Fast Food in Korea

I. Demand Environment: Macroeconomic data (Exhibit 1) for Korea suggests that the country has favorable demand environment for the fast food industry in Asia. Although China and Singapore’s economies grew at seven and ten percent, respectively, within the last year, the former is too undeveloped for a company with no operations in Asia and the latter represents a market that has been saturated. Ranking fifth on GNI per capita is a double-edged sword. On the one hand, Korea only ranks behind the countries whose fast food industries have already matured and thus showing that Korea may hold the same potential; on the other, the country is only six spots away from having one of the lowest GNI per capita figures, which could prove beneficial since consumption of fast food has been shown to increase with lower incomes.
Additionally, Korea ranks fourth in terms of urban population (the segment of its market that is serviceable) and has one of the highest people to store ratios. In Korea, there is 1 store for every 1.7 million people. Taken in comparison to Japan’s 1:200,000 ratio, this suggests that there may be unmet demand in the Korean market (Exhibit 2).
II. Industry Analysis: The fast food industry in Korea is moderately unfavorable. Supplier power is strong and rivalry, intense. These two factors have the strongest impact on a company’s bottom line and are thus weighed more heavily than the threat of new entrants, substitutes, and buyer power, which are factors favorable in the industry. Rivalry within the industry is intense and is dominated by price wars led by Lotteria and McDonald’s—companies, which have the financial resources to absorb losses in promotional pricing. However, the industry has not yet reached perfect competition where competitors are numerous and relatively of the same size. As long as the firms continue to have differentiated offerings, they maintain their ability to set prices. Demand is projected to shrink due to the shift