Fast Food in Korea

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1. Compared to other East Asian countries, is Korea an ideal market?

Korea is the only country in Asia where capital expenditure has revived in 2002. In the whole Asia fast-food chains were not hurt by the Asian economic crisis at the end of the 90’s. However in Korea, revenues of fast-food franchises fell by 25 per cent during the Asian financial crisis in 1997 and while the economy was under the influence of the shock. After some structural reforms in Korean government, economy starts to recovery. Already In 2001 Korea was 13th largest economy in the world with GNP of $398 billion.

2. Evaluate the Korean fast-food industry, applying Porter’s Five Forces Model.

∙ Rivalry

Rivalry is intense, fundamentally affected by big price competition between market dominators, Lotteria and McDonald’s. We can also affirm that industry concentration is high, because the market is dominated by a few companies, and the competitors are heterogeneous (from fast-food based on Hamburgers, to Pizza restaurants or family restaurants). Industry is recovering after the crisis although growth is considerably slower than before the crisis.

∙ Threats of new entrants

There are high capital requirements for doing business in the fast food industry since franchises are high fixed cost investments that require economies of scale in order to be profitable. It’s not easy to access raw materials concerning the small size of the country and the impossibility of grown their own food. There is existing brand loyalty to Lotteria, who has been in the market since 1978, while other fast food incumbents have already obtained the most favorable store locations. This in addition to McDonald’s second place in industry increases the risk of market dominator’s retaliation.

∙ Threat of substitutes

Substitutes in the fast food industry comprise of family restaurant chains, pizza restaurants, and local Korean...
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