Thread by @koreanforeigner

There is an excessively high concentration of coffee shops, bakeries, chicken and beer restaurants, and convenience stores in Seoul. If you randomly threw a rock at any small business, there's a very good chance you'll hit one of these four establishments.

As of February 2019, there are 87,000 chicken and beer eateries in SKorea.

koreaherald.com/view.php?ud=20…

To show how crazy that number is, we have to consider the fact that as of February 2019, there are 38,695 McDonald's restaurants *throughout the world.*

statista.com/statistics/219…

Coffee shops are just as concentrated. Seoul has more Starbucks stores than any other city in the world. But of course, Starbucks isn't the only business that sells coffee. It seems like almost everyone and their grandmothers sell coffee.

worldatlas.com/articles/which…

In fact, SKoreans drink more coffee than we eat rice. Rice! Our supposedly staple food.

koreaherald.com/view.php?ud=20…

Then there are convenience stores. And I know a bit more about convenience stores than I do about the other three businesses. That's because I used to run my own convenience store for a little over two years.

As of March 2020, there are 44,000 convenience stores throughout SKorea. That's only counting those operated by large conglomerates. That's one convenience store for every 1,248 people in the country, which is an even higher concentration than in Japan.

biz.newdaily.co.kr/site/data/html…

So it's not a surprise that so many small Korean businesses go bankrupt within a year. So here's a question I've heard. Do people do any business planning before opening coffee shops/chicken and beer eateries/bakeries/convenience stores in SKorea?

The condescending nature of that question aside, yes, people do, indeed, do their research and planning before starting their businesses. Because, you know, people don't tend to go into business with the intention of losing money.

Then why do so many people continue to crowd into these clearly oversaturated markets? Well, I can't give every single possible answer, but I can offer some generalities as well as my own experience.

Reason #1:

It depends on individuals' expertise and who does the planning. I majored in political science and economics. So I'm not a total dummy when it comes to business. Or so I thought.

When I started my convenience store, I scouted the location first. There were only two other convenience stores in a three-block radius, the location was in the middle of apartment buildings (with more than 500 units in the immediate vicinity alone).

By the time I spoke to the convenience store's corporate representative who was in charge of recruiting franchise owners, I was already sold on the location. In fact, he told me the same things I already deduced by myself. I felt pretty proud of myself when I signed the contract.

What I didn't know and what the corporate rep didn't inform me was that those 500 apartment units were occupied by low-income households. This is a big deal because convenience stores' prices are generally higher than what is charged in other retail stores.

That was the first thing that hit me hard.

The second thing that hit me hard was that the rep also neglected to tell me that the corporate parent company was planning to really double down on their own delivery service.

So if I was charging, say, ₩1200 for a bottle of water, corporate was charging ₩900 for the same bottle of water AND delivering it to customers - my same customers - that they could order online have delivered to them.

And I couldn't cut prices. Prices were set by corporate, not by individual franchise owners.

The third thing that really hit me, and this one wasn't foreseen even by corporate, was the excessively high minimum wage that was established by the Moon administration.

Not long thereafter, I went out of business.

So, although I thought I was smart enough to deduce a good business opportunity, I made the mistake of forgetting that I'm not an expert who has access to on-the-ground statistical figures.

Corporate had those figures but didn't share them because they were too busy recruiting franchise owners. Because, you see, while franchise owners might bear the brunt of competition and razor-thin marginal profits, corporate benefits by increasing market share.

So, who does the planning is an extremely important aspect because it is usually done by corporate planners who have the most accessible distribution networks and statistics, and not your usual Average Joe.

Reason #2:

What are the alternatives? To explain, who are the people who go into these types of oversaturated businesses? There are approximately 6 million self-employed business owners (SMEs) in SKorea.

That's 1/4 of SKorea's workforce.

koreajoongangdaily.joins.com/news/article/a…

That's one of the highest numbers of self-employed workers in the world (statistically speaking). Why does SKorea boast such high figures? One of the reasons for that is that many SKorean businesses don't tend to hire/retain older workers.

In other words, many small business owners don't go into business they wanted to start their own business, but rather because they got retrenched!

Imagine that you worked for a large corporation doing God-knows-what and then one day find yourself training your replacement.

And your replacement is a kid who just graduated from college. And during all that time that you worked for that corporation, you never once thought of the business end of things. You merely earned a salary from that corporation. But now you're "old" and no longer wanted.

What does such a person who has never had any experience in business end up doing? If you guessed they become scared, despondent, get drunk, and then decide to start their own chicken eatery/bakery/coffee shop/convenience store, then you guessed right.

But why these businesses in particular? Now we have to go back to the original question. What are the alternatives?

As mentioned before, these businesses have the most accessible distribution networks and name recognition.

If I go to CU or Holly's or Paris Baguette or Nene Chicken and start one of their franchises (after taking out a massive loan from a bank or any other financial institute), I'd have name recognition at least. But if I opened up "John Lee's Fried Chicken," who'd show up? No one!

They've got the distribution networks, name recognition, and (to an extent) corporate protection and sponsorship that I wouldn't have if I started my own business from the ground up.

And finally, here's an unwritten business rule in SKorea. Never, ever, ever compete against the chaebol. And here's the thing about chaebols. They're into almost everything. You can try to compete against them if you want to. Tell me how that works out for you.

To succeed in running a small business, you need to (a) carve out a small niche that is not easily replicable by others, (b) not compete against the mega-corporations while still managing to be visible, (c) a lot more business acumen than you think you have, and (d) luck.

That's a lot easier said than done though.

So, people do plan and think before they open their businesses. They're not opening the 90,000th chicken eatery because they're stupid. They're doing it because they have no better options.