KBC Team 1
Fall 2018 KBC
Executive Summary
In recent times, the global trend has been shifting to health and
well-being. This trend has been growing especially here in
Korea. According to the Medical Observer, a Korean online
newspaper, Korea had the highest level of interest in health
within the G20. To follow this trend, Shinsegae Food will
introduce a premium lounge that will have fresh foods and
encompass a relaxing atmosphere. This will provide Shinsegae
Food with adequate competition against other food industries
and allow them to have a firm position within the global trend.
Expansion Proposal
By opening Shinsegae up to local farmers, Shinsegae Food
will be able to improve its image and also increase the
sustainability of the local farmers. It will aim to maintain and
develop healthy food experiences. This will also keep the
corporate social responsibility of Shinsegae Food. Shinsegae
Food will strengthen the relationship between farmers and
customers by having seasonal displays of farmers’ fresh
quality ingredients through farmer’s markets. Moreover, the
lounge will have a relaxing environment that can be accessed
by any customers wishing to spend time in the lounge.
Farmers will be allowed to sell their freshly cultivated
ingredients directly in the lounge or have the company buy
their products. The lounge will have active videos of the
process of cultivation of fresh food by the local farmers to
increase the customers' awareness of where Shinsegae Food
got its resources from. This will also enhance the image and
fulfill the goal of Shinsegae Food by gaining trust from
customers and providing them with healthy foods.
Shinsegae will also enhance its existing relationships by
donating 5% of its profit to support local farms and
companies. It will also focus on building strong relationships
by improving schools and educational systems.
Company Description
With the Shinsegae Food being the biggest food distributor in
Korea, it has a big advantage of supplying food for SHIL,
with fresh and good quality food. With the advantage of
supplying foods, the food department will never run out of
food supply, and have limited resources for cooking and
providing fresh, and natural goods with Shinsegae Food
Distribution. With the addition of having Shinsegae farm
foods to the lounges, it will be a much better experience for
customers than the lounges at Lotte, or lounges that were
made by other big companies.
The Shinsegae food encourages healthy and fresh foods that
promote the overall quality of foods in the lounge while
following the right fit of food for the trends. Since 2011, the
company is making 3.9% of profit per year on average. By
2020, it is assumed that they are going to make a profit of 7.7
trillion. By the increase in profit, globalization could be put to
actions by the Shinsegae Food for the purpose of spreading
healthy foods cultures not only to Korea but also to other
countries as well.
Industry Analysis
Shinsegae Food has been the leader of the South Korean food
industry for about 20 years. It has been cooperating with
E-mart and other top food industries in South Korea.
Shinsegae food conducts a wide range of food manufacturing,
restaurant business, food distribution, and etc. Using the
mentioned branches, Shinsegae supplies food to a wide range
of customers. It’s positioned on the top of Korea’s food
brands and aims to create new and healthy food to make a
better food culture. Shinsegae Food owns six food plants that
provide fresh food to consumers. Not only are they gaining
profit from preexisting food branches, but they are also
focusing on developing a premium image upon their
company which would further advance the Korean food
industry.
Shinsegae Food seeks globalization for its business around
the world. Since 1979, their influence has been expanding
through time. In 2002, the company won the Grand Prize for
Food Safety Management Awards. It was ranked top in the
2012 Korean Standard Service Quality Index and recently
received recognition from the Food Safety Center. Thus, the
Shinsegae Food emphasizes and seeks the high quality of
foods to consumers.
The main goal of the Shinsegae food has always been
creating new healthy foods for not only customers but also to
large companies in order to maintain an overall high-quality
food industry in South Korea.
SWOT Analysis
Strengths
The strength of Shil is the ability to provide customers with
quality foods freshly delivered from local farms.
Shil is eco-friendly in that it provides consumers with
biodegradable plates and silverware. This will allow Shinsegae
to develop a more positive image. The use of environmentally
friendly silverware Shinsegae would now seem like a company
that cares about the world as well. In addition to this, through
receiving a direct supply of food from contracted farmers, Shil
is able to control the quality of food provided in the Nutrition
Lounge.
Another strength would be that the cost/price will be stabilized
since Shil will be controlling the production. Labor costs will
also be minimized compare to other companies because few
laborers will keep the lounge sanitized.
Weakness
As Shil will be focusing on the freshness and quality of the
food served to consumers in the lounge, a challenge that can
become a weakness of the business is sustaining the freshness
of food products coming from the farms that Shil will make
contracts with.
Another weakness is that Shinsegae has never tried getting a
direct supply of fresh food from farmers. This can potentially
cause disruptions within the process of the contract. Since
there is no past data on how these processes are done,
Shinsegae needs to try trial and error within certain processes
such as the longevity of the contract or picking farmers from
which area of Korea. Since trial and error is needed, Shinsegae
will need to face short-term losses.
Opportunities
As Korea’s agricultural technology and productivity are
advancing, shifting their focus on strengthening relationships
with local farms will provide a bright future to Shinsegae
Food. Since transporting fresh food from farms is not
frequently done by local food industries, this unique
connection to local farms will attract more customers, leaving
a greater amount of revenues to Shinsegae Food.
Shil will also provide newly released Shinsegae Food products
to customers. These customers will have full access in
advance. This will please the customers as they will be the
first ones to experience new products from Shinsegae Food.
Furthermore, this act is equivalent to advertising Shinsegae
Food. The fee advertisement fee will be reduced due to the
impacts of the customers. The concept of the lounge will also
be a strong appeal for Shil since consumers will be able to stay
and enjoy themselves for a long period of time.
Threats
Shil’s food lounge allows customers to stay for as much time
as they want to. As the lounge’s purpose is to be served as a
resting place for the customers, they have the ability to stay
without having to purchase products. Compared to the time
spent in the lounge, the sales volume may not be as high.
Inactivity within the lounge will negatively impact the Shil’s
revenue.
Additionally, Shil would be very sensitive to natural disasters
because of the need to keep products fresh and harness high
quality. If a natural disaster was to happen, Shinsegae would
inevitably have a loss due to the fact that the foods served are
directly provided by the farmers.
Competitors
There are currently numerous other food companies that have
taken part in the business of creating a cultural space where
consumers can enjoy not only entertainment but also food.
For example, Lotte has already established lounges that
provide simple beverages and food for its VIP customers.
Users of this service would most likely continue to use this
service because Lotte is one of the biggest and most
influential companies in Korea, and they already have a
preexisting premium image for their lounges. Creating a
premium Lounge would mean that Shinsegae would need to
inevitably compete with Lotte’s Peninsula Lounge and Sky
Lounge.
Finance
The major part of finance is the reduction of costs in labor. As
a lounge more specified to sell beverages, Shil decided to
reduce the number of labors in the morning and increase in the
evening. The crucial part which makes this idea possible is our
lounge’s unmanned system. By maximizing the use of
dispensers in both food and drinks, the customers will be able
to obtain products without the help of workers.
The startup cost of this business will be estimated to be
200,000,000 krw. Also, another 10,000,000 krw will be used
to advertise our Shil lounge by gaining the help of
Shinsegae’s internal ad management. Excluding these costs,
the rental fee will be around 5,000,000 krw and the labor fee
is estimated to be 16,800,000 krw. Therefore, we estimated
that the total cost would add up to 24,088,523 krw monthly.
However, keeping in mind the monthly total variable cost and
the profit, a total of 100,000,000 krw would be used as a
maintenance cost hence making the break-even point at
around 2 years.
The number of customers is estimated to increase 5% every
year, however, taking into account various circumstances
such as the traditional Korean holidays, it seemed appropriate
to estimate that in Quarter 1 and 3, profit would decrease
around 20%. Through researching restaurants similar to our
Shil lounge (Ashley, D’Maris, Greats), we developed an
estimation of the buying price of the products. Based on this,
even though our markup on food is below the average,
valuing 200%, we decided to maximize our profit through the
markup of drinks: 500%. With an average markup around
industry standards for top-shelved and fountain drinks, we
concluded that we would be able to earn 22,000,000 krw on a
monthly basis.
Marketing and Sales Strategy
The lounge will be marketed through both advertisements in
subway stations and online, these operations will be held by
the advertisement team of Shinsegae. With the advertisement
team taking part in our marketing, they will utilize various
methods in order to make more profit throughout seasonal
changes while reducing costs. The food provided in the
lounge would have been transported directly from farms
contracted with Shinsegae. As farmers will sell their food to
Shinsegae Food, 5 percent of the profit that the farmers
earned will be donated to the local farms. This will allow Citations
Shinsegae Food to build strong relationships with local farms
while having fresh and high-quality food guaranteed from ● “Semiannual Report (반기보고서
many farms. Furthermore, since the Shinsegae Food is one of 24기)”Dar.fss.or.kr: 전자공시시스템 - 대한민국
the biggest food distributors in Korea, it will be able to 기업정보의 창, Dart, 29 Dec.
differentiate itself from other big companies such as 1969,<www.easycounter.com/report/dart.fss.or.kr>
Smoothie King and J-one. Since Shil is independent from ● "Financial Information - SHINSEGAE FOOD."
other companies, it is able to only focus on itself, thus, it will Shinsegae Food. N.p., n.d. Web. 15 Oct. 2018,
be able to maximize profit. Lastly, seasonal displays of <http://www.shinsegaefood.com/en/company/ir/financ
freshly harvested crops produced by farmers will be held by e/status.sf>
Shinsegae Food. This will not only prove that Shil serves ● Lim, Sol. “한국인 건강 관심 G20 최상위권.” Medical
high-grade food, but also enhance the image of Shinsegae Observer, 8 Nov. 2010,
Food. www.monews.co.kr/news/articleView.html?idxno=372
For Shil, the target audience would mainly be wealthy adults 68.
who wish to enjoy a healthy diet or consume healthy foods. ● 주식회사 부산롯데호텔. 투자설명서. Rep. N.p.:
Recently, many people started to consider their health, thus 주식회사 부산롯데호텔, 2018. Web. 15 Oct. 2018,
Shil would be a welcoming place for them. The main targets <http://dart.fss.or.kr/dsaf001/main.do?rcpNo=2018070
by the Shinsegae Food lounge will focus on people who are 2000192>
an age of over 20 years to sustain a luxurious and high quality ● In-Depth월간 컨슈머 전략. 신세계푸드 (031440).
within the lounge. In order to assure customers that the Rep. N.p.: K-IFRS 연결 기준, KTB투자증권, n.d.
served foods are healthy and are in high quality, a seasonal Web.
farmer’s market will be held. Shinsegae Food will invite <http://file.mk.co.kr/imss/write/20170926152036__00.
farmers from some which they have contracted with, and pdf>
allow them to bring their food for a showcase. Perhaps the ● Yeonhwa, Shin. 식품 제조를 통한 한 단계 도약 .
foods can be cooked on a spot where customers can actually 유안타증권, 2017, 식품 제조를 통한 한 단계 도약 .
see and experience the process of how foods are created. This <http://file.mk.co.kr/imss/write/20170926152036__00.
will earn the customer’s trust upon the quality of food and pdf>
maintain the overall goal of Shinsegae Food. ● 신세계푸드:식품제조 비중 확대로 안정적인
실적향상. KTB투자증권, pp. 48–50,
Long-Term Development 신세계푸드:식품제조 비중 확대로 안정적인
Since Shinsegae Food is seeking maximum profit, the 실적향상.<https://www.shinsegaefood.com/upload/20
primary goal is to make our customers stay longer and visit 17/05/29/20170425_ktb.pdf>
more frequently. Once Shinsegae Food has gained interest ● Bloomberg.com,Bloomberg,
from the current generation by offering a variety of healthy <www.bloomberg.com/research/stocks/private/snapsh
foods to choose from, Shinsegae Food must ensure this ot.asp?privcapId=12189326.>
implementation to be long-lasting for future generations. It is
important for a company to develop a likable image with the
use of fresh and quality food.