Major Policy Plans for the 3rd Restaurant Industry Promotion Basic Plan in Korea

Major Policy Plans for the 3rd Restaurant Industry Promotion Basic Plan in Korea

Published: 2024.07.31
Accepted: 2024.07.15
31
Food and Marketing Research Center, Korea Rural Economic Institute

ABSTRACT

In August 2022, the Ministry of Agriculture, Food, and Rural Affairs of the Republic of Korea announced the 3rd Restaurant Industry Promotion Basic Plan. It is a statutory basic plan established every five years to ensure qualitative growth in the restaurant industry. This 3rd plan was established by evaluating previous plans and reflecting the changed policy environment and future prospects. The Ministry of Agriculture, Food, and Rural Affairs presents major strategies in four key areas: innovation; globalization; coexistence; and inclusion. This paper is the first contribution to introduce this national plan for Korea’s restaurant industry.

Keywords: the 3rd Restaurant Industry Promotion Basic Plan, Korean restaurant industry

BACKGROUND OF ESTABLISHMENT

Status of the restaurant industry in Korea

The restaurant industry plays an important role in the people's eating habits and the national economy. The demand for restaurants is increasing due to recent rises in income levels and an increase in single-person and dual-income households. Eating out accounts for 43.8% of household grocery expenses, and Korean households consume almost half of their food through eating out. The market size of Korea's restaurant industry is KRW144 trillion (US$103 billion), 2.8 times that of the agriculture and forestry industry, accounting for 2.7% of the country's total added value. The number of employed people is 2.19 million, accounting for 9.6% of the country's total employment. In addition, the restaurant industry is a large consumer of domestic agricultural products and has a significant ripple effect on various fields such as culture and tourism.

Impact of COVID-19 and challenges of the restaurant industry

The restaurant business suffered great difficulties due to the COVID-19 pandemic. Despite a surge in non-face-to-face transactions, the overall market size has shrunk due to a decline in in-person dining. Rising operating costs have increased the burden on restaurant companies, and new strategies are needed for innovation and growth in the restaurant industry. There is a need to pioneer non-face-to-face restaurant demand and the RMR (Restaurant Meal Replacement) market as new growth avenues and support innovative growth by applying cutting-edge technologies such as 5G, robots, big data, and AI. Measures to improve the sustainability of the restaurant industry through eco-friendliness and social contribution are also becoming important.

The COVID-19 pandemic has had a profound impact on the restaurant industry worldwide, and Korea is no exception. The restrictions on social gatherings and the enforcement of social distancing measures led to a significant decline in dine-in customers. Many restaurants were forced to pivot to delivery and takeout services to survive. However, this shift brought its own set of challenges, including the need for investment in delivery infrastructure and technology, changes in menu offerings to suit delivery, and increased competition from established delivery platforms.

Moreover, the pandemic has highlighted the vulnerability of the restaurant industry to external shocks. The increase in operating costs, including those for sanitation, personal protective equipment (PPE), and higher delivery fees, has put additional financial strain on businesses. Restaurants now need to adopt innovative strategies to stay competitive and resilient in the face of such challenges. Embracing technology and digital transformation is no longer optional but a necessity for survival and growth.

EVALUATION OF EXISTING PLANS

Progress of existing plans

The 1st Plan (2012-2016): With the enactment of the Restaurant Industry Promotion Act in March 2011, the Ministry of Agriculture, Food, and Rural Affairs (MAFRA or the Ministry hereafter) promoted the establishment of a statistical base for the restaurant industry, the training of professional manpower, the development of excellent restaurant companies, and the expansion of overseas markets. This plan laid the groundwork for systematic growth and professionalization within the industry.

The 2nd Plan (2017-2021): MAFRA continued to support the stabilization of the restaurant industry management, preparation for hands-on startups, strengthening of agricultural connections, and training of professionals for overseas expansion. This plan built upon the foundations of the first plan and introduced more targeted measures to address specific industry needs.

Evaluation of existing plans

Increased competitiveness

First, in terms of improving competitiveness, it has contributed to the quantitative growth of the industry through restaurant startups, business stability, and consumption promotion. For example, MAFRA supported successful settlement after starting a business through a restaurant startup incubation program and the creation of a community space for startups. Management stability was strengthened through management consulting and funding for restaurant business development. Consumption was promoted through restaurant discount coupons and the selection of leading restaurants. However, problems such as market saturation, low long-term survival rates compared to other industries, and continued decline in operating profit rates require improvement.

The focus on increasing competitiveness has yielded positive results, with more restaurants being established and a higher degree of business stability achieved through various support programs. However, the rapid growth has also led to market saturation in some areas, resulting in intense competition and a lower survival rate for new entrants. The industry's operating profit margins have also been under pressure due to rising costs and the need for continuous investment in innovation and marketing.

Infrastructure construction

Second, in terms of infrastructure construction, support for R&D and commercialization in the restaurant industry was insufficient to improve the expertise of restaurant workers, respond to worsening employment conditions, and innovate the industry. The support project for professional training institutions has been discontinued since 2015, and efforts to strengthen expertise at the restaurant industry level have also had limitations. Promotion of R&D related to the restaurant industry has been insufficient, and support is needed to identify and commercialize R&D projects in the food tech field.

Infrastructure development is crucial for the long-term sustainability of the restaurant industry. However, the discontinuation of the professional training support project has created a gap in the availability of skilled manpower. There is a pressing need to revive and expand these training programs to equip the workforce with the necessary skills to handle new technologies and innovative practices. Additionally, increased investment in R&D is essential to drive advancements in food tech and enhance the industry's overall productivity and efficiency.

Overseas expansion

Third, in terms of overseas expansion, customized support was promoted to reflect the industry's demand for overseas expansion, but the establishment of a system and provision of information for systematic support were insufficient. MAFRA has supported participation in franchise fairs, holding overseas investment briefing sessions, and online and offline market testing, but additional support is needed such as expanding consulting centers specializing in restaurant services.

The potential for overseas expansion remains significant, given the global interest in Korean cuisine and culture. While efforts have been made to support this expansion, the lack of a comprehensive system and adequate information has hindered the full realization of this potential. Establishing specialized consulting centers and providing more detailed market insights can help restaurant companies navigate the complexities of entering foreign markets and establish a stronger international presence.

Agriculture and win-win cooperation

Fourth, in terms of coexistence with agriculture, the effect of using domestic food ingredients through cyber exchanges and Posmall was minimal, and the direct transaction event at the producer level was not promoted due to the abolition of the business after 2017. Focusing on restaurant companies, measures are needed to resolve difficulties related to the use of domestic food ingredients, improve accessibility, and provide incentives.

Strengthening the relationship between the restaurant industry and the agricultural sector is vital for ensuring a stable supply of high-quality ingredients. However, previous efforts have fallen short, and more needs to be done to facilitate direct transactions and promote the use of domestic produce. Incentives for restaurants that prioritize local ingredients, along with streamlined processes for direct purchasing, can enhance this cooperation and benefit both sectors.

Communication and management system

Lastly, in terms of the communication and management system, there was a lack of communication with industry and experts during the plan establishment and implementation process, and the management of task implementation status was inadequate. MAFRA operated a policy consultative body in which experts from the restaurant industry and academia participated, but it has not been in operation since 2014. It is necessary to improve performance by quickly resolving problems when they occur through regular implementation status checks.

Effective communication and management systems are critical for the successful implementation of industry plans. The discontinuation of the policy consultative body has led to a disconnect between the industry's stakeholders and policymakers. Re-establishing this body and ensuring regular status checks can facilitate better communication, timely problem-solving, and more effective implementation of strategies.

BASIC DIRECTION OF THE 3RD PLAN

Vision and goals

The vision of the 3rd plan is “to become a leading country in the global restaurant industry.” The first goal is to expand the number of unicorn companies from 0 in 2021 to 10 in 2026 through food tech. Second, the number of restaurant companies with sales exceeding KRW1 trillion (US$741 million) will be increased from 1 in 2021 to 5 in 2026. Third, the number of overseas stores operated by Korean restaurant companies will increase from 3,409 in 2021 to 5,000 by 2026. The ministry proposes four strategies as key priorities to achieve these goals.

Strategy 1: The restaurant industry leaps forward through innovation

Creating an innovation ecosystem including R&D and commercialization

The ministry promotes the development of food technology to innovate the restaurant industry and strengthens R&D support with the goals of overcoming manpower shortages, increasing added value, and improving management efficiency. Through this, MAFRA aims to replace simple labor and dangerous tasks with robots, pursue efficiency in food ingredient distribution, and improve non-face-to-face entrepreneurship education and safety.

Investing in food technology is essential for transforming the restaurant industry and addressing its current challenges. By leveraging advancements in robotics, artificial intelligence, and automation, restaurants can enhance operational efficiency, reduce reliance on manual labor, and improve overall service quality. For example, cooking and delivery robots can streamline kitchen and front-of-house operations, while AI-driven analytics can optimize inventory management and customer engagement.

The ministry supports the introduction of new technology products and promotes commercialization through prototyping and sales consulting. For this purpose, a fund of funds is being established to provide stable business funding for startups in the food tech sector. This initiative aims to create a supportive ecosystem for innovation, where new ideas can be developed, tested, and brought to market successfully.

The ministry supports cooperation between startups and restaurant companies through the Restaurant Industry Development Forum and supports early commercialization of new technology products. To this end, MAFRA encourages autonomous cooperation among companies related to the introduction of food tech products and support promotional and consulting costs for startups and restaurant companies.

Collaboration between startups and established restaurant companies is crucial for driving innovation and accelerating the adoption of new technologies. By fostering partnerships and providing financial and advisory support, the ministry aims to create a dynamic environment where innovative solutions can thrive.

The ministry promotes innovation through various food tech application cases such as cooking robots, delivery robots, and packaging using potato starch. These examples demonstrate the potential of food tech to revolutionize different aspects of the restaurant industry, from food preparation and delivery to packaging and sustainability. By showcasing successful case studies and best practices, the ministry can inspire other businesses to explore and adopt innovative technologies.

Spread of smart technology and data economy

The ministry is promoting a project to create 'smart dining streets' that supports the introduction of smart technologies such as cooking and serving robots, focusing on excellent regions among the nation's dining streets. In addition, through the smart store support project of the Ministry of SMEs and Startups, MAFRA is distributing stores equipped with smart technologies such as IoT, AR/VR, and AI.

The concept of 'smart dining streets' involves transforming traditional dining areas into tech-enabled zones where advanced technologies enhance the dining experience. By integrating IoT devices, augmented reality (AR), virtual reality (VR), and artificial intelligence (AI), these smart dining streets can offer personalized and efficient services to customers. For example, AR menus can provide interactive and immersive dining experiences, while AI-powered systems can predict customer preferences and optimize service delivery.

The ministry is promoting the activation of the My Data service to improve the management of restaurant companies, and provides information such as major customers, preferred menus, and visit times by analyzing card transactions, POS, and delivery app usage data of individual restaurant companies.

The ministry provides training on how to use digital devices and platforms through management consulting projects and start-up/refresher training and holds demonstration events for new technologies related to food tech.

Improvement of regulations and development of companies and talent

The ministry will improve regulations such as allowing sidewalk traffic for the commercialization of delivery robots and establish hygiene and safety standards for serving and cooking robots. MAFRA will resolve the manpower shortage by expanding the industries that allow foreigners to work while visiting.

The ministry strengthens support for the commercialization and nurturing of startups in the food tech sector by supporting startups and nurturing leading companies. MAFRA actively guide and promote promising food tech companies so that they can grow by utilizing the K-Unicorn Project.

The ministry strengthens the practical capabilities of university graduates in the restaurant field by operating internships at restaurant companies, and fosters talent needed in the industrial field by opening and operating a food technology contract department.

Developing a skilled workforce is essential for the long-term success of the restaurant industry. The ministry's efforts to strengthen the practical capabilities of university graduates through internships and the establishment of a food technology contract department will help bridge the gap between academia and industry. These initiatives ensure that graduates are well-prepared to meet the demands of the evolving restaurant sector and contribute to its growth and innovation.

Strategy 2: K-Dining that the world is looking for

Establishment of a close support system for each stage of overseas expansion

The ministry operates an overseas expansion desk and a local support center for each country to provide step-by-step preparation consultation and resolve local difficulties. MAFRA provides the latest partner and buyer information for each country you wish to enter, and support matching through online consultations.

The establishment of an overseas expansion desk and local support centers is a strategic move to facilitate the global expansion of Korean restaurant companies. These centers provide comprehensive support at each stage of the expansion process, from initial market research to operational setup. By offering detailed information on potential partners and buyers, as well as facilitating online consultations, the ministry helps businesses navigate the complexities of entering foreign markets and mitigate risks.

The ministry will improve the overseas expansion voucher project to systematically support each stage of expansion. In the preliminary entry stage, MAFRA supports target country market research and market testing, and in the initial entry phase, MAFRA supports the rental of a joint logistics warehouse and liaison office to procure local food ingredients. In the localization stage, MAFRA supports the development and advertising of new menus and packaging designs that suit consumer preferences.

The ministry shortens the information provision cycle and systematically provides information necessary for overseas expansion such as restaurant market trends by country, consumer preference menus, and food material export customs clearance information. This ensures that restaurant companies receive the necessary information in a timely manner.

The ministry inspects overseas expansion and store operation performance every year and checks business performance by tracking the expansion of restaurant companies with a history of support and the overseas store operation performance.

Promoting globalization of K-restaurant brands

The ministry uses Korean Wave content and influencers such as overseas YouTubers to promote domestic restaurant brands in countries with promising overseas expansion potential. MAFRA promotes domestic restaurant brands to foreigners visiting Korea through collaboration with airlines and travel agencies. MAFRA publishes and distribute foreign language promotional materials targeting major overseas media outlets, buyers, and consumers.

To support the overseas expansion of small and medium-sized restaurant companies, the ministry is improving the overseas expansion professional training program and operating in-depth training programs for executives and employees of restaurant companies. By utilizing the atmosphere of the spread of the Korean Wave, MAFRA encourages restaurant companies to expand overseas by promoting the benefits of overseas expansion such as corporate profits and enhancement of national prestige.

Strengthening service competitiveness and revitalizing new markets

The ministry operates restaurant service quality evaluation standards and rating systems to improve and supplement the system for designating excellent restaurant operators and safe restaurants. MAFRA improves service quality evaluation standards with a focus on customer service and provide incentives for participation in the rating system to encourage its spread.

Strengthening service competitiveness is crucial for maintaining high standards and attracting customers in a competitive market. The ministry's efforts to operate service quality evaluation standards and rating systems help identify and recognize excellent restaurant operators. By focusing on customer service and providing incentives for participation, the ministry encourages restaurants to continuously improve their service quality and enhance customer satisfaction.

In response to value consumption trends, the ministry will revitalize the restaurant market that meets the diverse needs of consumers, including the use of low-carbon agricultural products. In cooperation with restaurant companies, producers, and related organizations, MAFRA will expand the use of low-carbon certified agricultural products as food ingredients, and provide information on each item and promote joint promotions to stimulate consumption. When the overall conditions are mature, a certification system for the use of low-carbon agricultural and livestock products in restaurants will be introduced.

Strategy 3: A restaurant industry that coexists with agriculture, the environment, and society

Expanding the use of domestic food ingredients

The ministry will activate online transactions between producer organizations and food and beverage companies and provide information on supply and demand for each item to promote direct transactions such as contract farming. To this end, MAFRA will activate the use of the Eat system, encourage participation in the agricultural and food online exchange, and promote direct trading of local specialties and new types of agricultural products. In addition, a direct transaction marketplace exclusively for restaurant companies will be opened on a private online shopping platform.

The ministry supports the development of restaurant and beverage menus using local specialties and new varieties of agricultural products and the expansion of consumption. Through MOUs with the Restaurant Business Department, MAFRA will promote the commercialization of menus using local specialties and eco-friendly agricultural products.

Collaborating with the Restaurant Business Department through MOUs allows the ministry to promote the development and commercialization of menus that feature local specialties and eco-friendly agricultural products. This initiative not only supports local farmers but also offers unique and diverse menu options to consumers. By highlighting the use of high-quality, locally-sourced ingredients, restaurants can attract health-conscious and environmentally-aware customers.

The ministry supports local governments in revitalizing local food restaurant certification systems and provides food cost support to restaurants that use local agricultural products. Through this, MAFRA revitalizes the supply and demand of local food ingredients and encourage the participation of restaurant companies.

The ministry promotes restaurants that use domestically produced food ingredients to expand consumption and considers linking the performance of domestically produced agricultural products with ESG evaluations to encourage participation by restaurant companies. MAFRA uses various promotional tools to promote restaurants that use domestic kimchi, domestic beef and pork, etc.

Strengthening connection and cooperation with rural areas

The ministry revitalizes rural and food tourism by supporting travel programs linking local tourism resources and local food. In connection with the rural tourism program development project, MAFRA revitalizes the local dining market and operate rural experience train travel products.

The ministry operates a local food experience program and cooperates with companies to support the launch of local food RMR products and entry into the online market. The local food experience program provides an opportunity for consumers to learn about and appreciate local food ingredients and culinary traditions. By cooperating with companies to support the launch of local food RMR products and their entry into the online market, the ministry helps expand the reach of local products and enhance their visibility. This initiative also supports local producers by providing them with new distribution channels and increasing their market access.

The ministry encourages various cooperative activities such as revitalizing the local restaurant industry, resource circulation, and disaster damage recovery through sisterhood relationships between restaurant companies and cities and counties. To encourage the participation of restaurant companies, MAFRA will consider ways to link the performance of cooperative activities with rural areas with ESG evaluation.

Spreading ESG management in the restaurant industry

The ministry discovers and promotes best practices related to ESG management of restaurant companies to increase industry and consumer interest in fulfilling social roles. This promotes pride in the restaurant business and spreads an atmosphere of participation.

The ministry prepares evaluation indicators and operation plans tailored to the characteristics of the restaurant industry, taking into account the K-ESG guidelines and small and medium-sized enterprise ESG checklist, and promotes evaluation. MAFRA encourages smooth participation in evaluations through prior ESG management consulting support, select companies with excellent management, and provide incentives such as government awards, priority support for financial projects, and preferential interest rates.

The ministry prepares support measures to enable small businesses and small business owners to participate in environmental protection and social contribution. Through this, various measures are promoted such as the use of reusable delivery and packaging containers, reduction of food waste, and use of eco-friendly food ingredients.

Strategy 4: The restaurant industry grows together through inclusion

Crisis response and management stability support

The ministry develops and distributes crisis response guidelines for restaurant companies to prepare for various crises, such as resurgence of infections and global supply chain crises. In addition, MAFRA will discover and distribute excellent management practices such as the optimal number of menus and service methods suited to business conditions such as commercial area, store area, and number of employees, and introduce a system to provide start-up and management information using AI.

To recover from coronavirus damage, the ministry is raising the loss correction rate and lower limit of compensation and providing separate support for loss compensation so that restaurant companies can quickly normalize their operations.

The ministry continues to provide support for food ingredient purchasing, facility modernization, management consulting, etc., and supports the establishment of shared kitchens for the production of convenient meals. In addition, MAFRA continues to promote joint purchasing of excellent food ingredients, funding for restaurant business development, and management consulting projects.

Sufficient start-up preparation and recovery support

The ministry increases long-term survival rates by providing restaurant business management training and store operation practice opportunities before starting a business. MAFRA develops and support training courses including main menu and location selection, store management, and tax and labor management tips. In cooperation with local governments, MAFRA provides store operation training opportunities to those who have completed theoretical training and expand the scale of practical training support.

The ministry promotes long-term survival through matching and consulting support with restaurant companies in the early stages of starting a business. MAFRA has changed the restaurant industry consulting agency registration system to use registered consulting agencies as management consulting business operators.

Providing matching and consulting support to new restaurant businesses in the early stages is crucial for ensuring their long-term success. The ministry's efforts to match new businesses with experienced restaurant companies and provide consulting support help address common challenges and improve operational efficiency. By changing the consulting agency registration system to include registered consulting agencies as management consulting business operators, the ministry ensures that businesses receive high-quality, professional advice and support.

Improving working environment and preventing safety accidents

The ministry improves the working conditions of restaurant workers and prepares various support measures to prevent safety accidents. MAFRA provides safety-related items such as kitchen fire extinguishers to restaurant companies that participate in policies such as service rating systems and ESG management.

The ministry promotes insurance subscription guidance and insurance premium support so that small restaurant businesses can quickly compensate for losses when they suffer disaster damage. MAFRA supports compensation for damages caused by fire, facilities, and business operations at small business establishments through mutual aid products operated in cooperation with the Korea Federation of Small and Medium Business and private insurance companies.

CONCLUSION

The 3rd Restaurant Industry Promotion Basic Plan, which aims at qualitative growth and innovation in the restaurant industry, is promoting the sustainable development of the restaurant industry through various strategies and implementation tasks. The plan is based on four major axes: innovation, globalization, coexistence, and inclusion. MAFRA prepares for the future of the restaurant industry by pursuing specific tasks such as R&D, introduction of smart technology, improvement of regulations, support for overseas expansion, expansion of use of domestic food ingredients, cooperation with rural areas, and expansion of ESG management.

By implementing these comprehensive strategies, the ministry aims to create a resilient and dynamic restaurant industry that can adapt to changing market conditions and consumer preferences. The focus on innovation and technology will drive operational efficiency and service quality, while the emphasis on globalization and cooperation with agriculture will ensure sustainable growth. Through inclusive policies and support measures, the ministry seeks to enhance the overall competitiveness and sustainability of the restaurant industry, positioning Korea as a global leader in this sector.

REFERENCE

Ministry of Agriculture, Food and Rural Affairs, 2022. “3rd Restaurant Industry Promotion Basic Plan.” 『Notice No. 2022-311』. https://www.mafra.go.kr/bbs/mafra/67/330854/artclView.do

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