Sector Trend Analysis – E-commerce market trends in South Korea

Socioeconomic profile

Country economic profile

In 2022, South Korea experienced 2.6% real GDP growth, a slowdown from the 4.1% real GDP growth experienced in 2021 during the bounce back from Covid. This growth is expected to slow further to 1.6% in 2023 due to a decrease in exports, and is projected at an average annual rate of 2.0% through 2027^{Footnote 1}. Inflation has decreased and interest rates have increased due to tighter monetary policy. Imports have risen faster than exports, and South Korea has thus become a net importer of goods. In 2021, South Korea had a trade surplus of US$65.2 billion dollars. By contrast, its forecasted trade deficit of US$1.0 billion in 2022, and this deficit is expected to grow to US$43.5 billion in 2023^{Footnote 2}. South Korea is highly dependent on international trade, with exports representing 42% of GDP and imports representing 38% of GDP in 2021. As such, a trade deficit is a serious concern for South Korea's economy. Fortunately, South Korean exports are expected to recover in the medium-term thanks to new trade agreements^{Footnote 1}.

Inflation is slowing in South Korea due to tight monetary policy, with a forecasted inflation rate of 3.4% in 2023, down from 5.1% in 2022^{Footnote 2}. Inflation remains lower than in the OECD in general, which experienced 9.4% inflation in 2022 and is forecasted to experience 6.6% inflation in 2023. Interest rates have increased significantly in South Korea. In January 2022, the long-term interest rate was 1.0%. By March 2023, this had increased to 3.5%^{Footnote 1}. Consumer spending and household lending have fallen as a result, and unemployment has increased, reaching 3.4% in 2023.

According to the latest estimates from Statistics Korea, manufacturing represented 26.0% of the Korean economy in Q1 2023, making it the most important economic sector in South Korea^{Footnote 3}. Wholesale, retail trade, restaurants and hotels represented 10.3% of the economy, and miscellaneous business activities and services (excluding real estate, finance, transportation and information technology) represented 9.9% of the economy. Agriculture, forestry and fishing was one of the smallest economic sectors in South Korea, at 1.3%. As such, South Korea is highly dependent on trade for its food supply^{Footnote 4}.

Demographics

In 2022, South Korea was the twenty-ninth most populous country in the world, with 51.6 million people, down from 51.8 million people in 2020^{Footnote 5}. The population is projected to decline to 51.2 million in 2030. 96.2% of South Korea's population are citizens. While the proportion of non-citizens is rising, it remains low^{Footnote 1}. The population is rapidly aging, with low birth rates. By 2040, South Korea's median age is projected to be 54.6 years, up from 44.3 years in 2021^{Footnote 1}. This will make South Korea the oldest country in the world.

Consumer income and expenditures

Average annual consumer expenditure in South Korea stood at US$ 14,921 per capita in 2022, and is expected to increase 4.3% to US$ 15,563 in 2023. In 2022, consumer expenditure on food and non-alcoholic beverages was US$ 1,813, and is expected to increase by a CAGR of 2.8% through 2028, lower than the forecasted CAGR of 4.0% for all consumer expenditure over the same period.

Consumer foodservice represented US$ 72.1 billion in 2022, down from US$ 75.7 billion in 2017. Growth is forecasted at 5.2% through 2027, however, with growth being driven by full-service restaurants, cafés and bars. Food kiosks and traditional street stalls, already marginal, are forecasted to shrink by US$ 27 million (−0.9% CAGR).

Packaged food sales reached US$ 12.4 billion in 2022, representing 3.0% CAGR growth from 2017. Packaged food sales are forecasted to reach US$ 14.2 billion in 2027, measured in 2022 dollars^{Footnote 1}.

Global e-commerce

Global e-commerce grew rapidly during the COVID-19 pandemic. Worldwide, online retail sales represented 16% of total retail sales in 2019, and this increased to 19% in 2020^{Footnote 6}. Lockdowns and self-isolation have prompted consumers around the world to switch from in-person purchases to online ordering with delivery.

Recently, global growth in e-commerce has slowed to pre-pandemic rates^{Footnote 1}. The changes brought by the pandemic are likely structural and permanent, but they also represent a one-time shock to the system. In 2022, world retail sales grew by 2.9% year-over-year, compared to 20.6% from 2020 to 2021 and 30.1% from 2019 to 2020. Growth is forecasted to increase over the coming years, with 8.2% growth projected for 2023 and 9.6% projected per year from 2024 to 2027.

Food and drinks/tobacco products are the two fastest growing categories for e-commerce retail sales growth, with 8.8% and 8.2% worldwide year-over-year growth in 2022. Fashion and appliances/electronics remain the two largest categories, with 16.8% and 18.6% shares of international e-commerce retail sales.

China and the United States accounted for 60.8% of total growth in retail e-commerce sales from 2017 to 2022. China has grown faster than the world average, with 18.7% CAGR growth from 2017 to 2022, as opposed to 17.9% CAGR for the world. E-commerce retail sales grew more slowly in the United States over the same period, with 15.9% CAGR from 2017 to 2022. China and the United States represented 31.4% and 30.7% of global e-commerce retail sales in 2022. Latin America was the fastest growing region in the world, with 37.4% CAGR from 2017 to 2022, followed by Eastern Europe, which grew 30.4% CAGR.

The COVID-19 pandemic has permanently shifted the consumption habits of consumers around the world, especially in middle-income and developing countries. In a 2020 survey of 3700 consumers in 9 countries, the United Nations Conference on Trade and Development found that more than half had increased their online retail purchases^{Footnote 7}. These shifts in habits transcended socioeconomic lines. For example, in Brazil, online purchases increased among low-income and vulnerable consumers.

E-commerce in South Korea

Consumer Habits and Consumption Trends

E-commerce growth has driven retail sales growth in South Korea over the last six years, especially since the pandemic.

E-commerce grew 8.8% year-over-year in 2021 to 2022 to reach US$157.0 billion.

Domestic e-commerce companies such as Coupang and Naver dominate the South Korean market by offering fast fulfilment, streaming services, and live commerce.

E-commerce is forecasted to see 4.2% current value CAGR through 2027, outpacing offline sales.

Retail e-commerce drove growth in retail sales in South Korea every year between 2017 and 2022. Overall, retail e-commerce grew by 16.3% CAGR from 2017 to 2022, while offline retail shrank by 0.6% over the same period. Total retail sales, online and offline, grew by 4.9% CAGR from 2017 to 2022.Prior to the pandemic, in 2018-19, retail e-commerce grew by 15% year-over-year, whereas offline retail shrank by 1.4%. The pandemic accelerated these trends: e-commerce grew 25.3% y-o-y in 2019-20, while off-line sales shrank by 8.5% in the same year. Offline sales have rebounded, but remain outpaced by e-commerce growth. Offline retail sales grew 4.1% year-over-year in 2021-22, while e-commerce grew 8.8% y-o-y in the same year.^{Footnote 1}

E-commerce growth is expected to slow through 2027, but it will still outpace offline sales. E-commerce sales is forecasted to grow 4.2% CAGR from 2022 to 2027, while offline sales are forecasted to grow 2.5% over the same period.

Cross-border e-commerce is increasing

Since the beginning of the Covid-19 pandemic, cross-border e-commerce (CBEC) has increased rapidly in South Korea. Relative to 2019, cross-border e-commerce sales were up 50% in the first half of 2022^{Footnote 1}. CBEC allows South Korean consumers to have access to brands and products that would not otherwise be available in their country. CBEC is therefore expected to remain a sales driver in South Korea even as the country continues to recover from the Covid-19 pandemic. The United States remains the single-largest source of CBEC to South Korea, representing 41% of imports^{Footnote 8}.

CBEC in South Korea is not without its challenges. The won is weakening, which will make imports more expensive for South Korean consumers. The only foreign e-commerce platforms with any significant market share are Google Play and Apple's App Store. Amazon's store and marketplace held a combined 1.1% market share in 2022. Many foreign companies use domestic platforms as intermediaries to sell their products^{Footnote 1}.

Domestic e-commerce players remain popular

Despite growth from foreign companies, domestic Korean e-commerce companies are seeing their market share increase. South Korea's e-commerce landscape is characterized by a "big three" of Coupang, Naver and Gmarket^{Footnote 9}. Fast delivery is an important selling point for these companies: for example, Naver promises 24 hour delivery for 90% of South Korean regions. Rapid delivery is especially important for grocery shopping and food. Coupang's services include Rocket Fresh grocery delivery and Coupang Eats, a restaurant delivery service similar to Uber Eats^{Footnote 10}. Streaming is also important: YouTube has established streaming partnerships with Wemakeprice and Kakao^{Footnote 1}. Coupang and Naver both offer streaming services, with Naver TV having a wide variety of television shows and Coupang Play holding exclusive streaming rights for the Korean national football team, K-League, and foreign leagues such as LaLiga^{Footnote 11}.

Department store giant Shinsegae continues to expand its online presence

Shinsegae is South Korea's largest and oldest retailer, with its first store opening in 1930 as a branch of Japan's Mitsukoshi, later being acquired by Samsung and then established as a separate company^{Footnote 12}. Shinsegae-branded department stores sell luxury goods across South Korea, and Shinsegae also operates the hypermarket chain Emart.

Shinsegae has massively expanded its online presence. Its SSG.Com platform has integrated the Shinsegae mall online department store platform with Emart's e-commerce operations, which focuses on online groceries^{Footnote 13}. Using a drop-down menu, consumers can cycle between the different stores. The logistics of SSG.Com are handled by Emart, which is able to use its brick-and-mortar retail locations as fulfilment centres.

Shinsegae acquired eBay Korea in 2021, and now operates its Gmarket platform separately from SSG.Com. Gmarket has a larger market share than SSG.Com, at 8.0% market share in 2022 relative to 3.7% for SSG.Com. Its platform is comparable to Japan's Rakuten, and like Rakuten it has a global marketplace that will ship to most of the world's countries, with discounted shipping to Hong Kong, Taiwan, Macao, China, Japan and Singapore. Gmarket is able to offer global service because it merged with G9, which was eBay Korea's cross-border e-commerce platform.

The growth of live commerce

Live commerce began in China in 2016, with Alibaba's Taobao Live shopping service. Live commerce consists of an online livestream broadcast which is paired with an e-commerce store, such that consumers can purchase goods as they watch^{Footnote 14}. Live commerce is comparable to an infomercial, except with a chat service that allows customers to interact with streamers and ask questions in real time. Live commerce became extremely popular in South Korea during the Covid-19 pandemic, as it provided a form of entertainment during lockdowns^{Footnote 15}.

Live commerce is intimately tied to social media, and is thus extremely population with generation-Z consumers. It is gaining ground with older consumers, however, thanks to partnerships with celebrities. Live commerce has grown remarkably since 2017. While it represented only 0.5% of the e-commerce market in 2017, it accounted for 2.5% of the e-commerce market in 2022. In dollar terms, this represents growth from US$ 562 million to US$ 5.7 billion (measured in 2022 dollars)^{Footnote 1}. Major growth occurred in 2020, when the market increased to US$ 3.3 billion from US$ 1.5 billion the year before. The value of live commerce exceeds its dollar value, however. Retailers are able to collect data about their consumers at a level of detail that exceeds market surveys. For example, they are able to see which products elicit the greatest consumer responses and which comments are made to presenters^{Footnote 15}.

Most digital retailers operate live commerce streams. These include Naver, Kakao, 11st (SK Telecom), Coupang and Wemakeprice^{Footnote 16}.

The digital consumer in South Korea

Key trends

Internet access

South Korea had 49.1 million internet users in 2022, and 97.9% of the population uses the internet. If one excludes very young children and the very elderly, it is probably fair to say that almost everyone in South Korea is online. 99.9% of households have access to broadband internet, including 100% of households where the head of the household was between 30 and 60 years old. There is no notable urban/rural divide in South Korea for internet access: the lowest rate of broadband penetration is on the island of Jeju, at 99.7%. 99.9% of households in South Korea possess a mobile telephone, of which 97% are smartphones^{Footnote 1}. In 2022, over 45% of South Korea's population had 5G access^{Footnote 17}. The advantages of 5G have yet to be leveraged, as infrastructure investments lag and apps that fully utilize its capabilities have not been developed.

Search engines

In 2021, the four most popular search engines in South Korea were Google, with 70% market share, Naver, with 15% market share, Daum (owned by Kakao) with 2% market share, and Bing, which also had 2% market share^{Footnote 18}. Naver and Daum more closely resemble MSN or Yahoo than Google, with landing pages that feature news, stock prices, blogs, shopping, weather and the like. Naver has a payment system, Naver Pay, and an advertising platform, Naver Ad. Daum's parent company, Kakao, operates the popular messaging app KakaoTalk, and Daum also has an advertising service.

Social media platforms

In January 2023, South Korea had 47.6 million social media users. 94.2% of South Korean internet users used at least one social media account^{Footnote 19}. The most popular messaging app is KakaoTalk: KakaoTalk users represented 92% of South Korea's population, while Facebook was used by 20.5% of the eligible population (as Facebook is restricted to users 13 and over), and Facebook's Messenger app was used by about 8.3% of the eligible population. YouTube's ad reach indicated that its userbase was equivalent to about 88.8% of South Korea's population, while Instagram's ad reach was about 41.1% of the eligible population (Instagram, owned by Meta, places the same restrictions on users as Facebook). TikTok has grown rapidly, but currently is estimated to reach 11.2% of local internet users.

E-commerce market

South Korea is the second-largest e-commerce market in the Asia-Pacific region, having overtaken Japan in 2021. It now only trails China for e-commerce sales. South Korean per capita retail e-commerce sales were by far the highest in Asia in 2022, at US$ 3,028 per person. The next closest economy is the Hong Kong SAR, where e-commerce sales stood at US$ 1,362 per person. In 2017, South Korea already had the highest per capita e-commerce sales in East Asia, but the gulf between it and other Asian economies has widened: per capita e-commerce sales stood at US$ 1433 in South Korea and US$ 815 in Japan in 2017, a gap of US$ 618 per capita. The gap between the two economies was US$ 1842 per capita in 2022^{Footnote 1}. Mobile phones are by far the most popular device for e-commerce purchases in South Korea, being used for nearly 73% of all sales by value. Domestic purchases represented 96% of the South Korean market, and domestic e-commerce companies such as Coupang, Naver, Shinsegae and 11St have commanding market shares. The market is growing increasingly consolidated: Shinsegae recently acquired Gmarket from eBay in 2021, which it now operates in addition to its SSG.Com website.

E-commerce sales and customers

The three most popular categories of products for e-commerce are food (20.6%), appliances and electronics (12.7%), and fashion (11.1%). Food e-commerce sales have tripled since 2017. E-commerce accounted for 3.9% of grocery store sales in 2022, up from 2.4% in 2017^{Footnote 1}. Fast delivery is key to maintaining market share among South Korean consumers. Coupang offers next-day early-morning delivery, while Shinsegae is able to use its network of hypermarkets (under the Emart brand) to fulfil customer orders for groceries and fashion items. Nearly all (95.5%) e-commerce purchases in South Korea were fulfilled by delivery, with only 4.5% being fulfilled by click-and-collect. Food and drink e-commerce has grown very rapidly over the last six years, and accounted for 16.4% of the total e-commerce market in South Korea in 2022.

E-commerce market sizes: retail sales including cross border

South Korean e-commerce sales more than doubled from 2017 to 2022, reaching US$ 157 billion. Growth was driven by mobile e-commerce, which grew faster than computer-based e-commerce and enjoys a much larger market share. Foreign e-commerce companies have grown at a faster CAGR than domestic e-commerce companies, but retain a small market share, with only 3.9% in 2022, up from 3.1% in 2017. Drinks and tobacco and packaged food products were the two fastest-growing categories from 2017 to 2022. South Korean consumers are increasingly buying their groceries online. Appliances and electronics also saw notable growth.

All food and drink categories experienced positive growth in online sales from 2017 to 2022, most notably for processed meat, seafood and meat alternatives, ice cream products, breakfast cereals, hot drinks and soft drinks. The growth in soft drinks is particularly striking. Only US$ 250 million of soft drinks were sold online in South Korea in 2017. After the pandemic, online soft drink sales exceeded US$ 1 billion, and sales continue to grow. Soft drinks are now the largest food and beverage category for South Korean e-commerce, ahead of rice, pasta and noodles (the largest packaged food category), meals and soup, and processed meat, seafood and meat alternatives.

Between 2017 and 2022, store-based packaged food sales increased by 1.5% CAGR. Online packaged food sales increased by 15.2% CAGR over the same period. As such, e-commerce now represents 16.3% of the South Korean packaged food market, nearly double the 8.4% share of sales it held in 2017.

Company shares

The South Korean e-commerce landscape is characterized by rapid concentration, rebranding and acquisitions. The market leader, Coupang, had a 1.1% market share in 2013, under its previous company name Forward Ventures. By 2022, it had become the largest online market place in South Korea, with a 22.5% market share. Gmarket, which was acquired by Shinsegae from eBay in 2021, had an 8.0% market share in 2022, a decrease relative to eBay's 14.8% market share in 2017. Platforms are becoming increasingly concentrated: 39.7% of online retail sales went to companies outside of the top 10 in 2017. By 2022, this share had declined to 25.1%.

Brand shares

Naver, the second-largest e-commerce company in South Korea, operates a single platform, and therefore takes the top spot for brand share. Coupang, the largest e-commerce company, operates the second and third most important brands. Different brands have adopted different strategies to reach consumers. Coupang offers "rocket delivery", which is to say early-morning next-day delivery, and it operates 100 fulfillment centres across South Korea towards this end^{Footnote 1}. 70% of South Korea's population lives within 10 minutes of one of these fulfillment centres. Naver operates brand stores both for big brands and SMEs on its marketplace. Shinsegae's SSG.Com is a luxury marketplace, selling high-end designer brands^{Footnote 1}.

Opportunities for Canadian suppliers

Opportunities

South Korean cross-border e-commerce increased from US$ 2 billion in 2017 to US$ 4.5 billion in 2022. Cross-border e-commerce is often cheaper for Korean consumers than domestic e-commerce^{Footnote 8}. The South Korean government has simplified customs procedures, lowering the cost of overseas goods.

Canada, along with 56 other countries, enjoys a free trade agreement with South Korea. Thanks to the Canada-Korea Free Trade Agreement (CKFTA), 98.5% of Canada's exports have been duty-free since January 1st, 2021. Full implementation will occur by 2032, which will result in 99.75% of Canadian exports being duty-free^{Footnote 20}.

The Covid-19 pandemic affected Canadian exports to South Korea, which fell to US$ 3.5 billion from US$ 4.1 billion in 2019^{Footnote 21}. The value of exports rebounded to US$ 5.0 billion in 2021, and reached US$ 6.6 billion in 2022. Canadian agri-food and seafood exports to South Korea stood at US$ 974 million in 2022, up from US$ 843 million in 2021 and US$ 690 million in 2019. Agri-food and seafood imports from Canada grew at 10.7% CAGR from 2017 to 2022 (as reported by Canada), higher than the world average of 9.11% CAGR agri-food and seafood import growth over the same period (as reported by South Korea). While Canadian exporters are seeing a benefit from the CKFTA, growth opportunities remain high.

Several notable categories of agri-food and seafood products are due to become duty-free in 2024. These include alcoholic beverages, animal feed, soybeans for food processing, kidney beans, white peas, crab, shrimp and cockles^{Footnote 20}. By 2026, all seafood products from Canada will be duty-free. Canadian exporters must meet applicable rules of origin in order to qualify for duty-free access.

Tariffs on Canadian exports to South Korea were high prior to the implementation of the CKFTA. Prior to 2015, grains carried average duties of 185%, pulses had average duties of 162%, and beef had average duties of 35%.

South Korea's Ease of Doing Business ranking

South Korea ranked 5th out of 190 countries and dependencies in the World Bank's Ease of Doing Business 2020 report, behind New Zealand, Singapore, the Hong Kong SAR and Denmark, and just ahead of the United States^{Footnote 22}. Strengths of the South Korean economy include its strong legal framework (particularly for contract enforcement and insolvency resolution) and straightforward access to electricity and construction permits. Access to credit is the toughest part of doing business in South Korea, as it is ranked 67th in the world in this category. It is worth noting, however, that the World Bank has paused updates on the Ease of Doing Business report as of 2021 due to data irregularities.

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Resources

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Sector Trend Analysis – E-commerce market trends in South Korea
Global Analysis Report

Prepared by: Alexandre Holm Perrault, Market Analyst

© His Majesty the King in Right of Canada, represented by the Minister of Agriculture and Agri-Food (2023).

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