Market Information
Asia Pacific

Competition Begins
South Korea's Sandwich Franchising Market

June 2004

1) ISSUE

Urban Koreans eat out frequently. Fast paced lifestyles are driving Koreans to choose western-style fast-food, but healthy eating is a concern. These factors are driving a fast growing market for sandwich store franchising.

2) DESCRIPTION

Restaurants abound in urban Korea. The large majority serve sit-down meals of Korean-style food, but western-style fast food is rapidly becoming more popular. Consumers must choose a menu that satisfies their demands for taste, cost, and nutrition and speed of service. In the past, those seeking a fast meal would have been satisfied by fast-food giants like McDonald's or Burger King, but that is changing. As more people are becoming health conscious, the importance of nutrition is growing. Reports on the harmful effects of fast-food have raised concern, and consumers are seeking better choices. This new trend has opened doors for a steadily growing market for fresh and healthy sandwich businesses.

Lotteria is a local hamburger franchiser and is the fast-food market leader in Korea. From 2002 to 2003 Lotteria experienced a sharp sales drop of 40%. However, a strong contrast was seen in the South Korean sandwich market, as its $41.20 million1 market value in the second quarter of 2003 doubled to $82.40 million in the fourth quarter. This dramatic growth is forecast to continue, and the anticipated market value for 2004 is $117.71 million.

The first local sandwich franchising business Sandday was established in 1997, but it is only recently that prospects in this market have begun to rise. This recent growth has started attracting foreign participants, and franchisers like Subway Korea, Schlotzsky's Deli, Quizno's Sub, Au Bon Pain and Tantalus are busy building up a strong business foundation for a long-term profit. Besides Sandday, the local franchisers include Sandpresso and Sand & Food. In response to the aggressive foreign companies, they are also coming up with strategies to secure their position within the market, and the competition is about to heat up.

The main target customers of the sandwich business are office workers and students who are attracted to high-protein, low-calorie meals. Instead of just plain white bread, a variety of choices including bagel, hoagie, rye bread are used, along with organic vegetables and other fresh ingredients. These wholesome sandwiches are seen as a smart, healthy choice. Despite prices that can exceed $9, response is good.

Subway Korea first entered the market in 2000 and now has 55 franchise stores. The average daily sales in its franchise stores are between $1200 and $2400, with average monthly sales of around $70 000. The largest local sandwich franchiser is Sandpresso, with 78 franchisees in 2003. It plans to increase that number to 150 by the end of 2004. Large local food processing companies have also begun participating and Sandpresso, managed by Dong-won F&B, is an example.

3) IMPACT ON CANADIAN COMPANIES

The new trend is propelling growth in the franchising market. It is anticipated that the market will experience intense competition for the next five years, until the top three or four leaders are determined. Canadian companies should be able to take advantage of the situation and enter the market without much difficulty, while it is still at an early stage of development.

Although a large franchiser could utilize its economy of scale and systemized networking, that will not necessarily guarantee success in this market. Participants should be aware that the key lies in the taste and marketing concept. A differentiated menu and service that satisfy the growing demand for variety will place the participant one step ahead of competitors.

4) CONTACTS

If your company is interested in this sector in Korea, please contact the Canadian Embassy in Seoul. We can provide an assessment of the market prospects for your company, a validated list of contacts for your follow-up, information on a company you are considering dealing with or other advice.

Marcel Laneville
Commercial Counsellor
Embassy of Canada in Korea
Tel.: (82-2) 3455-6066
Fax: (82-2) 755-0686
E-Mail: marcel.laneville@seoul.gc.ca

5) FOR FURTHER MARKET INFORMATION

The Virtual Trade Commissioner (VTC) is an on-line service offered by Canada's Trade Commissioner Service of the Department of Foreign Affairs and International Trade. Through a personalized and password-protected Web page, VTC-registered Canadian exporters will receive timely and relevant information on contacts and business opportunities in targeted foreign markets. The VTC offers registered users direct on-line access to market information, including market reports, business news, events and business leads related to the companies' industry sectors and markets of interest. Users can request services on line from a trade commissioner responsible for the industry sector in their target markets. They will also automatically receive new information as it becomes available. Canadian exporters can register for a Virtual Trade Commissioner at www.infoexport.gc.ca.

6) BIBLIOGRAPHY

MK Economy Daily. "Sandwich business on the rise," July 31, 2003.

Food Industry Economy Daily. "Healthy trend in sandwich business," August 14, 2003.

Money Today Daily. "Foreign food services' aggressive enter into the Korean market," October 23, 2003.

Seoul Economy Daily. "Consumers' taste changing from American to European," December 3, 2003.

Report prepared by:

Marcel Laneville
Commercial Counsellor
The Canadian Embassy in the Republic of Korea
Seoul, Korea

This document is not designed for public distribution. The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information.

1All monetary amounts are expressed in Canadian dollars, unless otherwise indicated. It was calculated at average exchange rate of 1CAD=850 KRW"