Country Market Analysis: South Korea

1. Country Market Analysis:South Korea FLAG

2. South Korea • Has been a democracy since 1987 • Has a bilateral relationship with the U.S. • Considers the U.S. friends, partners, and allies • Great if Lipton decided to import from the U.S. • Younger generations are starting to value Western thinking ideals • Would likely welcome the current Lipton brand (without extensive alterations)

3. GDP Comparisons • South Korea’s economy is ranked 11th in the world (by GDP) • With a 9.8% CAGR • Others: • China – 7th (w/ a 7.5% CAGR) • Mexico - 10th (w/ declining GR since 2000) • Russia – 16th • Sweden – 19th • Argentina – 35th

4. Ease of Trade • Trade Restrictions: • All regulations governing foreign retailers were completely lifted in 1997 • Tariffs: • 7.5% average tariff rate on beverages • Higher for fruit juices •  Relatively inexpensive importation of goods

5. Consumer Culture • Eat 3 meals a day (often spicy foods) • They serve hot Barley tea with most meals • This may present a marketing opportunity • Coffee houses and bars are growing in popularity among South Korean youth • Possible market entry points

6. Consumer Culture • Education is the most highly valued aspect of Korean culture (a virtue rooted in Confucianism) • Students are taught to protect society against social injustices • This may be an opportunity to build brand equity by being (and promoting) a socially responsible company

7. Iced Tea Industry • Total market size of the non-alcoholic beverage market in South Korea = $2.4 billion • Total market size of New Age Beverages in South Korea = $191.6 million in 2003 • The Iced Tea industry in South Korea has a 5.4% share of the New Age Beverages industry. This is approximately a $10.4 million market. •  There is already an established Iced Tea market in South Korea; Lipton would not have to develop a new market

8. Unilever already has products in the South Korean market: Skippy Bertolli Caress Reguletto Lux Dove Ponds Vaseline Rexena Unilever in South Korea

9. Unilever’s Competitive Strategy • Unilever has a “Path to Growth” strategy: focus on a leading brand (and its product mix), move into new channels, and drive into new markets for sustained future growth • This strategy would work well, as South Korea already has a Ready To Drink tea market

10. Unilever Production • Unilever Best Foods Ltd. (Hong Kong): • Produces: • Soups • Sauces • Peanut Butter • Fruit Juices • Desserts • Unilever Ceylon Ltd. (Sri Lanka): • Large producer of teas

11. UnileverHindustan is Greater China Japan Korea Australia New Zealand Southeast Asia Pakistan This presents possible distributed to: Bangladesh Sri Lanka Nepal India locations for import of Lipton Unilever Production

12. Unilever Strategy • Unilever Thai continued the Unilever strategy of strengthening its lead position in the market in Thailand: • In only 2 years, green tea has become the fastest growing product in the RTD tea segment •  Thailand has a much lower GDP per capita ($7,400) then South Korea ($17,800). This means that growth of Lipton Green Tea in South Korea may be very successful

13. Pricing Issues • RTD tea is already in the South Korean market and Lipton is in bordering countries • Lipton has a peach flavored tea in Japan called “Lipton Cool Peche” which retails for 140 Yen ($1.30) for a 500g can.

14. Pricing

15. Placement Issues • Transportation • Extensive highway and railway networks. Ports, railroads, airports and highways are stretched to capacity • The government is planning a multi-billion dollar expansion of the highway system. • Korean roads are well-paved and maintained, and most drivers comply with basic traffic laws. •  can easily transport through trucking companies • 69 airports with paved runways •  accessible international airports

16. Placement • Transportation • Korea is an adherent to TIR Customs Convention- a guarantee to arrangement under which freight shipments are permitted, to cross international borders of member-nations without discharge of the cargo from road vehicles or containers at border points for customs inspection. •  Faster, low-hassle delivery • Free Trade Zones, (A port or an area designated by the government of a country for duty-free entry of any non-prohibited goods. Merchandise may be stored, displayed, used for manufacturing, etc., within the zone and re-exported without duties) •  Cheaper cost for warehousing and manufacturing products in S. Korea in comparison to other countries

17. Placement • Market Entry: • There is already a Ready To Drink Tea market in South Korea: • Lotte Chilsung is the market leader and already has established Hypermarkets: • Lotte Discount Stores carry the Magnet private label brands • Extremely powerful: has the ability to lock out small competitors from distribution channels if they feel the companies are a significant threat

18. Placement • Lipton has a 50-50 joint-venture with Pepsi to move the Lipton brand into new distribution channels and markets and to build sales of the Lipton brand in the markets where Lipton is already present (This has been done in Thailand and Vietnam) • Lipton sells RTD Tea concentrate to franchise bottlers. Pepsi then distributes the Lipton products.

19. Distribution • Sales through vending machines in South Korea increased by 3.1% in 2001 reaching 284 billion Won ($249 Million) • Growing trend in new cashless transactions at vending machines: • Mobile phone payments • Prepaid cards • 24-hour convenience stores have grown by an estimated 45% in 2002

20. Distribution - Retailers

21. RTD Market in Korea (Competitors) • Lotte Chilsung Beverage Co., Ltd (largest beverage producer in Asia) • Coca-Cola – Nestea • Hanul Yeon Cha (Owned by Coca-Cola) • Pokka Corp. • Ships to Korea from Singapore • Snapple • Through the Hanmi Corporation • Heladiv • Kunyoung Foods Co. •  Variety of companies already established in South Korea

22. Lotte Chilsung: Emphasize fresh taste High quality Traditional Pokka “The people’s choice” Nestea Push a new-age image Young and “cool” Nestea in Korea Positioning: Competitors • Current marketing strategies to consider when designing a strategy for Lipton South Korea • VERY important to emphasize product as high quality

23. Competition • In October 2003, Unilever entered a joint-venture with Pepsi – principally to sell Ready To Drink (RTD) tea concentrate to franchise bottlers • Lotte Chilsung (based in Seoul, Korea) is the largest beverage manufacturer in Asia. It produces Pepsi branded drinks under license. • This could present a number of options for Lipton to enter the South Korean market with their Lipton Iced teas

24. Product Issues • Iced Tea flavors currently in the South Korean market: • Ceylon tea (Lemon flavored) • Oolong tea/Green Tea • Peach • Whiskey flavored • Mango • Lychee • Tarmarind • Lemon • Straight • Melon

25. Packaging • Sizes currently in the South Korean market: • Cans: • (U.S. pop cans are 355ml) • 240ml • 250ml • 175ml • 173ml • 215ml • 238ml • 245ml • 340ml • Bottles: • 500ml bottles • Koreans are very family-oriented •  Inconsistent volumes of cans lead us to believe there is not a standard size •  Iced tea is primarily consumed from single serve containers, but there is also a demand for family-sized bottles

26. Packaging: Coca-Cola • Coca-Cola’s objective was to broaden their package portfolio • Launched a 390mL PET package (similar to the Lotte Chilsung 500mL PET bottle) • Also launched 250mL can and the 330mL can • Coke also has a Peach and a Lemon flavored Ready To Drink Nestea in Korea

27. Packaging: Heladiv • Heladiv offers Ready To Drink tea in “juice boxes” •  Another packaging option • They are sold in assorted packs of 5: • Peach • Lemon • Caramel • Apple • Strawberry •  Assorted flavors and alternate packaging may be possible options for entry into the market

28. Packaging: Labeling • Younger generations are starting to value Western thinking ideals •  Would likely welcome the current Lipton brand and labeling (without extensive alterations) • Language: • Korean language must be printed on the label by law • Korean language plays an important role in their national identity • Hangul (phonetic alphabet) is the dialect used • Also instills national pride • Koreans favor very distinctive packaging

29. Packaging: Labeling • All imported food products should have Korean language labels. Labels require the following inscriptions: • Product name: the product name should be identical to the product name declared on the licensing/inspection authority • Product type: by classification code as stated in the Food Code, if no classification, product kind should be noted • Importer's business license number, name, address, and address where defective products may be returned. • Date of Manufacture: Mandatory only for specific products such as sugar.

30. Packaging: Labeling • Date of Expiry / Shelf life: Food products should identify shelf life in accordance with the Korea Food Code. • Content (weight, volume, # of pieces) all should be indicated in parentheses. • Ingredients: All ingredients should be listed with percentage content in descending order. Artificially purified water is not considered a major ingredient. • Nutritional information: Special nutritional foods, health supplementary foods, and products wishing to promote nutritional content are required to have nutritional labeling. • Other items such as cautions, as designated by detailed labeling standards for food use or preservation. Any products that must be kept at low temperature, must be clearly indicated.

31. Promotion: Advertising • 100% of South Koreans have a television • Television has a daily reach of 92% (compared to 75-85% in the U.S.) •  This means that television reaches a huge proportion of consumers in South Korea • “Drinks” were the 7th largest product category in terms of overall advertising expenditures • Beverages were not even in the top 10 in the U.S.

32. Advertising Costs: Television • 15 seconds of advertising during peak hours in South Korea is about 9,000,000 Won (about $7,900) depending on the station • This is compared to well over $50,000 in the U.S. • “Beverages” are the fourth largest product category for television advertising in South Korea • Television would be a promising medium for advertising in South Korea

33. Advertising Costs: Magazines • A full page magazine ad in South Korea runs for about 3,000,000 Won ($2,600) depending on the magazine • This is compared to well over $18,000 in the U.S. • “Drinks” are the 8th largest product category for advertising in South Korea • Some monthly magazines reach about 150,000 readers • Magazine advertising is a cost-effective compliment or replacement to television advertising in Korea

34. Advertising Costs: Others • Radio: • “Drinks” are the 5th largest product category advertised in South Korea • Radio has a 36% daily reach in Korea • Internet: • 54% of South Koreans have access to the internet • South Korea has a 45% reach of the internet each week • Only 46% of adults in the U.S. have internet access (as of 2001) • There are many different medias available in Korea for advertising

35. Promotions • The most popular spectator sports are: • Soccer • Basketball • Volleyball • The most popular recreation activities are: • Mountain Climbing • Hiking •  These would be good outlets for event-marketing or advertising

36. Market Segments • 80% of people in South Korea live in the 6 major cities: • Seoul (11 million) • Pusan (3.9 million) • Taegu (2.5 million) • Inchon (2.4 million) • Kwangju (1.4 million) • Taejon (1.3 million) • Most of the remaining population live in the surrounding suburbs •  Would present a small number of well defined geographic regions to target with the Lipton strategy

37. Target Market • The Ready To Drink teas are quite popular among South Korean young adults • Japan has experienced a similar growth in popularity (among young adults) • South Korea’s younger generations are proven to value western thinking ideals • Korea’s age distribution is most concentrated in 15-24 year-olds (15.4% of the population) and 25-34 year-olds (17.56%). This is one third of the entire population