Dram Man

This is a post I always wanted to do. I was reminded of it the other night as I was shopping. Shopping, or well shopping for us foreigners, in Korea is always a convention breaking exercise. For my family and friends in the states, the usual answer is “Don’t they have grocery stores there?” The answer to that is yes and no, they have them, but good selection is entirely different. Those in Korea usually ask, “Why can’t I find anything?” This answer is more complex.

To give a little perspective, I am now in my six year of life in Korea. Furthermore, as many of you know, I used to run a restaurant. Both have given me enough inspiration and experience to write this little post. However please note that a good part of this is my opinion. 

Why can’t I get anything?

This is a common lament among foreigners. One of the most ready answers is tariffs and quotas. In a way this is a fallacy, particularly in the past few years as both tariffs and quotas have generally fallen in Korea. However, this does not mean they are gone entirely. This is readily evident in the fight over rice these days. In a less public way, this is also likely why there are few limes in Korea. Korea has a general quota for all citrus, limes get squeezed out in favor of oranges and grapefruit (excuse the pun). 

Still however, that is a cop out in light of the general decline of tariffs on food products, processed foods in particular. The real reason is more what I like to call the “one percent” theory of marketing. This idea is how I explain why the US is such a magnet for exporters worldwide. It is a function of disposable income and of population. In short it is “If just one percent of the population gives you a dollar, you would be rich”.

One percent of Korea’s population is on about 500,000 compared to the 3,000,000 in the US. Further, the average Korean household spends $2,722 a year on food, compared to $3,021 in the US (not including eating out). So as you can see, not only are the more people to sell to in the US, they also have more money to spend. 

Add the above cold numbers to the other well known facts and rumors about Korea, expensive infrastructure, excessive red-tape, resistance to foreign products, complicated tariff structures, etc., one can easily assume that importing to Korea would not only be questionably profitable in money terms, but also in opportunity costs. This last one is a killer. You could put up with the same hassles in Japan, yet Japan has more people and spends more. Or for that matter, China looms large for everyone, and the reward well offsets the risk.

In addition, these facts cut both ways. Even Korean firms find it profitable to do other things, or go to other markets. This leads to remarkably fewer alternatives in markets. For example jam. Korea only has two or three jam producers in my estimation. Furthermore they only support two or three flavors of jam. Now in practice one can find a few more varieties and brands of jam in Korea. However it is obvious to anybody that the average store in the United States has vastly more types and brands than an average store in Korea. 

Don’t they have grocery stores there?

 The answer to this is obvious. However it fails to grasp the differences in grocery stores in Korea versus the United States. Korea’s story is not only telling for living here, it is, if you allow the tangent, a warning for the lefties that protest against things like Wal-Mart and such.

If you look at the Korean grocery sector, the number and size of the stores strike one. Predominantly grocery stores in Korea are vastly smaller, and more numerous, compared to the United States. Why is somewhat unimportant, what matters is how this effects the basic economics of the industry.

Put yourself in the shoes of an average storeowner in Korea. You have limited space for products. Accordingly you have to make that limited space as profitable as possible. Again its opportunity costs, not only do you not make money from a non-selling product, you also loose money since that non-selling product takes up space that could be occupied by a selling product.

Accordingly you are going to take fewer risks in your purchasing decisions. To take the jam example above (and show how it reinforces the above argument), if you have space for two types of jam, you are obviously going to pick the two most popular types, grape and strawberry, or you may choose a budget and premium strawberry brand, etc. However, you will not risk the space to sell Orange Marmalade since you are unsure of the sales potential.

This again interplays with the import decisions. I mentioned briefly the high costs of distribution in Korea. If you put yourself in the shoes of a strawberry jam importer, you may have a cheap high quality product, but the task of trying to sell and supply the hundreds of thousands of small sellers would be daunting task compared to paltry reward discussed earlier.

Most foreigners here however know the larger the store, the more likely foreign goods, or acceptable Korean substitutes, can be found. Thankfully, the past few years in Korea has seen an explosion in “hypermarkets”, much part of global retailing giants. This concept is international in nature, and oddly does not have many analogous stores in the US. They are growing however with the spread of Wal-Mart “Supercenters” and “Super” K-marts.  In essence a Target type store with a supermarket attached.

Many think that the reason why these stores have more foreign goods is because they are foreign owned. Undoubtedly this is partially true in this era of global supply chains and unified purchasing to reduce costs, however I think their size has more to do with it. The same market forces there in the US as well. The local 7-11 has a fewer varieties of ice cream in flavor, brand, and size than the traditional supermarket.

If one can excuse the tangent, this is one of the reasons I laugh at lefties that lecture about the evil of larger and larger stores, and the panacea of smaller independent stores. If one were to actually migrate to the model lefties propose, I am sure that world would looking nothing like the fantasy.

Undoubtedly we would see a situation similar in Korea, stores maximizing there scares space by selling fewer even more homogenized products. In short, the likelihood that Wal-Mart will donate shelf space for organic ginseng infused indigenously grown corn flakes costing $10 a box is a lot more likely that a small shop who only has space for corn flakes he knows he can sell, Kellogg’s costing $3 a box. Furthermore, it would be easier for the native peoples of eastern Nobingo to sell their environmentally friendly non-rainforest destroying mangos to three global purchasing and logistics companies rather than dealing with MILLIONS of small shops in the United States.

In short, if the lefties really want to change the way the world buys and eats foods, they should be supporting the economies of scale found in mega-retailers, not working against them. Off my philosophical high horse now, I should continue to expose this hypocrisy in a future post.

So where do I buy stuff?

This is an interesting question. A common answer by Koreas is to go to “X” market. “X” in Seoul is usually Namdaemum, or Gwanak (A more commercial, and food focused, version of Namdaemun). While worth the mention, it is a pipe dream. The vast variety of small sellers, as well as the size, makes shopping somewhat impractical. However, most Koreans are correct in that you are likely to find it there, like a needle in a haystack.

A more accessible place to go is the foreign owned hypermarkets. The Korean owned versions (E-mart, Lotte Mart, etc.) are either focus more on supplying Korean, or Korean oriented goods, since they do not have the global purchasing reach, and frankly their Korean management and purchasing systems hinders they ability to “think outside the box” and bring innovate products to market (sound familiar?). The department stores (Hyundai, Lotte, etc.) are simply too expensive to even consider in my opinion.

In the spirit of fun, I give you the Korean Hypermarket Rewards:

Honorable Mention: Home Plus

Home Plus is a joint venture between Tesco of the UK, and the Samsung chaebol. Perhaps because it is a joint venture, the foreign risk taking influences are restrained and the end product is pretty bland. In fact because of convenience, I have been shopping at Home Plus off and on for a while now and it’s disappointing to see it gradually decline into mediocrity.

It does have a few deals, and a selection of foreign goods, however none of it is worth a special trip. That is unless your alternatives are limited.

Most Oddball: Da Nong Market

“Da What?” Obviously this is not a foreign owned store, however I would derelict if I did not share this great place. Da Nong perhaps best described as the Korean Costco. It sells items mainly to businesses, so big sizes are available. However, it does sell many things in normal consumer sizes.

However size has nothing to do with it, what makes this place nice is since it supplies restaurants, it needs to carry items that a Korean would eat perhaps once in his life. Meanwhile these same things are consumed almost daily a foreigner. Also if you look closely, Da Nong also supplies some of the expensive Foreigner boutique places in Hanam-dong.

Items of interest at Da Nong include horseradish, inexpensive bacon, a great spice selection, and generally lower prices than many Korean stores.

Finding Da Nong’s however can be a problem. They are a chain, I know that, but I only know about two exactly. One is at the commercial vegetable market in Gwanak, and the other across the street from Seoul’s World Cup Stadium, in another smaller commercial market, across the street from Carrefour.

Most Luxurious Selection: Carrefour

Carrefour is an interesting place. Most of its selection is rather generic, until you look closely. Most of the foreign items Carrefour stocks are on the high end of quality. Costco may take the hearts of many for its Cheese selection, however in my mind if you want great cheese Carrefour is worth a try.

No doubt a good part of this is because of its French roots, which is reflected in its purchasing and the generics they import. Not to bring up the stereotype, but Carrefour wine selection is amazing for Korea, especially at the low end. Surprising for Korea you can get a great bottle of wine for less than $5 at Carrefour.  To give balance, Carrefour’s bakery is surprisingly among the worst in Korea in my opinion.

Most Western Shopping Experience: Costco

Costco is one of my favorite destinations. Note I say destination, not store. Shopping at Costco is difficult due to the size of the purchases you need to make. It is even the cheapest in a lot of things. For example salsa is about 30-50% less, unfortunately you need to buy 3-5 times the amount you normally would.

However Costco cures homesickness. Most of what they carry is imported. Even goods made in Korea are imported because they are cheaper, or not found in the right (e.g. big) size. There reliance on imports from their own supply chain also makes them the best, if not only supplier, of some items. Finally, as many can attest to the bakery and the cheese selection cannot be beat.

Best Overall: Wal-Mart

This may surprise many, and in a way surprised me. Costco would normally take this spot, however the redneck haven has advantages. First, obviously is size. Wal-mart sells more conveniently sized items. Second, is selection. Costco not only restricts you in volume, but it brand and type. If you want mustard in Costco you by two big bottles of yellow mustard, meanwhile last time I was in Wal-mart I counted about 10-15 variations in brand, type, and sizes.

Like Costco, Wal-mart’s major advantage is that it does it best to take advantage of its global supply chain. It imports a surprising number of goods. Surprisingly it even imports its generic brands in addition to cheap off-brand imports. Normally most stores only buy the off-brand as well as the import.

The real charm to me however is Wal-Mart’s stubborn nature in applying their US business model. To be frank Costco, while nodding to Korean sensibilities, largely feels like god picked up a store in Kansas City and plopped it down in Korea. Meanwhile Wal-mart tries much better to adapt to Korean suppliers, yet keeps items around for much longer than Costco. To take the earlier jam example, Costco says, “We will carry Strawberry, but it will be from a US supplier, and you must buy four gallons of it”, meanwhile Wal-mart says “We will sell Korean strawberry jam, but it would not be Wal-mart if we did not sell orange marmalade and apple butter!”