Required Report - public distribution

**Date:** 2/10/2006

**GAIN Report Number:** KS6006

KS6006

**Korea, Republic of**

**HRI Food Service Sector**

**Annual**

**2006**

**Approved by:**

![](media/image1.wmf)Ms. Susan B. Phillips

U.S. Embassy

**Prepared by:**

Mr. Sangyong Oh

**Report Highlights:**

Large-scale restaurants under franchise operation and broad-line
distributors are rapidly growing at the expense of small-scale,
family-owned businesses. There is an increased emphasis on products with
new tastes, added value, stable pricing and volume capability, and
products with specifications geared specifically for the food service
industry. As a result, the demand for imported products is growing.

Includes PSD Changes: No

Includes Trade Matrix: No

Semi-Annual Report

Seoul ATO \[KS2\]

\[KS\]

**Table of Contents**

**I. Market Summary**

**A. Executive Summary**

**B. Advantages and Challenges for U.S. Exports**

**II. Roadmap for Market Entry**

**A. Entry Strategy**

**B. Market Structure: Distribution Channel**

**C. Sub-Sector Profiles**

**1. Hotel Segment**

**2. Restaurant Segment**

**3. Institutional Restaurant Segment**

**III. Competition**

**IV. Best Product Prospects for U.S. Exporters**

**A. Products Present in the Market Which Have Good Sales Potential**

**B. Products Not Present in Significant Quantities But Which Have Good
Sales**

**Potential**

**C. Products Not Present Because They Face Significant Barriers**

**V. Post Contact**

**Section I. Market Summary**

**A. Executive Summary**

Changes in lifestyle and dietary culture coupled with increased consumer
income have led to a rapid growth of the food service sector in Korea.
Monthly average per capita spending on eating outside of the home has
continued to rise, reaching a record high of 75,535 won[^1] in the third
quarter of 2005, up one percent from the year before. In other words,
each Korean spent 45 percent of his/her food expenditure, or 12.1
percent of their total consumption expenditure, dining out. The share of
eating-out, relative to both food expenditure and total consumption
expenditure, has consistently increased and this trend is expected to
continue in the years to come.

**Figure 1. Share of Eating-out Relative to Food Expenditure and Total
Consumption Expenditure**

![](media/image2.wmf)

Source: Korean Government Statistics (Jan. 2006)

**Figure 2. Composition of Food Expenditure**

![](media/image3.wmf)

Source: Korean Government Statistics (Jan. 2006)

The Korean food service sector earned a record high of ~~W~~48.4
trillion of cash register sales in 2004, up 9.3 percent from the
previous year. Even though the sector is expected to continue grow at a
robust rate, it is widely believed among market analysts that the sector
has come to a saturation point in terms of the total number of
restaurants, as indicated by a negative growth in the number, for the
first time in history, from 605,614 to 600,233 in 2004. The restaurant
industry has been a major refugee to many of those people who lost their
corporate jobs during and aftermath of the Asian economic crisis in the
late 1990\'s. In addition, entry into the restaurant business was
previously allowed by law only to individuals and small businesses up
until the mid 1990\'s. As a result, most restaurants were small scale,
family-owned businesses, as shown by the government statistics that 91
percent of restaurants in Korea were small family-owned businesses that
hired less than five employees in 2004. In addition, about 48 percent of
restaurants made less than ~~W~~50 million in annual cash register
sales.

# Figure 3: Number and Annual Sales of Restaurants

![](media/image4.wmf)

\* Note: Annual cash register sales in ~~W~~100 million

Source: Korean government statistics (Jan. 2006)

**Figure 4: Breakdown of Restaurants by Annual Sales**

![](media/image5.wmf)

> Unit: Korean won
>
> Source: Korean Government Statistics (Jan. 2006)

Restructuring, fueled by increasing competition, government deregulation
and the on-going economic slowdown, has led to a rapid growth of
large-scale restaurants under chain or franchise management of various
formats, including full-service family restaurants, quick-service fast
food restaurants, bars, and institutional restaurants, at the expense of
small-scale family-owned establishments. At the same time, consumers'
increasing demand for new and international tastes has resulted in a
diversification of the sector with new-to-market products, recipes and
restaurant concepts.

Streamlining of the supply chain is another area in which the sector has
made significant progress in recent years. 'One-stop, broad-line'
distribution services are rapidly growing, as several conglomerates are
making heavy investments in the market, competing against traditional
multi-layered supply channels comprised of independent wholesalers and
wet markets.

The rapid growth of large-scale businesses, in both restaurant operation
and product distribution, is resulting in increased demand for products
with new tastes, stable pricing and volume capability, added-value, and
specifications catered to the food service sector, characteristics where
U.S. products are competitive. U.S. products are particularly likely to
maintain a strong market share in the thriving premium restaurant
segment in the coming years. The outlook for U.S. exports is excellent
for beef, pork, poultry products, seafood, processed vegetables, fruits,
nuts, dairies, juices, alcohol beverages, sauces, condiments, cooking
oils, organic foods, coffee and frozen desserts. In addition, on-going
trade liberalization will generate further export volume to those
products that are currently under restrictive import barriers in the
form of tariffs, volume quotas and food safety regulations.

**B. Advantages and Challenges for U.S. Exports**

  ----------------------------------- -----------------------------------
  Advantages                          Challenges

  1\. The Korean market is a growing  1\. Many consumers maintain a
  market where new ideas and trends   negative view on the quality and
  are eagerly tried and accepted,     safety of imported foods. Imported
  leading to greater opportunities    foods are often associated with
  for new-to-market products.         contaminations and potential
                                      food-born diseases. In addition,
                                      food safety issues are increasingly
                                      becoming a means to restrict
                                      imports.

  2\. Consumers are looking for new   2\. Many products, such as fresh
  and international tastes. Korean    potatoes, honey and apples, have
  consumers are very familiar with    limited market access due to
  American style menus and restaurant quotas, high tariffs and SPS
  concepts.                           issues.

  3\. Large-scale businesses are      3\. Although changing, price is
  leading the growth in the sector.   still the most important factor in
                                      procurement decisions.
                                      Unfortunately, few decision makers
                                      understand the overall benefit of
                                      using higher quality, value-added
                                      products.

  4\. On-going lifting of import      4\. Many U.S. products are similar
  barriers improves the market        to those from export-oriented
  accessibility and price             countries, such as China,
  competitiveness of imported U.S.    Australia, Thailand and New
  products. This will be especially   Zealand, and face serious
  true in the coming year as Korea    competition.
  and the United States begin to      
  develop a free trade agreement.     

  5\. On-going depreciation of the    5\. U.S. suppliers often find it
  U.S. dollar against international   difficult to supply customized
  currencies, including the Korean    products required by Korean food
  won, makes U.S. products more       service buyers mainly because
  price-competitive.                  either the ordered volume is too
                                      small to justify the needed changes
                                      in the manufacturing process,
                                      labeling, etc.; or the supplier has
                                      little understanding about Korean
                                      recipes and may not know how to
                                      meet the specifications.
  ----------------------------------- -----------------------------------

**Section II. Road Map for Market Entry**

**A. Entry Strategy**

The following is a list of key components of a market entry strategy
that has been proven effective for new-to-market suppliers:

-   Locate and work with an established importer who has an effective
    sales, marketing and distribution network focused on target
    customers.

-   Research and develop products that meet consumer tastes and current
    trends, including making changes to existing recipes and
    specifications.

-   Sell recipe ideas first, not products.

-   Maintain price competitiveness either by trading in a large volume
    or adding value to the product. For example, consider offering
    processed products, such as pre-marinated chicken instead of a raw
    product so that the restaurant can save labor and kitchen
    preparation costs.

-   Keep abreast of and respond quickly to changes in the supply and
    demand situation in the market.

Any U.S. supplier seeking opportunities in the Korean food service
sector first needs to understand the sector's specific needs.

*Understanding Local Tastes:*

Dishes served in Korea largely reflect the contemporary dietary culture
of Koreans and, even though ethnic food is gaining in popularity, almost
all of these dishes are developed with local tastes in mind. Considering
the rapid evolution of the sector, it is also important to be kept
informed of the changing tastes of Korean consumers to stay ahead of the
competition. A rule of thumb is that new food trends in Korea are two to
five years behind Japan, although the time gap looks getting narrower
over the years. In addition, even products that are used in similar
dishes in the United States may require different specification. Meeting
the sector's specific needs could mean anything from modifying cuts,
reducing portion sizes, changing the saltiness, adding or deleting some
ingredients.

*Local Representation:*

Because of the many variables involved, there is no one best way to
enter the Korean market. Success is unlikely, however, without proper
local representation and catered attention. What form this local
representation takes depends on the nature of the exporter, the product,
and the local distribution channel. Unless the U.S. supplier has a
specific position on this, working with an established broad-line
importer on a commission basis during the initial stages of market entry
is highly recommended. Established importers are well aware of
up-to-date market demand/supply intelligence, business practices, local
business laws, distribution channels, and, most of all, are the best
source of current information on government labeling and inspection
regulations for imported foods[^2]. ATO Seoul also maintains listings of
local importers by product, which are available to U.S. suppliers upon
request at no cost. Exhibiting in a local food trade show is a
cost-efficient way to meet with a large number of key traders in the
sector. Currently, the Food & Hotel Korea (FHK) is the only local show
endorsed and supported by U.S. Department of Agriculture/Foreign
Agricultural Service (FAS)[^3]. Exporters who are considering exhibiting
at other shows should contact the ATO for more information about the
particular show they are interested in. Most local trade shows are
consumer-oriented, which is not particularly useful for promoting
new-to-market products.

*Franchises:*

Many of the leading restaurant chains in Korea are of U.S. origin and
can be approached through the headquarters in the United States. The
degree of involvement of the U.S. headquarters in the operation of the
partner chains in Korea varies from one company to another depending on
the nature of the contract between them. U.S. headquarters in general
have a significant amount of influence over what products and recipes
the Korean partners will incorporate. Below is a list of U.S. origin
restaurants currently in operation in Korea.

Table 1: A List of U.S. Origin Restaurants in Korea (2006)

  --------------------- -------------------------------------------------
  Segment               Chains

  Fast Food Restaurants McDonald\'s, KFC, Burger King, Subway, Popeye\'s

  Family Restaurants    TGIF, Bennigans, Outback Steakhouse, Sizzler,
                        Chili\'s, Toni Roma\'s, Ruby Tuesday, Hard Rock
                        Cafe

  Ice Cream Restaurants Ben & Jerry\'s, Haagen-Dazs, Cold Stone Creamery,
                        Baskin Robbins

  Pizza Restaurants     Pizza Hut, Domino Pizza, Papa John\'s

  Coffee & Deli Shops   Starbuck\'s, Seattle\'s Best, Au Bon Pain, Krispi
                        Kreme Doughnuts, Cinnamon, Dunkin Doughnuts
  --------------------- -------------------------------------------------

**B. Market Structure** **- Distribution Channel**

*Traditional Distributors:*

Most of independent, family-owned restaurants still procure products on
their own from traditional distribution channels, which include multiple
layers of wholesalers and wet-markets. Wholesalers and wet-markets in
general are specialized by certain product categories and are considered
the best source of fresh food at a good value. However, sales of these
traditional channels are on a gradual decline just like their customers,
as they face tougher competition against mass-volume, one-stop service
distributors. In addition, strengthened government tax regulation has
deteriorated price competitiveness of traditional distributors who in
the past were given a large amount of tax breaks.

*Broad-line Distributors:*

The rapid growth of large-scale restaurants is prompting an equally
rapid growth of broad-line, one-stop service mass-distributors.
Currently, about five large local conglomerate businesses, all committed
to becoming the \"Sysco of Korea" someday, operating nationwide
distribution networks with modern temperature-controlled warehouses and
truck fleets. They supply a wide variety of products mainly to
large-scale restaurant chains and hotels; however, these broad-line
distributors are currently focusing mainly on high-volume products and,
thus, have not yet become 100 percent capable of 'one-stop' service.
Consequently, restaurants that use broad-line distributors also procure
from a multiple number of specialty suppliers concentrating on
low-volume, high-value products. Below is a brief description of the way
products are procured by local broad-line distributors:

-   Long-storage agricultural products (such as onions, dried pepper,
    carrots and potatoes) are procured from local contract farms and/or
    from the National Federation of Agricultural Cooperatives (NACF).

-   Fresh vegetables are procured from local contract farms, usually
    large-scale green houses that supply fresh products around the year.

-   Fresh vegetables subject to seasonal supply fluctuations (such as
    Chinese cabbage and radish) are procured locally through middlemen
    in the wholesale auction market.

-   Local meat is procured through local middlemen in the wholesale meat
    auction market.

-   Locally processed vegetables (frozen, canned and pickled) are
    procured from domestic manufacturers every one to three months
    through price bidding.

-   Locally processed foods (such as oils and sauces) are procured from
    domestic manufacturers on a yearly contract.

In general, broad-line distributors operate processing facilities
attached to their warehouses for preliminary processing of vegetables
and meat, such as washing, cutting, repackaging and limited cooking.
Some of the leading companies also operate food manufacturing facilities
and make private branded processed products, such as soups, sauces and
packaged marinated meat.

Imported food products of all types are procured from importers or, to a
lesser extent, directly from overseas suppliers. Broad-line distributors
prefer to import directly from overseas suppliers for high-volume
products, such as meat, seafood and canned vegetables, while preferring
to use middlemen importers for low-volume or products of seasonal
demand.

Imports and distribution of products under import quota restrictions,
including fresh potatoes, onions, grains and honey, are handled by the
Korea Agro-Fisheries Trade Corporation (aT), formally known as the
Agri-Fishery Marketing Corporation (AFMC). aT is a government agency
within the Ministry of Agriculture and Forestry (MAF). In general, the
set annual import quota is divided evenly among the importers who signed
up for the product. In other cases, the quota is allocated to importers
through auction. A broad-line distributor may acquire an import quota
allocation or purchase from other importers who acquired an allocation.

Table 2: A List of Broad-line Food Service Distributors (2004)

  -------------------- -------------------- -----------------------------
  Company Name         Annual Distribution  Web-site
                       Volume               
                       (Estimates)^1\*^     

  CJ Food System       ~~W~~450 billion     www.cjfood.com/eng

  Our Home Co.         ~~W~~150 billion     www.ourhome.co.kr

  Samsung Everland     ~~W~~120 billion     www.samsungeverland.com/eng

  Foodmerce            ~~W~~100 billion     www.foodmerce.com

  KTSC^2\*\*^          ~~W~~130 billion     www.ktsc.co.kr

  Hyundai Food System  ~~W~~ 70 billion     www.hyundaifoodsystem.com
  -------------------- -------------------- -----------------------------

\* Notes:

1/ Sales of food service distribution division only

2/ Korea Tourist Supply Center Co., Ltd.

Source: Korea Food Distribution Yearbook 2005, Industry Sources

*Food Processors:*

The local food processing industry is the major supplier of processed
products to the food service sector. Although food processors in general
mainly focus on retail products, more and more are shifting attention to
the food service sector in order to capitalize on the rapid growth
within this sector. Many processors have developed strategic alliances
with broad-line distributors to market food service products under the
distributor\'s brand name. While a large portion of these co-packed
products are simply the same retail products in bigger volume packages,
some are developed exclusively for the food service market. CJ, Daesang,
Ottogi and Dongwon are the leading players in this area. Although
products by local processors are currently limited to big volume items,
it is expected that processors will expand into more diverse products in
the coming years, many of which will compete directly with imported
consumer-ready products. Local processors, however, will be more
dependent on imported ingredients. Products from local processors are
generally distributed through multiple layers of wholesalers or regular
retail stores before reaching end users unless they are bound directly
for broad-line distributors.

*Discount Retail Stores:*

Discount retailers, hypermarkets and membership warehouse clubs are an
important distribution channel for the food service sector, as many
small-scale, family-owned restaurants procure products there. Currently,
there are about 300 mass-volume discount stores nationwide, to which
about a dozen new stores are expected to join every year. E -Mart, a
local chain, is the leading player, while four international chains,
Carrefour, Wal-Mart, Tesco and Costco are closely following behind. In
particular, Costco has been the most active in targeting small-scale
independent restaurants.

Development of the modern food service distribution system in Korea is
an outcome of on-going market liberalization. Imports and distribution
of food products to the food service sector were under a monopoly system
up until the early 1990's. It was not until the early 1990\'s that
conglomerate businesses were allowed to enter this sector. These
companies are now the key reason behind the outstanding growth of chain
and franchise restaurants, as well as broad-line food service
distribution.

**C. Sub-Sector Profiles**

**1. Hotel Segment**

**Table 3: Lodging Industry Market Share (2001^1\*^**)

  ------------ --------------------- ------------------ ------------------
               Number of Business    Number of Room     Cash Register Sale

  Hotels       1.8%                  10.1%              68.0%

  Inns         78.5%                 77.6%              23.1%

  Resort       0.3%                  4.3%               6.1%
  Condos                                                

  Others       19.4%                 8.0%               2.8%

  Total        34,317                584,304 rooms      ~~W~~6,545,113
                                                        million
  ------------ --------------------- ------------------ ------------------

\* Note: 1/ Year 2001 is the most recent year for which data is
available.

Source: Korean government statistics 2004

**Table 4: Hotel Segment Statistics Broken Down by Number of Rooms**

+----------+------+---------+---------+---------+---------+----------+
| C        |      | \<50    | 50-100  | 100-300 | \>300   | Total    |
| ategory: |      |         |         |         |         |          |
| Number   |      |         |         |         |         |          |
| of Rooms |      |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
| Number   | 2004 | 163     | 232     | 114     | 42      | 551      |
| of       |      |         |         |         |         |          |
| hotels   |      |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
|          | 1999 | 332     | 276     | 118     | 25      | 751      |
+----------+------+---------+---------+---------+---------+----------+
|          | Ch   | -       | -18.97% | -3.51%  | 40.48%  | -36.30%  |
|          | ange | 103.68% |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
| Number   | 2004 | Top of  | Top of  | Top of  | Top of  | 40,720   |
| of       |      | Form    | Form    | Form    | Form    |          |
| e        |      |         |         |         |         |          |
| mployees |      | 2,438   | 6,812   | 12,539  | 18,931  |          |
+----------+------+---------+---------+---------+---------+----------+
|          | 1999 | 4,431   | 9,659   | 14,317  | 10,591  | 38,998   |
+----------+------+---------+---------+---------+---------+----------+
|          | Ch   | -44.98% | -29.48% | -12.42% | 78.75%  | 4.42%    |
|          | ange |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
| Cash     | 2004 | 95,419  | 316,176 | 766,697 | 2,      | 3        |
| register |      |         |         |         | 258,143 | ,436,435 |
| sa       |      |         |         |         |         |          |
| les^1\*^ |      |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
|          | 1999 | 155,076 | 373,573 | 716,976 | 831,143 | 2        |
|          |      |         |         |         |         | ,076,768 |
+----------+------+---------+---------+---------+---------+----------+
|          | Ch   | -38.47% | -15.36% | 6.93%   | 171.69% | 65.47%   |
|          | ange |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
| Room     | 2004 | 40,445  | 149,967 | 331,407 | 720,525 | 1        |
| sa       |      |         |         |         |         | ,242,344 |
| les^1\*^ |      |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
|          | 1999 | 56,855  | 159,171 | 253,220 | 196,538 | 665,784  |
+----------+------+---------+---------+---------+---------+----------+
|          | Ch   | -28.86% | -5.78%  | 30.88%  | 266.61% | 86.60%   |
|          | ange |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
| Number   | 2004 | Top of  | Top of  | Top of  | Top of  | 60,357   |
| of rooms |      | Form    | Form    | Form    | Form    |          |
|          |      |         |         |         |         |          |
|          |      | 6,320   | 15,326  | 17,846  | 20,865  |          |
+----------+------+---------+---------+---------+---------+----------+
|          | 1999 | 12,484  | 17,745  | 18,020  | 10,637  | 58,886   |
+----------+------+---------+---------+---------+---------+----------+
|          | Ch   | -49.38% | -13.63% | -0.97%  | 96.15%  | 2.50%    |
|          | ange |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+
| Number   | 2000 | 5,      | 7,      | 8,      | 9,      | 31       |
| of       |      | 037,564 | 650,031 | 776,468 | 892,972 | ,357,035 |
| guest    |      |         |         |         |         |          |
| s^2\*\*^ |      |         |         |         |         |          |
+----------+------+---------+---------+---------+---------+----------+

\* Notes:

1/ Unit in million won

2/ Year 2000 is the most recent year for which data is available.

Source: Korean government statistics (Jan. 2006)

There were 551 hotels in Korea at the end of 2004, 200 less than five
years before. This significant drop was mainly caused by a decrease in
the number of small-scale hotels with less than 50 guestrooms. However,
the growth of large-scale hotels over the past several years has more
than compensated for the loss, resulting in outstanding growth of cash
register sales of the sector, which earned ~~W~~3.44 trillion of cash
register sales in 2004, up 52 percent from 1999. Compared to 2003, there
was an increase of 16 hotels and an 8.9 percent increase in hotel sales
during 2004. The hotel segment is estimated to comprise about 52 percent
of total lodging industry sales in Korea. Another 48 percent of industry
sales is shared by 30,000 inns and 6,000 resort condos and recreational
facilities.

Competition has precipitated the restructuring of the industry, favoring
the steady expansion of large-scale hotels at the expense of independent
small-scale hotels. In 2005, the first six-star hotels opened: W Hotel
by Starwood Hotels & Resorts World Wide Inc. and the Park Hyatt Seoul.
As five-star hotels expand both in and outside of Seoul, many four-star
hotels have joined professional management franchises, such as Hyatt,
Ramada and Marriott, to remain competitive in price and operational
efficiency. Middle-sized hotels have gone under the umbrella of
budget-format franchises, such as Best Western, Day's Inn, Ramada Inn
and Holiday Inn, targeting the niche market of low-budget tourists and
business travelers. The rapid growth of untraditional lodging formats,
in particular service residences, pension homes, by-the-hour motels and
hot-spa houses, has also resulted in the closing of many small-scale
hotels and inns. These trends indicate that the diversification of the
local lodging industry will continue in the years to come.

The hotel segment is expected to maintain a healthy growth in the coming
years both from domestic and international travelers. In particular, the
five-work-day system, which became a national standard for most Korean
workers in the mid-2005, is expected to significantly boost up domestic
tourism. A steady growth in the number of foreign travelers to Korea is
also anticipated in the coming years.

**Figure 5: Foreign Travelers Visiting Korea**

![](media/image6.wmf)

> \* Note: Unit \$1,000
>
> Source: Korean government statistics (Jan. 2006)

A good number of new hotels are currently under construction or are
planned in order to meet the increased demand for additional hotel
rooms. According to a government study, the market will need an
additional 16,000 guestrooms by 2010 in the Seoul metropolitan area
alone. Among others, a hotel belt in Goyang-city, a satellite town of
Seoul, is currently under development by the government to meet this
need. The shortage of hotel rooms is expected to be worse in regional
markets where new industrial or tourist districts are under development.
Recognizing the emerging opportunities, local conglomerates have
unveiled plans for new hotels. A 106 story hotel currently under
construction by Lotte Hotel in Busan, which, upon completion, will be
the tallest hotel building in the world, is an example of investments
being made in the sector.

The hotel sector, especially five and four-star hotels with in-house
premium restaurants, has played a leading role in introducing
new-to-market food products and recipes to local opinion leaders. It
also has served as an efficient venue for promotional activities,
including menu promotions, product launchings and technical seminars.
Currently, food and beverage sales are estimated to comprise 40-50
percent of total sales in five and four-star hotels. Some leading
hotels, including the Shilla and the Westin Chosun, have expanded their
food service businesses outside of their hotels and now operate
stand-alone food outlets of various formats, including microbrew pubs,
food courts, coffee shops, bakery shops and premium gourmet restaurants.
Although the role played by hotels in the food service sector is
comparatively on a gradual decline due to the growth of restaurants on
the street, it is likely that the sector will remain a leading
distribution channel for premium, high-quality imported food and
beverage products.

**2. Restaurant Segment**

**Table 5: A Brief History of the Restaurant** Industry in Korea

+------+-------+-------------------------------------------------------+
| Year | GNP   | Major Events                                          |
|      | ^1\*^ |                                                       |
+------+-------+-------------------------------------------------------+
| 19   | N/A   | ● Birth of the modern commercial restaurant industry. |
| 00 - |       |                                                       |
| 195  |       | ● A total of 166 restaurants in business in Korea as  |
| 0\'s |       | of 1945.                                              |
+------+-------+-------------------------------------------------------+
| 196  | \$100 | ● Most consumers had very low income and limited food |
| 0\'s | -     | supply.                                               |
|      | \$210 |                                                       |
|      |       | ● Western foods, mainly wheat flour and dried milk,   |
|      |       | first introduced to the public through the food aid   |
|      |       | programs by the United Nations and the United States. |
+------+-------+-------------------------------------------------------+
| 197  | \$248 | ● A large number of small mom-and-pop restaurants     |
| 0\'s | -     | opened in metropolitan cities.                        |
|      |       |                                                       |
|      | \$    | ● Rapid improvement in the diet of the general public |
|      | 1,644 | due to economic development.                          |
|      |       |                                                       |
|      |       | ● Opening of the first franchise restaurant chain,    |
|      |       | Nandarang (1979) and the first fast food restaurant   |
|      |       | chain, Lotteria (1979).                               |
|      |       |                                                       |
|      |       | ● Imported foods first become available commercially  |
|      |       | to hotels with the establishment of the Korea Tourist |
|      |       | Supply Center (KTSC), a monopoly import distribution  |
|      |       | agency (1978)                                         |
+------+-------+-------------------------------------------------------+
| 1980 | \$    | ● A limited variety of Western menus penetrated to    |
| -    | 1,592 | the general public.                                   |
|      | -     |                                                       |
| 1985 |       | ● The rapid expansion of franchise restaurants        |
|      | \$    | (mainly hamburger, noodle, fried chicken, and draft   |
|      | 2,158 | beer pubs).                                           |
|      |       |                                                       |
|      |       | ● The first wave of international restaurant chains   |
|      |       | entered the market: Americana (1980), Burger King     |
|      |       | (1982), Wendy's (1984), KFC (1984), Pizza Hut (1984), |
|      |       | Baskin Robbin's (1985).                               |
+------+-------+-------------------------------------------------------+
| 1986 | \$    | ● The Asian Games in 1986 and the Olympic Games in    |
| -    | 2,194 | 1988, both held in Seoul, introduced a wide variety   |
|      | -     | of international recipes to the market.               |
| 1990 |       |                                                       |
|      | \$    | ● Rapid development of restaurants and bars under     |
|      | 4,197 | western themes.                                       |
|      |       |                                                       |
|      |       | ● Introduction of the institutional food service      |
|      |       | business: Seoul Catering (1989), Our Home/LG Mart     |
|      |       | (1989).                                               |
|      |       |                                                       |
|      |       | ● More international restaurants entered the Korea    |
|      |       | market: McDonald's (1986), Denny's (1987), Pizza Inn  |
|      |       | (1988), Cocos (1988), Crown Bakery (1988), Chicago    |
|      |       | Pizza (1988), Domino's Pizza (1989).                  |
+------+-------+-------------------------------------------------------+
| 199  | \$    | ● Conglomerates allowed to enter the food service     |
| 0\'s | 5,883 | business.                                             |
|      | -     |                                                       |
|      |       | ● Diversification of food service industry with new   |
|      | \$1   | formats and menus.                                    |
|      | 0,076 |                                                       |
|      |       | ● Hardies (1990), TGIF (1991), Haagen-Dazs (1991),    |
|      |       | Subway (1992), Ponderosa (1992), Sizzler (1993),      |
|      |       | Mister Pizza (1993), Sky Lark (1994), Kenny Rogers    |
|      |       | (1994), Popeye's (1994), LA Farms (1994), Bennigan's  |
|      |       | (1995), Tony Roma's (1995), Planet Hollywood (1995),  |
|      |       | Marché (1996), Hard Rock Café (1996), Outback Steak   |
|      |       | (1997), Chili's (1997).                               |
+------+-------+-------------------------------------------------------+
| 200  | \$10  | ● Restaurants under chain or franchise management led |
| 0\'s | ,000- | the growth of the sector at the expense of small      |
|      | \$14, | scale, independent restaurants.                       |
|      | 100^2 |                                                       |
|      | \*\*^ | ● Rapid growth of broad-line food service             |
|      |       | distribution business.                                |
|      |       |                                                       |
|      |       | ● Diversification continues in formats and menus,     |
|      |       | including take-out, food court, fusion cuisine,       |
|      |       | foreign ethnic cuisine and wine.                      |
+------+-------+-------------------------------------------------------+

> \* Notes:
>
> 1/ GNP: Gross National Production, Per Capita
>
> 2/ as of 2004
>
> Source: Na, J.K., [Understanding Food Service Industry]{.underline}
> (1998), Industry Sources

Below is a list of areas where major changes are currently taking place
in the local restaurant segment:

-   Reducing operation costs by using more part-time employees, adopting
    central kitchen facilities, standardization of recipes and product
    specifications, adopting information technology solutions such as
    POS (Point Of Sales) systems, ERP (Enterprise Resource Planning)
    systems and RFID (Radio Frequency Identification Tag) systems.

-   Minimizing the amount of products in inventory by switching to
    broad-line suppliers and further processed products. Many franchise
    restaurant chains are switching to broad-line suppliers on a
    long-term contract for more efficient product purchasing. As a
    result, mergers and acquisitions of companies, both in restaurant
    operation and product distribution, are actively pursued.

-   Diversification of menus with foreign ethnic cuisines and
    ingredients.

-   Diversification of restaurant concepts and designs reflecting
    changes in the consumption and cultural trends. Natural, organic,
    fresh, fusion, Zen, fun, ethnic and neighborhood are some of the key
    themes in the market.

-   There has been a greater emphasis on health and food safety by
    introducing more functional and organic ingredients, HACCP
    certification, and promotional activities under this theme. Sales of
    local restaurants are extremely sensitive to food safety issues and
    have experienced significant fluctuations in recent years from
    nation-wide food scares, including BSE, avian influenza and parasite
    eggs in Kimchi.

-   There has been a greater emphasis on cross-promotional partnerships
    with non-food businesses, such as information technology, movie and
    finance. Sales promotions are heavily targeted to holidays and
    special occasions, including New Years\' Day, Lunar New Years\' Day,
    Valentine Day (Feb. 14), White Day (March 14), Kid\'s Day (May 5),
    Parent\'s Day (May 8), Teacher\'s Day (May 15), Korea Thanks-Giving
    Day and Christmas.

**Table 6: Break Down of Restaurant Segment by Type of Restaurant
(2001^1\*^**)

  ------------------------- --------------- ---------------- -------------
  Type of Restaurant        \# of           Annual Sales     \# of
                            Restaurants                      Employees

  Full Svc Korean           45.3%           43.1%            44.6%
  Restaurants                                                

  Full Svc Chinese          4.8%            4.5%             5.3%
  Restaurants                                                

  Full Svc Japanese         1.0%            2.8%             1.9%
  Restaurants                                                

  Full Svc Western          2.6%            4.9%             4.0%
  Restaurants                                                

  Institutional Feeding     0.5%            2.4%             1.7%
  Restaurants                                                

  Quick Svc Western         4.8%            7.9%             6.0%
  Restaurants                                                

  Quick Svc Korean          9.8%            5.4%             7.2%
  Restaurants                                                

  Bars and Pubs             21.5%           19.6%            20.1%

  Bakery Shops              1.7%            2.2%             1.8%

  Tea & Coffee Shops        6.7%            4.6%             5.9%

  Total                     505,241         ~~W~~ 34,245,594 1,341,528
                                            mil              
  ------------------------- --------------- ---------------- -------------

> \* Note: 1/ Year 2001 is the most recent year for which data is
> available.
>
> Source: Korean government statistics (Dec. 2004)

Although declining in number due to the rapid growth of international
restaurants, traditional Korean food restaurants are still very popular.
It is, however, becoming more difficult to distinguish Korean menus from
foreign ones, as more diverse recipe ideas and food styles are
introduced, fusing traditional menus with new-to-market recipes and
ingredients. At the same time, foreign-oriented dishes served in
restaurants in Korea are somewhat 'Koreanized' in terms of the taste,
ingredients used, and cooking style. In particular, local consumers
prefer less salt, fat and oil, while eating more hot spices, vegetables,
seafood and soup.

Due to the high population density, delivery service is commonly offered
by restaurants in metropolitan areas. For example, the Pizza Hut chain
makes 70 percent of its sales from home delivery service. The high cost
of real estate and space rent is also forcing small-scale restaurants
focus on the home-delivery market.

It is notable that Korea has an exceptionally high number of bars and
pubs. The newest trends in the segment include micro-brew pubs, wine
bars and the growth of bars under franchise management. Although
decreasing among the health-conscious elderly generation and young
professionals, drinking is still considered a very important part of
business and social life. According to government statistics, each
Korean adult over the age of 19 consumed 26 liters of Soju (local hard
liquor) and 53 liters of beer in 2003, up 5 percent and 81 percent
respectively from ten years before. The rapid growth of wine and other
low-alcohol beverages has come at the expense of hard liquors. Recently,
the number of expensive drinking saloons and the consumption of premium
whisky has significantly declined as a result of a new government
regulation that excluded corporate spending in bars over certain limit
from tax deduction.

Growth of fast food restaurants has stagnated in recent years due partly
to the on-going economic slowdown and more largely to consumers\'
growing concerns about healthy eating. In particular, BSE and avian
influenza scandals in recent years further deteriorated consumer
confidence in beef and chicken meat, staple fast food products. As a
result, several fast food chains, including Hardies, Wendy\'s and BHC(a
local hamburger chain), went out of business and leading chains have
seen closings of many \'slow moving\' outlets. Lowering prices and
introducing new, healthier menus are the two major counter measures
being implemented in the industry. In spite of the challenges facing the
industry, there has been a continuous flow of new restaurants added to
the segment armed with new recipes and themes, reflecting the strong
consumer demand for new tastes and quick services. A good example is the
Papa Jones pizza chain, which has expanded considerably with 35 new
store openings during the last two years. According to a Korean
government survey in 2004, 135,000 consumers, which was 0.27 percent of
the population, ate fast food at least once a day. Another survey in the
same year showed that 2.6 percent of Korean children ate fast food at
least once a day.

**Table 7: Profile of Major Quick Service Western Restaurant Chains**
(2004)

  ----------------- ------------- ------------- ------------ -------------
  Company           Brand         Annual Sales  \# of        Change of \#
                                                Outlets      Outlets in
                                                             2004

  Lotteria Co.      Lotteria      ~~W~~450      839          -51
                                  billion                    

  Shinmac / Mackim  McDonald's    ~~W~~300      335          -8
                                  billion                    

  Genesis           BBQ           ~~W~~450      2,500        +950 ^1\*^
                                  billion                    

  SRS Korea         KFC           ~~W~~170      195          -13
                                  billion                    

                    Burger King   ~~W~~76       95           -13
                                  billion                    

  TS Haemaro        Popeye's      ~~W~~100      180          -30
                                  billion                    
  ----------------- ------------- ------------- ------------ -------------

> \* Note: 1/ Genesis\'s acquisition of BHC chain in 2004 caused the big
> increase.
>
> Source: The Yearbook of Retail Industry 2005, KOSCA

**Table 8: Profile of Major Family Restaurant Chains** (2004)

  ----------------- ------------- ------------- ------------ -------------
  Company           Brand         Annual Sales  \# of        Change of \#
                                                Outlets      Outlets in
                                                             2004

  Food Star         TGIF          ~~W~~100      33           +8
                                  billion                    

  Rise On           Bennigan's    ~~W~~83       20           +1
                                  billion.                   

  Amoje             Marché        ~~W~~30       9            -1
                                  billion                    

  CJ Foodville      VIPS, SkyLark ~~W~~120      76           -1
                                  billion                    

  Ojijung           Outback Steak ~~W~~160      50           +17
                                  billion                    

  Sunat Food        Tony Romas    ~~W~~18       7            0
                                  billion                    

  Barons            Sizzler       ~~W~~18       6            +1
  International                   billion                    
  ----------------- ------------- ------------- ------------ -------------

> Source: The Yearbook of Retail Industry 2005, KOSCA

**Table 9: Profile of Major Pizza Restaurant Chains** (2004)

  ----------------- ------------- ------------- ------------ -------------
  Company           Brand         Annual Sales  \# of        Change of \#
                                                Outlets      Outlets in
                                                             2004

  Pizza Hut Korea   Pizza Hut     ~~W~~390      320          +20
                                  billion                    

  Mister Pizza      Mister Pizza  ~~W~~150      220          +35
  Korea                           billion                    

  DPK International Domino's      ~~W~~150      247          +29
                    Pizza         billion                    

  PJI Korea         Papa Jones    ~~W~~5        18           +13
                                  billion                    
  ----------------- ------------- ------------- ------------ -------------

> Source: The Yearbook of Retail Industry 2005, KOSCA

Table 10: Profile of Major Coffee Shop Chains (2004)

  ------------------ ------------- ------------- ------------ -------------
  Company            Brand         Annual Sales  \# of        Change of \#
                                                 Outlets      Outlets in
                                                              2004

  Starbucks Korea    Starbucks     ~~W~~72       109          +35
                                   billion                    

  Rosebud            Rosebud       ~~W~~28       267          +13
                                   billion                    

  Coffeebean Korea   Coffeebean    ~~W~~31       34           +9
                                   billion                    

  SPC Group          Pascucci      ~~W~~13       14           +3
                                   billion                    

  Lotteria           Java Coffee   ~~W~~9        21           +7
                                   billion                    

  Barons             Cafe Nescafe  ~~W~~4        27           +2
  International                    billion                    
  ------------------ ------------- ------------- ------------ -------------

> Source: The Yearbook of Retail Industry 2005, KOSCA

**3. Institutional Food Service Segment**

**Table 11: Profile of Major Institutional Food Service Companies**
(Year 2004)

  ------------------- -------------- --------- -------------- -------------
  Name of Company     Annual Sales   \# of     Change of \#   \# of Serving
                                     Outlets   Outlets in     Units Daily
                                               2004           

  Our Home            ~~W~~540       600       +100           700,000
                      billion                                 

  Samsung Everland    ~~W~~500       480       +30            500,000
                      billion                                 

  CJ Food System      ~~W~~205       539       -90            400,000
                      billion                                 

  Hyundai Food System ~~W~~220       380       +80            200,000
                      billion                                 

  Shinsegae Food      ~~W~~263       360       +10            150,000
  System              billion                                 

  Arakor              ~~W~~90        320       +50            250,000
                      billion                                 

  ECMD                ~~W~~90        280       +30            180,000
                      billion                                 

  Hanwha Development  ~~W~~100       210       +5             160,000
                      billion                                 
  ------------------- -------------- --------- -------------- -------------

> Source: Korea Food Distribution Yearbook 2005, Monthly Food Journal

Institutional food service restaurants are growing, as more office
workers and students are seeking cheaper meal options. Institutional
food service includes feeding service operations with exclusive
contracts in schools, offices, manufacturing plants, hospitals,
retirement homes and government facilities. In most cases, the client
company/organization endows an exclusive, long-term contract for
designated feeding services (mostly lunch and dinner for a designated
group of people) to the institutional food service operator through a
bidding process. Basically, it is the client who pays for the services
on behalf of the group of people accessing the feeding service, although
in some cases, the operator maintains a right to open the restaurant to
outside customers for additional sales. A major trend in the market is
switching to a commercial outside institutional feeding operator from
the traditional in-house system (Korean companies have a tradition of
providing free meals to employees). The annual cash register sales of
the segment for 2004 was estimated at ~~W~~5.8 trillion, about 50
percent of which was taken by commercial institutional food service
operators. Another half of the market still relied on in-house
restaurants operated and owned by the client organization. Commercial
institutional food service providers are expected to further increase
their market shares in the coming years, as more organizations seek
cheaper and more efficient way to provide quality meals for their
employees and students.

In general, the growth of the institutional feeding restaurant segment
is mainly led by a handful of leading players, all of them subsidiary
businesses of local conglomerates. Focusing on big volume clients for
economy-of-scale, the leading players are closing down small-scale
outlets, leaving behind some room for smaller competitors to enter and
grow. Especially schools and hospitals are changing hands to smaller but
dedicated operators.

Most of the leading institutional feeding companies have diversified
into regular restaurant businesses, including food courts, cafeterias,
bars, coffee shops, bakery shops and premium restaurants. In addition,
leading companies have also entered the food service distribution
businesses, partly in an effort to achieve greater buying power.
However, products distributed by these institutional feeding companies
are currently limited to those products that they themselves use in
large volumes. It is expected that the distribution arms of these
companies will someday evolve into separate, independent broad-line food
service distribution companies, handling wider variety of products.

The cost of food products comprises about 60 percent of the total
operation cost in an institutional food service company, which is much
higher than that of a regular restaurant, which is about 30 percent.
Consequently, companies in this segment are extremely conscious about
the price, value and stable supply of products. Imported products mainly
used in the segment, therefore, are mostly price-oriented products from
China, South Asia and Australia. Leading companies are currently trying
to incorporate more further-processed products in an effort to reduce
labor and overhead cost.

**Section III. Competition**

Domestic products, both raw and processed, comprise a major competition
to many U.S. products. Although limited in variety, Korean agriculture
produces a considerable amount of raw agricultural products, including
rice, fresh vegetables, fruits, seafood, pork meat, chicken meat, egg
and fluid milk. In addition, Korea has a strong processed food industry
that manufactures a wide variety of products, including processed meat,
seafood, vegetables, fruits, noodles, sauces, oils, beverages, snacks,
bakery, confectionaries, dairies and liquors. For raw agricultural
products and input ingredients for the local processing industry not
grown or manufactured in Korea, U.S. products face increasing
competition from imported products from other countries. Products from
competitor countries, including China, Australia, Chile and Thailand, in
general have lower prices than U.S. products and, thus, are quickly
building up market shares. China, for example, has become the biggest
supplier of fresh and processed vegetables, sauces, spices, seafood and
grains to the Korean food service sector. In addition, increased demand
for more diverse international cuisines and recipes are translated into
growing demand for imported products from more diverse origins,
including European and South Asian countries.

Lifting of import barriers directly affects competition in the market.
Many local products have lost price and availability competitiveness
when protective import barriers were removed, which is expected to
happen continuously in the coming years. Since the implementation of the
Korea-Chile Free Trade Agreement (FTA) in April 2004, trade between the
two countries has reached record levels. Korea has also concluded two
other FTAs with Singapore and FFTA (agricultural products were not
included) and has readily engaged in FTA talks with several other
countries in 2005. The United States and Korea announced in February
2006 that they would begin FTA discussions, which are expected to
conclude in mid-2007.

As tariff barriers decline, food safety issues are becoming more a means
for the Korean government to restrict imports. Restriction of imports
from certain countries results in replacement imports from competing
countries, as seen in the import ban on U.S. beef for BSE. Consequently,
in an effort to maintain a stable supply, food service distributors in
general prefer to transact with more than two different countries
especially for potentially risky items, such as chicken meat, pork meat
and beef.

**IV. Best Product Prospects for U.S. Exporters**

**A. Products Present in the Market Which Have Good Sales Potential**

1\. Pork meat (chilled and frozen belly cut): Due to the import ban on
U.S. beef since December 2003, many beef restaurants have switched to
pork menus, resulting in a strong demand for additional imports.
Although Korea has a large domestic supply of pork meat, local demand is
highly skewed to the belly cut, which has resulted in a strong need for
imports. It is interesting to note that much of the meat is distributed
frozen in the food service sector, as restaurants generally want longer
shelf life. During 2005 through November, total pork meat imports
increased 79 percent from the previous year, to \$537 million. Imports
from the United States during that same time period also showed an
explosive growth of 269 percent to \$120 million.

2\. Processed meats (sausages, hams): Due to easy application, a wide
variety of local menus incorporate processed meat products. Fast food,
bars and buffet restaurants are the main users of these products.
Imports of sausages grew 39 percent in 2005 through November to \$9.8
million (most of them from U.S.) while imports of preserved meat grew
118 percent to \$42 million (\$2.9 million from U.S.).

3\. Chicken meat (frozen and processed): Although there still remains
some safety concerns among consumers over poultry products due to the
on-going Avian Influenza issue, Korea remains an excellent market for
chicken meat products. In particular, the import ban on U.S. uncooked
poultry products was lifted in 2005, resulting in a 588 percent increase
of imports from the United States through November to \$30 million,
accounting for 37.6 percent of total poultry product imports. Demand for
further processed poultry products is expected to grow gradually in the
future, as more restaurants understand the cost savings of value-added
products. Conversely, Korean food service sector is not a market for
imported fresh chicken meat due to the short shelf life and strict
sanitary standards (zero tolerance on E-coli contamination) on imported
fresh meat.

4\. Seafood (frozen and processed): Korea is an outstanding seafood
market with good growth potential for imported products. The domestic
supply is decreasing due to the depletion of near sea fishery resources
and increased international restrictions on deep-sea fishing. Total
imports of fishery products amounted to \$2.1 billion in 2005 (through
November), up 3.5 percent from the previous year, while imports from the
United States grew 10.5 percent to \$130 million. Major species
currently imported from the United States include: Alaska Pollack,
Pollack surimi, Pollack roes, tuna, skate, mackerel, hagfish, halibut,
scallop, cod, Pacific salmon, angler fish, rock fish, and prepared sea
cucumber. It is notable that demand for processed products (fillet,
dried, surimi, and cooked) are also rising. Processed products (fillet,
dried and salted) accounted for about 24 percent of total seafood
imports in 2005.

5\. Processed fruits and nuts: Processed fruits and nuts are gaining
consumer popularity for their natural and healthy image. Introduction of
new recipes that require processed fruit and nut ingredients is
resulting in growing demand for more diverse products. Imports of
processed fruits and nuts from the United States amounted to \$16
million in 2005 through November. Products currently imported from the
United States include: dried, frozen, or preserved prunes, cranberries,
cherries, strawberries, grapes, figs, blueberries, walnuts, almonds,
pistachios, pecans and peanuts. Fruit juices also have a big market in
Korea, as U.S. products, at \$33 million imports in 2005, took a 35
percent import market share.

6\. Fresh fruits: Korea is an excellent market for U.S. oranges. Demand
for imported oranges is increasing in both food service and retail
sectors. Currently, U.S., Australia and South Africa are allowed to
export oranges to Korea. Orange imports from the United States in 2005
through November amounted to \$116 million. Other U.S. fruits currently
imported into Korea include table grapes (\$7 million), lemons, cherries
(\$7 million) and grapefruits.

7\. Vegetables (fresh, frozen, canned and prepared): Although Korea is
self-sufficient in many varieties of fresh vegetables, seasonal
fluctuations in the local supply and unfavorable growing condition for
foreign varieties are resulting in an increased demand for imports.
China has emerged as the leading supplier of vegetables to the Korean
food service sector in both the fresh and processed category; however,
there remains a solid demand for a limited variety of high-quality U.S.
products. Major products imported from the United States include
potatoes, onions, lettuce, tomatoes, broccoli, avocadoes and carrots.
Imports of vegetables from the United States amounted to \$21 million in
2005 through November, with an additional \$49 million of imports of
prepared vegetable products.

8\. Dairy Products (milk concentrate, cream, whey, butter and cheese):
Diverse recipes with dairy ingredients are steadily being introduced,
resulting in a growing demand. In addition, there is an increased demand
for imported dairy products from the thriving bakery industry. Imports
of milk concentrate and cream grew 80 percent in 2005 (through November)
to \$17 million (unfortunately, only \$192,000 came from the United
States). Imports of whey grew 25 percent to \$80 million, while U.S.
products grew 105 percent to \$21 million. Imports of butter grew 49
percent to \$12 million (only \$65,000 from U.S.). Imports of cheese
amounted to \$128 million, up 19 percent from the previous year, while
imports from the United States also grew 28 percent to \$23 million.

9\. Alcohol Beverages (wine, beer and hard liquors): With the large
number of bars and pubs, imported alcohol beverages maintain a sizable
market in the food service sector. Especially demand for products with
health benefits and lower alcohol content is rapidly growing. Wine
imports increased 16 percent in 2005 through November to \$60 million,
setting a record-high. Imports from the United States also set a new
high at \$8.5 million, up 15 percent. Among the \$15 million of beers
imported in 2005, U.S. products, at \$4 million, took 27 percent of the
market. Imports of U.S. hard liquor products totaled \$3.3 million in
2005, which constituted only 1.4 percent of total hard liquor imports.

10\. Coffee: On-going expansion of franchise coffee shop chains results
in an increased demand for imported coffee. Imports of coffee from the
United States grew 27 percent during 2005 through November to \$5.7
million.

11\. Sauces and Condiments: With introduction of more diverse foreign
recipes, demand for imported sauces and condiments is rising. Imports
from the United States in 2005 through November grew 18 percent from the
previous year to \$13.4 million.

**B. Products Not Present in Significant Quantities But Which Have Good
Sales Potential**

1\. Deboned beef meat: Korean government lifted import ban on deboned
beef meat from the United States in January 2006. The new regulation
states that only beef meat, free of any bone or SRM, from cattle under
30 months old from pre-approved slaughter houses/packing plants in the
U.S. are allowed.

2\. Rice: The new rice trade agreement that Korea signed with exporting
countries will allow imported rice to be distributed commercially
through retail channel starting in early half of 2006. It is expected
that some portion of the imported rice, including U.S. rice, will be
used by the food service sector. Imported rice will gain more price
competitiveness over the coming years, as the agreement is made to
gradually increase the volume of imported rice with access to the
commercial retail market.

3\. Pasta: Increased popularity of Italian recipes is resulting in a
rapid import increase of products related to the cuisine, including
Pasta. Unfortunately, among the \$50 million of pasta products imported
in 2005 through November, imports from the United States amounted to a
mere \$500,000.

4\. Ingredients for Mexican cuisine: Many industry experts predict that
Mexican cuisine has a great potential in Korea, as the cuisine contains
a lot of hot, spicy dishes. However, unfortunately, there are very few
chefs and restaurants in the market where good Mexican food can be
found.

5\. Processed turkey meat: Somehow, local mainstream consumers still
maintain a negative view on turkey meat. However, with millions of
Koreans traveling to the United States every year, processed turkey meat
products continue to gain some support, especially from young consumers.
Turkey ham sandwiches are already getting popular among affluent, young
consumers.

6\. Premium seafood: Products such as lobster, crabs (King, Snow, and
Dungeness), black cod and wild-caught Sockeye salmon have good potential
in Korea as affluent consumers are looking for new, premium and
healthier alternatives to beef and pork. These premium products also
have a good potential as gift items.

7\. Processed eggs (fluid, frozen and flour): More restaurants and
bakery shops are expected to switch to processed egg products from
shelled eggs.

8\. Prepared processed food: Demand for prepared products, such as
frozen soups and fully cooked meals, is gradually picking up in the food
service sector. As more restaurants understand the economic benefit and
quality of prepared products, interest in U.S. products is likely to
increase.

9\. Ingredients for micro-brew beer: Demand for ingredients for
micro-brew beer is likely to increase with the addition of more
micro-brewery restaurants, which are gaining in popularity.

10\. Processed Organic products: The demand for processed organic
products continues to increase due to the strong interest of affluent
consumer groups and young mothers.

11\. Many imported agricultural products, including honey, fresh
potatoes, fresh onions and popcorn, are subject to high tariffs and
tariff rate quotas (TRQs) that restrict import volumes. However,
on-going trade negotiations are likely to reduce some of these barriers
in the coming years.

**C. Products Not Present Because They Face Significant Barriers**

1\. Beef meat from cattle over 30 months old, bone-in beef meat,
processed beef products and offal: Before the import ban, annual export
of U.S. beef products to Korea amounted to around \$900 million.
Although the ban is now lifted on boneless beef meat from cattle under
30 months old, the ban remains to meat from cattle over 30 months old,
bone-in meat, processed beef products and offal.

2\. Lamb meat: Imports of U.S. lamb meat is banned, as imports of
products of all ruminant animals, except boneless beef, are currently
banned due to the BSE issue.

3\. Imports of many U.S. fresh fruits, including apples, fresh berries,
pomegranates and mangos, are prohibited as there is no bilateral plant
sanitary quarantine agreement between the U.S. and Korea.

4\. Fresh organic produce: imports of fresh organic produce are unlikely
in the near future due to the lack of organic certification equivalency.

**V. Key FAS/USDA Contacts and Further Information**

● For further information about the Korean agricultural market, please
contact:

  ----------------------------------- ----------------------------------------------
  U.S. Agricultural Trade Office      

  Korean Address: Room 303, Leema     
  Building, 146-1, Susong-dong,       
  Chongro-ku, Seoul 110-140, Korea    

  U.S. Mailing Address: U.S. Embassy  
  Seoul, Unit 15550-ATO, APO, AP      
  96205-5550                          

  Telephone: 82-2 397-4188            Fax: 82-2 720-7921

  E-mail: <atoseoul@usda.gov>         Website:
                                      [www.atoseoul.com](http://www.atoseoul.com/)
  ----------------------------------- ----------------------------------------------

  ----------------------------------- -----------------------------------
  Agricultural Affairs Office         

  Korean Address: U.S. Embassy, 82,   
  Sejong-ro, Chongro-ku, Seoul, Korea 

  U.S. Mailing Address: US Embassy    
  Seoul, Unit 15550-AgAff, APO, AP    
  96205-5550                          

  Telephone: 82-2 397-4297            Fax: 82-2 738-7147

  E-mail: <agseoul@usda.gov>          
  ----------------------------------- -----------------------------------

● For further information about sanitary and phytosanitary requirements,
please contact:

  ----------------------------------- -----------------------------------
  U.S. Animal Plant and Health        
  Inspection Service (APHIS)          

  Korean Address: Room 303, Leema     
  Building, 146-1, Susong-dong,       
  Chongro-ku, Seoul, Korea            

  U.S. Mailing Address: US Embassy    
  Seoul, Unit 15550-APHIS, APO, AP    
  96205-5550                          

  Telephone: 82-2 725-5495            Fax: 82-2 725-5496

  E-mail: aphis@kornet.net            Website: www.aphis.usda.gov
  ----------------------------------- -----------------------------------

● For information about activities by State Regional Trading Groups,
please contact:

  ----------------------------------- ------------------------------------------
  Mid-America International           
  Agri-Trade Council (MIATCO)         

  400 West Erie Street, Suite 100,    
  Chicago, IL 60610                   

  Telephone: 312-944-3030             Fax: 312 944-1144

  E-mail: <eriggs@miatoco.org>        Website:
                                      [www.miatco.org](http://www.miatco.org/)
  ----------------------------------- ------------------------------------------

  ----------------------------------- ------------------------------------------
  Western United States Agricultural  
  Trade Association (WUSATA)          

  2500 Main Street, Suite 110,        
  Vancouver, WA 98660-2697            

  Telephone: 360-693-3373             Fax: 360-693-3464

  E-mail: <bruce@wusata.org>          Website:
                                      [www.wusata.org](http://www.wusata.org/)
  ----------------------------------- ------------------------------------------

  ----------------------------------- --------------------------------------------------------
  Food Export USA - Northeast Region  
  of the United States                

  150 S. Independence Mall West, 1036 
  Public Ledger Building,             
  Philadelphia, PA 19106              

  Telephone: 215-829-9111             Fax: 215-829-9777

  E-mail: <jcanono@foodexportusa.org> Website:
                                      [www.foodexportusa.org](http://www.foodexportusa.org/)
  ----------------------------------- --------------------------------------------------------

  ----------------------------------- ----------------------------------------
  Southern United States Agricultural 
  Trade Association (SUSTA)           

  E-mail: <jim@susta.org>             Website:
                                      [www.susta.org](http://www.susta.org/)
  ----------------------------------- ----------------------------------------

● For information on the commercial and industrial products in Korea,
which includes farm machinery, cosmetic and pharmaceuticals, please
contact:

U.S. Commercial Service

Korean Address: U.S. Embassy, 82, Sejong-ro, Chongro-ku, Seoul, Korea

U.S. Mailing Address: US Embassy Seoul, Unit 15550-USCS, APO, AP
96205-5550

Telephone: 82-2 397-4535 Fax: 82-2 739-1628

E-mail: <Seoul.office.box@mail.doc.gov> Homepage:
[www.buyusa.gov/korea](http://www.buyusa.gov/korea)

[^1]: US \$1 = 980 Korean won (~~W~~) as of January 31, 2006.

[^2]: A brief report on the Korean government's regulations for imported
    food products (FAIRS Report) can be found in the ATO Seoul website
    (www.atoseoul.com) or USDA/FAS website (www.fas.usda.gov). Exporter
    Guide to Korea, written by ATO Seoul annually, is highly recommended
    to new-to-market exporters who are seeking guidance about entering
    the Korean market. Additional reports on products and market sectors
    are available from these websites.

[^3]: Detailed information about this trade-only show can be found in
    its website (www.fhko.com).