The case “American Fast Food in Korea ” provides an overview of the Korean fast food industry in 2002 and a basis of discussion for whether or not Matthew Wolfe should recommend Korea as a potential country for his company to enter. This assignment addresses whether or not Korea is an ideal market among East Asian countries and if the Korean Fast-Food Industry is attractive for new entrants.
I believe that Matthew Wolfe should recommend to the board of directors that his organization enters Korea . My recommendation is supported by a comparison of Korea with other East Asian countries, an evaluation of the Korean fast food industry, and the application of Porter’s Five Forces Model. Korea specific factors and how they affected my analysis will be discussed.
Country Comparison
In comparison to other East Asian countries, Korea is attractive given its relatively high GNI, large urban population, and moderately saturated fast food environment. Korea looks attractive in each of these areas versus other potential East Asian countries (see chart below).
Country | GNI | Rank | Population | Rank | No FF Outlets | Rank | Per Cap Outlet | Rank | Per Cap Mc Donalds (000s) | Rank |
China | 890 | 9 | 1,271.9 | 1 | 554,170 | 1 | 2,295 | 1 | 2,329 | 10 |
H.K. | 25,920 | 2 | 6.9 | 9 | 32 | 1 | ||||
Indonesia | 680 | 10 | 213.6 | 2 | 2,136 | 9 | ||||
Japan | 35,990 | 1 | 127.1 | 3 | 38,429 | 2 | 3,308 | 2 | 33 | 3 |
Korea | 9,400 | 5 | 47.6 | 6 | 2,289 | 3 | 20,795 | 4 | 133 | 5 |
Malaysia | 3,640 | 6 | 23.8 | 7 | 781 | 7 | 30,474 | 5 | 166 | 6 |
Philippines | 1,050 | 8 | 77.0 | 4 | 2,155 | 4 | 35,731 | 6 | 326 | 7 |
Singapore | 24,740 | 3 | 4.1 | 10 | 33 | 2 | ||||
Taiwan | 13,144 | 4 | 22.5 | 8 | 1,931 | 5 | 11,652 | 3 | 64 | 4 |
Thailand | 1,970 | 7 | 61.2 | 5 | 1,174 | 6 | 52,129 | 7 | 658 | 8 |
From the above, as well as the other information provided in the case, we see:
l China has a tremendous number of fast food outlets versus its population, and may be a difficult market to penetrate as the majority of restaurants appear not to be foreign (Mc Donald’s only makes up 546 of the 554,170 fast food restaurants). Additionally, the Chinese have little buying power versus other countries.
l Hong Kong may be a market to investigate given its high GNI, however, the population is small and likely saturated with fast food restaurants (there are the most number of McDonald’s per capita in Hong Kong ).
l Indonesia , although it has a large population, has a low GNI and a small urban population. This may be a country to explore once more development has taken place.
l Japan , although rich, is highly saturated with fast food restaurants and with restaurants that have established brand names (McDonalds, KFC, Lotteria, Mos Burger).
l Malaysia , although having a moderately high GNI has a smaller overall and sparse urban population. It is not as attractive as Korea .
l The Philippines , although larger in population than Korea and Malaysia , may not be the best first country to enter as the urban population is not as concentrated and the GNI is still relatively low.
l Given McDonald’s saturation in Singapore it can be assumed that there are a large number of fast food restaurants. Although having a high GNI, this market may be difficult to penetrate given the strong presence of other western fast food restaurants.
l Taiwan appears to be another attractive option for Wolfe’s company, with its large urban population and its high GNI. However, the country ranks third in its fast food outlet penetration per capita and is somewhat saturated.
l Thailand , although having a moderate GNI may be a difficult market to penetrate given the majority of the population is rural.
Evaluation of Korean Fast Food Market
The 2002 forecast of the number of stores and revenue of Korea ’s fast food franchisers indicates there are fewer “western style” restaurants versus Asian. This could be considered to have positive and negative impact on Wolfe’s recommendation. Fewer Western franchises could mean less competition, however, could also indicate that Korean’s prefer Asian style fast food restaurants to western style. This is something that would need further examination and Wolfe’s organization may need to customize its menu to Korean taste.
Additionally it is evident that any fast food restaurants would need to compete with family style restaurants, given that Korean’s tend to “sit down” to eat versus considering fast food restaurants as “drive thrus”.
Keeping the fast food consumer after their 20s and 30s appears to be the largest challenge that fast food companies in Korea have. As a result, it may be necessary to develop marketing plans to capture a greater percentage of the population.
Porter’s Five Forces Model
Porter’s Five Forces Model supports the belief that Wolfe should recommend Korea as a market to enter.
Threat of New Entrants (Unfavourable)
Threat of new entrants into the Fast Food market within Korea is high as there are few proprietary product differences and the cost to enter the market is relatively low. It is assumed that skilled labour would be easily accessible at a reasonable cost given Korea is in a position where GDP/GNI is still low and growing.
Large established companies with strong brand identities such as McDonald’s and KFC do make it more difficult to enter and succeed within the marketplace, however, given the country is yet to be saturated with fast food restaurants there continues to be opportunity. The newcomer to the Korean market could find that they are faced with price competition from existing chain restaurants.
Bargaining Power of Buyers (Moderate)
It is expected that consumers in Korea do have some bargaining power in that they can choice what type of fast food restaurant they want to go to. However, location and type of food may reduce this bargaining power. Given the small purchase size of consumers it would be necessary to appeal to more people in order to be successful, and as a result fast food restaurants would most likely not do well in remote areas.
As consumers would not have access to the same equipment and food supply that the fast food restaurant does it would be difficult for consumers to duplicate the taste of the meal at home, in addition to the atmosphere that attracts them.
Threat of Substitutes (Moderate)
The threat of substitutes in Korea would exist as they would in other countries. This could range from a competitive fast food restaurant to family restaurant to a home cooked meal. However, the greater “craving” the fast food restaurant could create for their product the greater the likelihood of success. The more unique a product the fast food restaurant has (i.e. food), the less the threat of substitutes.
Bargaining Power of Suppliers (Moderate to Favourable)
Bargaining power of suppliers within the fast food industry would be relatively small, unless the main ingredient of the product is not readily available. I.e. french fries made from a specific kind of potato grown in a specific type of soil or a product that is made with a special process. The case demonstrates the lack of pricing flexibility that Korean BBQ restaurants have, as the cost of beef is high in Korea .
Determinants of Rivalry among Existing Competitors (Moderate)
The fast food industry within Korea is growing rapidly, allowing room for competition. However, it does appear to be impacted by the economic stability of the country and by the political feelings towards the country of origin of the company.
On one hand the more specialized the restaurant the less the threat of competition, however, the greater the threat of a change in consumer eating habit (i.e. a trend to eat sushi versus hamburgers).
The giants of the fast food industry like McDonald’s, KFC, Lotteria could also influence how successful the business could be by running marketing campaigns to squash their competition.
What Porters Five Forces Model really demonstrates is that the fast food industry may be more risky than the risk of entering Korea . Wolfe’s company’s success will be linked to a number of factors including how well they know the market and are able to adapt to it, the strength of the management team, the company’s financial position, the strength of their brand and demographic trends.
Assuming they know and understand these risks, as they are in the fast food business, I believe that Wolfe should move forward with his recommendation to expand into the Korean market.
