry Interviews
* Notable bakery shops and kiosks

Accurate figures for distribution by channel are not readily available for these products as neither AC Nielsen which is the major source of store audit information, nor Taylor Nelson Sofres which is the major source of consumer purchase audit in Korea have data in all there categories in the public domain.

2.4. No Korean "Canadian Image"

The Korean consumer does not have a strong image of Canadian confectionery products as opposed to US, European or Australian product. Focus group work showed that Korean housewives and young people generally had a good expectation of Canadian food products. They were generally disappointed in the product itself and particularly the packaging which was found to be unattractive and not to Korean taste.

Koreans prefer Korean products. Conventional amongst multinational food companies' wisdom is that Korean will tend to buy "made in Korea" although they can be tempted by attractively presented and made to taste products if the consumer is convinced that the product is superior. This seems to be less true of confectionery than most other food items.

2.5. Must Be Container Load

The minimum unit of sales into Korea is the container load. The Canadian exporter must find a Korean partner willing and able to distribute a container sized consignment or work with a Canadian consolidator who can arrange part loads.

3. Strengths

3.1. Price

The Canadian product has an advantage of price of raw materials compared with the Korean manufacturer. The price per kg in Table 4 will give an indication of how expensive the Korean product is. A rough check on the landed Korean retail price for a Canadian confectionery product is that it will be 2.08-2.20 times higher than the Canadian FOB price. Korean consumers will not be deterred from paying a premium and will expect Quality to be reflected in the price.

Note: Price sold to discount stores

3.2. Quality

Imported products can be projected as higher quality, and therefore more suited to the premium quality.

Customers stress quality, trust and freedom from preservatives and additatives as the key issues in choosing a product.

It can be seen from table4(above) that there is a basic Korean product price, and a premium Korean price. The basic product price of about 500 won per pack or 5-6,000won/kg is hard to beat. However the consumer is willing to pay extremely high prices for perceived quality as in the case of Lotte's ChicChoc biscuits, Pringles or higher quality chocolate.

3.3. Potential to Create Canadian Image

In discussion in focus groups conducted for this study the Korean consumer has a high, but unclear, expectation about Canadian confectionery product. There is a strong potential to create a "Canadian" image in the mind of the consumer but this cannot be done by a single food manufacturer alone, but could be developed to the benefit of many Canadian producers on a collective or collaborative basis.

Korean consumers particularly liked the range of maple syrup candies and chocolates as both interesting in taste and product and as having a clear Canadian identity.

3.4. Variety

Korean manufacturers have a large number of products which are very similar. At the same time the consumer is seeking variety. Canadian products even without adaptation offer that variety in all areas of confectionery.

4. Threats

4.1. Well Established Competition

Major Korean competitors already have established systems and relationships. All of them, but particularly Lotte are likely to produce imitation products of a successful item and produce them at a price and quality which cannot be matched by an importer. The good news is that the product managers in these companies are mainly watching their local competitors, and a product would have already achieved a considerable market share before a competitive product is likely to appear.

A moderately successful product would also be under threat from importers who would seek a similar product from a European country or the US.

5. Market Strategies

The Korean confectionery market is a relatively difficult market to get started in. It requires investment, knowledge and patience. Until a secure marketing organization is set up it cannot be an orderbook market. To establish a presence in the Korean market will require proactive measures by the Canadian exporter. Unless any investment in the market is well planned, the development of long term business in the confectionery product sector is not likely to be attractive. The following set out possible approaches to the Korean market and the kind of investment needed.

5.1. Looking for a Niche Market

Creating a mass market takes time and money. A Canadian exporter will start by seeking a way to establish a niche market. The following table shows the price build up for confectionery products, and the potential exporter can multiply through his product to obtain an idea of the potential retail price in Korea and compare it with competitors.

Retailers attempt to return out of date stock and an allowance for returns must be made of 2-3%.

For a niche market approach the company would either use an agent or import and distribution company. In the case of an agent he would be responsible for finding a freight forwarder and physical distribution. The following companies are interested in increasing their portfolio of imported goods and have a good reputation in the trade.

All are Korean companies except Edward Keller, which is a subsidiary of a Swiss Trading firm. All have a good track record in starting up imports of new food products. The other companies importing confectionery products are listed in the appendix and could be approached.

Ferrero Rochard chocolates are a good example of building a niche market. The product is a unique shape - a golden wrapped ball of chocolate, with expensive wrapping, while the taste appealed to most Koreans. While very expensive compared with local products, Ferrero Chocolates were attractive enough to convenience stores to get a place without advertising

In the confectionery market, a niche market could be considered as established when about one- three containers per month are moved, and the product sells in a consistent manner from the same set of outlets over a sustained period of one to two years. The outlets in question are likely to be one or two CVS chains, some of the larger supermarkets and high class bakery stores.

5.2. Looking for a Mass Market

The pricing structure of the Korean market is such that a mass market in imported confectionery product could be created if the FOB price can be competitive. The following table shows the price build up for confectionery products.

A mass market means success with a brand name which can be supported by advertising and trade promotions. A brand name can only be established with the Korean consumer through intensive TV advertising geared to Korean tastes. To achieve this, it would normally be necessary to find a large company which will to act as partner / distributor.

An unusual confectionery product with a very distinctive packaging could penetrate the market without advertising by "impulse" appeal. Both Pringles and Ferrero Rochard have succeeded in this strategy.

In the case of Pringles, P&G was able to achieve a good distribution long before any advertisements were made on TV. The distinctive taste, and pack design made the product stand out and grow by word of mouth. P&G now advertises Pringles on TV. A similar imported product by Nabisco made a brief appearance on the CVS and supermarket shelves but did not stay long.

Only one hypermarket, Costco, is currently a major importer. Costco has only three outlets and naturally wishes to be sure that a container load can be sold.

While P&G has a large presence in Korea, Ferrero Rochard is handled by Edward Keller a professional import company.

5.3. HRI Market

The HRI market in Korea is large, but largely handles Korean products. Within the confectionery category, the main attraction are the hotel bakery shops which sell a wide range of imported confectionery and related items and also higher class bakery chains and independent bakery shops.

The HRI market for confectionery is limited. All snackbars in resort areas sell large volumes of snacks, but the only form of eatery which sells confectionery in urban areas tends to be bakery shops, particularly those in large hotels.

The traditional outlet for imported confectionery has been the bakery shop, long before the CVS existed. They continue to sell a considerable ranges of imported paper packed and tinned products.

5.4. Alternative Approache

The hypermarket sector is growing, but it is predominantly using domestic product. The following are "breakthrough" strategies.

TV Shopping

If being on TV is the requirement of mass success, blocking a space on a TV shopping channel is a good way to develop a business although it is also expensive. Food products are particularly well suited to the target audience. Channel 39, the most progressive has just been acquired by Cheil Jedang. The other shopping channel is owned by L-G. The shopping channel companies can be approached direct.

LG has now established an internet shopping channel which will sell 8% of 2000 sales and is much less expensive LG Home Shopping is the third largest shopping channel in the world.

E-commerce

According to surveys 81% of Koreans have visited an e-shopping mall and 51% have bought something. Inclusion of product in a company's cybermall requires very little stock and no shelf space. This is a business still in its infancy. The biggest cyber shopping mall is run by Lotte Department Store, but there are currently 139 other malls to choose from.

6. Do you measure up to the Korean market?

This section allows you to measure your ability against the Korean market without further investment.

6.1. Product

Since confectionery items are already western style, Canadian taste is likely to be acceptable. It is advisable to test for sweetness - Koreans have a less sweet taste for many items than Japanese or Americans, and the acceptability of aspartame rather than sugar is low. The Korean reaction to any individual product cannot easily be predicted, and should be tested.

Korean consumers are most sensitive to the perceived freshness of the product. The impression left from the focus groups was that Koreans are more concerned about their health than convenience and that identification of the data of production and shelf life was an immediate concern.

The following trends are observable in the Korean market at the present time and may suggest which would be attractive product areas.

Candy Market

• Low price & big volume candy sales increased due to IMF, however jelly, chewing candy, gum and stick candy's sales recorded a big decrease.
• Low price bulk candy was sold in high volume in discount stores.
• The market size of candy in 2000 is not expected to grow.
• New varieties of candy will be developed.
• The market is divided into two products one is high-class traditional candy and the other is a low price candy in jumbo packs.

Biscuit Market

• The biscuit market recorded small growth in 1999.
• Companies concentrate on selling long run branded items. Butter coconut of Lotte, Ace of Haitai, Gorebab of Dongyang, and Sando of Crown lead the biscuit market.
• The biscuit market in 2000 is not expected to grow by any great margin. New hard biscuits will be pushed but the overall market size will not grow, however soft biscuit's sales will increase.
• Success of Seasonal Danish biscuit imports.

Snack Market

• The snack market recorded a large increase of about 35% in 1998 due to a consumer preference for product that offer high volume at a low price.
• Potato & corn snacks led the snack market in 1999. O Kamja of Dongyang, Kamjamaja of Lotte, Kamjaya of Crown and Potatong of Yacult were all launched in 1999.
• The snack market will increase in 2000, companies will concentrate on selling their main products (Ggoggal corn of Lotte, Matdongsan of Haitai, Chitos of Dongyang, Jori pong of Crown)
• It is expected that the snack market will grow continually, confectionary company will concentrate on developing new products.
• Large volume & high price products will be launched according to the increase in numbers of discount stores. Diet products for health will be developed.
• Success of P&G Pringles.

Chocolate Market

• The chocolate market recovered in 1999.
• Consumers tend to prefer high-class image chocolate to old style products.
• The choco-bar market is expected to grow continually. There will be keen competition between companies in this market. Free Time of Haitai and Atlas of Lotte are both aiming to take the first raking position. Hot Brake of Dong Yang is trying to take the market, Prix of Crown launched in October 1999.
• Companies will concentrate their marketing efforts on existing core products.
• Small, high class & fashionable products will be launched against imported chocolates and various bulk products for discount stores will be evident in the market.
• High volume products for discount stores and small volume products for small and medium-sized shops will be evident in the market.
• Outstanding import success of Ferrero Rocher.

6.2 Partner or Agent

If an agent is considered attention should be given to his proven track record, and to whether he has an organization which can deliver the product to the retail outlets, or whether he is only the first in the chain of middlemen. An agent who merely introduces the product to a large company may be of limited value. Note that the suggested price build-up in Table 9 allows for only two middlemen, an importer and a distributor.

A Canadian company will want a reliable partner in Korea. Korean business ethics are not always impeccable and in dealing with a small to medium sized company, a credit or reputation check is advisable. With large companies there is less cause for concern.

Korea has changed a great deal and the important issue is whether the partner has the experience and capacity to handle the problem a modern fashion, or can outsource it reliably. Older Koreans often approach problems in a very old fashioned way over emphasizing relationships and entertainment and this adds cost and inefficiency to the process. In general Canadian exporters should take advice of their agent talks too much about "under standing Korean customs". Even without direct payments the exporter may find himself paying for expensive entertainment.

The Confucian nature of Korean society means that a business relationship with a small company is also a personal relationship. With bigger companies the relationship would also be expected to transcend a simple profit and loss relationship.

The partner must also recognize the long term commitment that is needed, and must have contacts in the food business that know how to run a chilled distribution service as chocolate much be stored in a chilled environment in summer.

Given the rapidity of change in Korea, the past may not be a guide to the future, but some 70% of foreign companies dealing with Korea have learnt expensive lessons with respect to agents and partners. Time spent in studying the market and learning who has a successful track record is essential.

6.3. Package

Packaging has two elements, the type of package and the design of the label or other material.

If the product is to have a low level of promotional support, the package must stand out on the shelf. Koreans react strongly to colour, design and packaging material and careful testing of reaction to the pack is advisable.

In focus groups, consumers criticized Canadian packaging as being unappealing.

Koreans have strong concepts of whether design or colour is attractive and these are appropriate to the product. In focus group work most respondents believed that adapting to Korean taste in packaging would make a significant difference to the impulse sales essential to a successful confectionery product with no known brand. Canadian packaging confectionery designs were considered "old fashioned" and unlikely to attract a shopper.

Imported products which have done well in the Korean market have tended to have very distinctive packaging. A careful field study of existing confectionery packaging and how distinctive a competitive product the Canadian packaging is will indicate the potential and whether adaptation is required.

6.4. Pricing

Consumers agree that price is an important signal of quality. Koreans have strong concepts of whether design or colour is attractive and these are appropriate to the product. In focus group work most respondents believed that adapting to Korean taste in packaging would make a significant difference to the impulse sales essential to a successful confectionery product with no known brand. Canadian packaging confectionery designs were considered "old fashioned" and unlikely to attract a shopper

Importers and the trade agree that quality product may be priced at up to twice the basic price without damaging its appeal. Importers, distributors and retailers will expect to share in the higher margin structure and this is their incentive to carry and promote this product. Korean consumers are also willing to accept up to 100% higher prices for a quality product as shown in table 5. Fencro Rochard has a price 2.7 times other chocolate products.

6.5. Willingness to Modify the Product

Koreans have strong ideas about the product. While a Canadian product may be acceptable, an alternative taste may command a much higher sale.

In particular the sweetness of the product is a matter of great sensitivity.

Where Korean companies have sourced product from overseas they have sometimes flown taste panels to the originating country to get the taste right.

Focus groups cost about US$1-2,000 per group, and quantitative research between US$20,000 and US$60,000. Certainly consider a series of focus groups if any expense in marketing and promotion is being considered.

7. How Do I Start?

7.1. Start as Simply as Possible

Our recommendation is to start in as simple and easy way as possible. This requires a fax contact with selected importers to see whether they have an interest in importing confectionery products from Canada. The list of importers is appended to this section and the importers are graded according to information currently available.

Given the rapidity of change in Korea, the past may not be a guide to the future, but some 70% of foreign companies dealing with Korea have learnt expensive lessons with respect to agents and partners. Time spent in studying the market and learning who has a successful trackrecord is essential.

It is possible that even after a visit there will be a minimal response, and that one of two decisions must be made, to look for a suitable agent, or to attend a trade show or make an independent assessment.

• Potential Agents may be found either by a professional consulting company, the Canadian embassy or a trade organization such as AFTAK.
• It is more likely that they will be the result of a trade visit. The next Canadian food trade fair will be held in Seoul in March, 2001.
• The final way is to make a special visit. This would normally follow on one of the other routes in any case. The aim of a visit should be to inspect the market for confectionery products, visit some of the potential partners and distributors.

Normally a potential exporter is recommended to start with a week long visit to Korea. But this first visit should be well prepared without committing to an agency relationship first. It should include visits to several large food manufacturers, hypermarket and CVS store buyers.

Confectionery is one product where this may be less necessary than other food categories.

Before leaving Canada an adequate supply of brochures and name cards (100 is not enough) should be prepared. At the same time at the start of the process, the company website should be reviewed. Current big Korean company and hypermarket practice is to look at the website on receipt of a fax or inquiry.

The Canadian company may be judged purely on its Canadian website and on this may hang the acceptance of a proposal for a meeting.

7.2 Attend the Next Canadian Trade Show

There is no better way to try to enter the Korean market than by exhibiting at the next Canadian Trade Show. In 2000 there were more than 450 visitors all interested in Canadian products. Importers could also exchange experience with one another and Embassy specialists.

7.3. Getting a Container Load Together

A single container of confectionery would require about 50-80 outlets willing to take the product, or a major promotion to move the stock. Confectionery has a long shelf life and a container load should be acceptable to most import agents.

The alternative is to share a container with an existing shipping in a consolidation move. Freight forwarders in Canada will be able to identify consolidation opportunities.

7.4. What to Watch Out For

Physically Getting the Product Cleared

Complaints about customs procedures on clearance for food products continue. Both Amcham in its annual report on business conditions in Korea and the Investment Ombudsman which handles business complaints find that arbitrary action by quarantine and customs individual officers fill up their case books.

The first time is likely to be the worst and the following are the most common causes of delay:

• Paperwork not in order. The necessary documentation on contents are inadequate
• Korean labels proposed for the product are too small or do not conform to specification.
• Products tested reveal minimal trace elements of proscribed products.

The second and subsequent shipments should go through much more easily unless:

• Change in local official
• Change in local regulations

2000 is predicted to be more difficult than 1998-1999 because the rise in imports will encourage nationalistic officials to look for ways to create problems, meaning that due diligence will be even more important, to avoid problems.

7.5. Regulatory Check Up.

Korean regulations are notorious for their complexity and for changing frequently. Every attempt has been made to alert the Canadian exporter on possible problem areas, but inquiry should be made to the Embassy or to existing importers on whether there have been any relevant changes.

Tariff Rates

• The tariff for corn chip HS1904-10-2000 is 6.84% in 2000.
• The tariff for biscuit under HS 1905 in 2000 is 8%.
• The tariff for sugar confectionery under HS 1704 in 2000 is 8%.
• The tariff for chocolate confectionery imports under HS1806 in 2000 is 8%.

Except

• Imports under HS1806.90.21 choco materials of prepared dry milk is 40%.

Inspection of Goods

Inspection of goods is or their labels / packaging necessary to determine:

• The value of the goods for customs purposes and their dutiable status;
• Whether the goods must be marked with the country of their origin or are in need of special making or labeling. If so, whether they are marked in the manner as prescribed;
• Whether the shipment contains prohibited articles;
• Whether the goods are correctly invoiced;
• Whether or not the goods are in excess of the invoiced quantities.

To be specific, customs officers will ascertain the quantity of goods imported, making allowance for shortages under specified conditions and assessing duty on any excess.

The showing of the contents of each package on the invoice, the orderly package of the good, the proper marking and numbering of the packages, and the placing of the corresponding marks and numbers on the invoice facilitate proper duty adjustment according to actual volume of goods brought in and the ascertainment of whether any excess goods are contained in the shipment. If any package which has been designated for inspection is found by the customs official to contain any article not specified in the invoice with fraudulent intent on the part of the seller, shipper, owner, or agent, the contents of the entire package in which the excess goods are found are subject to investigation for possible violation.

Appendix 1. General Information on Inspection of Food Products

Local customs Commissioners or Directors may deploy a special inspection team for fast processing for "fresh food".

1) In principle, the inspection should finish within 5 working days from receiving the import report. The imported foods etc. subjected to incubation test such as canned or bottled foods and retortable pouched foods, and the other imported foods etc. subjected to inspection by special order from the Commissioner of Korea Food and Drug Administration, are exempted from the processing date limit.

2) The test items for the laboratory inspections and the random sampling inspections for the imported foods, equipment and containers/packages are referred to in Appendix 4 Primary Laboratory Analysis List for imported foods etc.

Inspection and Clearance Procedures for Foods

1) Application for food safety inspection

Since the imported foods and domestic foods are regulated by the Food Sanitation Act identically, the importer would normally must make an application for a safety inspection to one of the six Regional KFDAs which are substructures of the Korean Food and Drug Administration(KFDA). As the pre-arrival application system was introduced in August 1995, an arrival application can now be conducted five days before the arrival of the shipment.

2) The criteria and the types of inspection

i) Confirmation of safety

• Residual test for pesticides, antibiotics, heavy metals etc.
• Confirmation of micro-organisms
• Test of toxicological substances such as aflatoxin
• Perishability test

i i) Confirmation of standards and specification

• Confirmation of meeting the standards provided by the Food Code
• Confirmation of additives in compliance with provisions of the Food Additives Code

iii)Provision of consumer information

• Examination of labelling in Korean (nine items including main ingredient, etc.) to confirm the suitability of information for consumers

iii)Ensuring the soundness of food

• Protection of sound dietary habits through the elimination of unsuitable foods

3) Procedures after rejection of food

i) Food that has not passed the KFDA inspection is destroyed except in the following cases:

• The food rejected is to be returned to the exporting country or converted for other use as non-edible products.
• When the sanitation hazard sanitation can be eliminated by processing, heating or selection after customs clearance

ii) Inspection Procedure of Imported Food

Imported food import à Declaration à Food & Drug Administration à Regional Food & Drug Administration à Health and Environment Research(as needed) à Institute at City and Province à Document Test à Organoleptic Test à Laboratory Test à Random Sampling Test à Customs Office(Pass) à Customs à Clearance
(In case of rejection: return to the origin or diversion to other use à destruction)

4) Improvement of the imported food product inspection system

i) Compliance Sampling Group(subject to mandatory laboratory testing):

• New-to-market products
• Products with a record of violation
• Products with prior information of sanitary risk
• Products falling under the health supplementary products of the ginseng products category, for which laboratory testing is compulsory.

ii) Surveillance sample groups (Products random sampling for laboratory testing)

• Same products from same producer which passed the laboratory testing.
• Raw materials which a manufacturer imports to make his own products.

Appendix 2. Import History and Data

Korea has undergone dramatic changes during the last two years due to the economic crisis, so that in general the importers of 1998 and 1999 broke the trend with the past. In the case of 1904 & 1904-10-2000, the peak was 1997, despite the lower value of the won against the dollar. Imports in 1999 were only about two third of 1997.

Imports of HS 1905-90-10 decreased rapidly in 1998 were only about 25% of 1997. In case of HS 1704 &HS 1806 was about one half of 1997.

Diagram 2-1. Snack foods (1904 10 2000) Imports by Country 1996-1999

Diagram 2-2. Biscuits, cookies and crackers (1905 90 1040) Imports by Country 1996-1999

Diagram 2-3. Sugar confectionery (1704) Imports by Country 1996-1999

Diagram 2-4. Chocolate Confectionery (1806) Imports by Country 1996-1999

Table 2-5. Import by Country of Origin: 1905 90 1040  
Biscuits, cookies and crackers

Table 2-6. Import by Country of Origin: 1704 Sugar confectionery (including white chocolate), not containing cocoa

Table 2-7. Import by Country of Origin: 1806 Chocolate and other food preparations containing cocoa

It can be seen that Canadian chocolate (HS1806) & sugar confectionery (HS1704) have a very low market share. Canada does not appear in the Table. US, Newzeland and Australia are in the lead. Corn chip imports (HS 1904-10-2000) from Canada enjoyed growth in 1998 (US$12,000) and 1999 (US$58,000). US leads the imports corn chip market(US$325,000) in 1999.

Diagram 2-9. Prepared foods obtained by the swelling or roasting of cereals or cereal products (1904) Imports by Country 1996-1999

Table 2-10. Import by Country of Origin: 1704 90 2020 Caramels

Table 2-11. Import by Country of Origin: 1905 90 1040 Biscuit, cookies and Cracker

Table 2-12. Confectionery Market Size by Year

Table 2-13. Imports of Confectionery by Year - Weight

Table 2-14. Imports of Confectionery by Year - Amount

Table 2-15. Sales of Snacks

Source: Korea Food Year Book

Table 2-16. Sales Component Ratio by Snack Type

Source: Korea Food Year Book

Table 2-17. Best 5 Selling Snack Products

Table 2-18. Best Selling Snack

Table 2-19. Market Size of Biscuit

Source: Korea Food Year Book

Table 2-20. Sales Component Ratio by Biscuit Type

Table 2-21. Best 5 Biscuit Product

Table 2-22. 10 High Ranked Biscuit in Dec. 1999

Table 2-23. Market Size of Candy

Table 2-24. Sales Component Ratio by Candy Type

Table 2-25. Best 5 Candy Products

Table 2-26. 10 High Ranked Candy in Dec. 1999

Table 2-27. 10 High Ranked Candy in Dec. 1999

Table 2-28. Sales Component Ratio by Chocolate Type

Table 2-29. Best 5 Chocolate Products

Table 2-30. 20 High Ranked Company

Appendix 3. Importers

3.1

3.2.

3.3.

M = Mass Market
HRI = HRI
No comment means small company only suitable for niche.

3.4.

3.5.

M = Mass Market, HRI = HRI, No comment means small company only suitable for niche.

3.6.

3.7.

3.8.

M = Mass Market
HRI = HRI
No comment means small company only suitable for niche.

3.9.

3.10.

M = Mass Market
HRI = HRI
No comment means small company only suitable for niche.

Appendix 4. Sales Value List of Domestic Hypermarket in 1999

Source: Discount Merchandiser(Jan 2000)