You need only check out professional eaters on YouTube or Psy’s latest video to see that eating is a national obsession in Korea. What’s more, metropolitan Seoul is active 24 hours a day and is home to around 26 million people. Taking this into account its not surprising that the market size for the restaurant sector is around $60Bn per year, with more than 500,000 restaurants open for business.
The area of this enormous market that has seen the most innovation in recent years is the delivery market, which is now the third largest in the world (behind only the US and Europe), and is worth around $12Bn per year.
Vast smartphone proliferation in Korea is now making location-based services feasible and valuable to restaurant businesses who are able to deliver targeted information about their businesses to customers in their vicinity. Instead of flyers, restaurant owners are turning to smartphone innovations for their advertising. Now for as little at $50 restaurant owners can expect double digit traffic increases, compared with single digit results for a $200 spend with flyers.
Another innovation is the introduction of a one-stop service for order and payment, providing customers with increased flexibility and reducing the barriers to ordering on moblie. As a result smartphone orders are growing rapidly and the commissions paid on orders still represent only a small fraction of the old methods of advertising, while increasing efficiency through targeting.
Two young food delivery companies, Woowa Brothers and Yogiyo, are growing rapidly to meet the opportunities that are emerging. Ticket Monster, a social commerce company, has also recently entered the market. Woowa Brothers and Yogigo have both recently secured financing of more than $10M and are increasing their market presence through aggressive TV advertising.
Currently, only about 15% of Koreans use smartphones to order food. Imagine the opportunities when this figure increases to around 50%, which has been predicted by industry experts within the next three to five years.
Excluding deliveries, the Korean restaurant market is worth around $50Bn and unlike other countries, there is no dominant player. This is largely because most local restaurant information can be found on blogs. However, under shifting digital marketing trends brought on by smartphone proliferation, both consumers and restaurant owners are looking for new channels.
Current ‘mobile-first’ attempts to disrupt restaurant curation in Korea can be summarized as follows:
- 1. Connecting customers and restaurants using location-based information
The perfect marketing channel would enable restaurants to reach nearby hungry people in real time. While smartphones can’t determine levels of hunger (yet), the point is that digital marketing tools that facilitate location-based advertising would be highly effective.
Recently both SK Telecom and Google roled out location-based restaurant search services and if coupons are added, these could become effective marketing solutions. Foursquare and Seeon have also found ways to connect customers with relevant local information when customers check-in. They also ‘piggy-back’ other social networks to increase check-in frequency.
One of our portfolio companies, LocNall, is also entering this market. Their car navigation service, Kimgisa, identifies people going to specific destinations and connects them to restaurants in the immediate vicinity of their destination.
The most important factor in location-based services is knowing the exact location of the customer. Navigation services can go one step further, by providing exact information on the customer’s current location, destination, and route. This online-offline service is clearly very interesting.
Targeting users effectively with coupons and advertisements that are actually beneficial is also of paramount importance. Failure in this could directly lead to a loss of users. Therefore, combining location-based information wtih customer’s tastes is vital.
Again, it would be great if smartphones could point out who was hungry!
- 2. Restaurant curation based on Social Recommendation
Currently there are no dominant players able to provide reliable restaurant recommendations (Yelp has not made it into the Korean market yet). One way to address this is through social media, particularly through recommendations of ‘power bloggers’ or ‘industry celebrities’. Wouldn’t people be more likely to trust recommendations made by industry experts? And if they have a large social following, this could become a powerful and reliable channel.
Mangoplate, a Korean startup gives users influence ratings, based on the number of restaurants they have visited, the number of people they follow, and the number of followers they have. Restaurants with high influence grades rank at the top. Additionally users can find restaurants through recommendations from their followers.
There are important prerequisites when curating on the basis of information gained through relationships. To start with we put a much higher value on recommendations from personal connections. How much information is actually available for a restaurant is another important factor. In addition, if information is too concentrated around top ranking restaurants, the service loses its value. These issues can be challenging.
- 3. Restaurant curation using big data
While restaurant information on korean blogs is generally high quality it is highly fragmented, meaning that to make a clear decision a number of blogs must be read, which is highly inefficient.
Diningcode creates restaurant rankings based on keywords by agregating data from various blogs. The advantage is that it provides a curated list of quality restaurants based customer needs. For example, this service is not only able to respond to search keywords like “good restaurants in Seoul,” but also “Korean restaurants in Seoul with good parking.” Diningcode helps to curate the enormous amount of web data based on a diverse range of keywords.
Big data analytics could provide a better recommendation model, but based on a few prerequisites. An we ensure that information on top blogs, which have the most influence, be unbiased? Ensuring that information distortion that can push good restaurants away from top rankings is also an issue. On account of this it will be very important ensure consistency in the way information is displayed.
This approach is similar to that of opentable. Imagine if all you needed to do was to go and sit down?
Poing handles the whole process from finding a restaurant to making a reservation with just few clicks. It covers quite a large number of restaurants and you can place a reservation without making a phone call. Reviews are also encouraged, so it provides useful customer reviews based on actual visits.
This is a service for high-end restaurants. As Poing is a vertical curation service its target user base needs to be narrowed, meaning potential scale issues down the road.
A payment function may be added to this service in the future, to apply to all restaurants. In the future this service could function like Uber, providing a one-stop service from reservation to order to payment. The delivery market is already moving in this direction.
The most important factors for growth in the industry are maintaining reliable information and offering an effective approach to customers from the point of view of advertisers. Making sure that these two factors are in place is extremely difficult. That is why this remains the market that is a huge opportunity, but on that is still difficult to address.