COVID-19 restrictions and guidelines are starting to ease up across the US, but what does it look like in other areas of the world? How are restaurants dealing with changes in consumer behavior and tackling inflation?
Revenue Management Solutions Consultant, Cathy Ko, who’s located in our Tokyo office and works with various Korean clients, hopped on a video call to update us since the last time we spoke, and answered questions about pricing, the dining out experience for QSRs and off-premise dining trends in Korea.
Q. Given the current environment, how are restaurants in Korea doing?
A. The general observation is that the restaurants that offer delivery, particularly those that offered delivery pre-COVID, are doing well as they had a smooth transition to more delivery-focused sales. Restaurants that quickly jumped into delivery via existing delivery platforms, such as Yogiyo, Baemin and Coupang Eats, have also fared well. Like elsewhere in the world, in Korea, COVID has been a driving force behind restaurants adapting and refining their use of technology to impact sales and traffic.
That said, not everyone in the population is embracing technology, particularly older generations. In Korea, it’s primarily the younger generations ordering from kiosks at QSRs. They understand how to use them — but it’s a huge challenge among the older population. Unlike Japan, where QSRs dedicate staff to guiding and helping patrons use the technology, this is rarely the case in Korea.
Small restaurants have to make up for delivery costs, which is challenging — overall restaurant price increases were the result of increased costs to operators.
Large, franchised businesses already understood that delivery pricing is critical, and if not, they are learning it now. But for the smaller restaurants, inflation is affecting all facets of their business at a much higher rate and impact than larger, established QSRs. For example, the same 10,000-won (US$10) meal eaten in-restaurant could now cost 15,000 won (US$15) — a 50% increase — when ordered for takeout.
Q. What are you seeing with restaurant takeout and drive-thrus?
A. Here in Korea, it has been observed that takeout pricing costs the same as the delivery at some restaurants. Some operators forced to pay high commissions to delivery app platforms have applied blanket prices increases to their menus. Savvy consumers can compare menu prices and may discover meals delivered to their homes cost the same as meals they pick up themselves. Similar cases were observed in Japan.
Q. How are QSRs handling price in Korea, and how are you advising RMS clients?
A. RMS’ QSR clients in Korea are facing inflationary issues similar to the rest of the globe and are unable to sustain status quo prices, including, at times, pricing strategies. Historically, Korea usually takes price about once a year, but we’re beginning to see a change. For example, we’ve observed that some brands, such as Starbucks, are taking price for the first time in seven years here in Korea. Other QSRs are announcing larger increments — amounts we’ve never seen before — and we expect to see more of that.
Our advice to RMS QSR clients in Korea is to stay within the projected CPI. Some QSRs are approaching it more aggressively. (One of the largest QSRs is taking 4%.) Even in this unpredictable and unprecedented time, RMS typically advises clients in these markets to stay within a 1.5% increase and not exceed 2.5%. When more increases are necessary, spread them to multiple pricing rounds a year.
Q. Have there been any positives for restaurants in Korea?
A. The environment here in Korea is very different from the US. We’ve never shut down. Masks are mandatory for anyone older than 14 (except for those with medical exemptions), including those who have been fully vaccinated. Throughout the pandemic, the biggest change has been limiting operation hours and party size. The current limit is six guests; previously, the party size was capped at four.
A positive has been guest perception. So far, consumers seem to be understanding regarding price. They understand that the price they are paying for an experience stems from a market issue across all brands.
We encourage QSRs located or with a presence in Korea to reach out to RMS. We are here to help with plans localized to the specific climate and requirements. Please contact us today to get started.
RMS has offices and staff all over the world. We’ll continue to provide regional updates from across Asia, Europe and North America. If you are interested in learning more about how RMS’ solutions can help you optimize sales, menus and profitability, please schedule a 30-minute demo of the solution that best meets your needs.