COVID-19 Hit Hard... Food Service Industry Business Index Devastated

February Dining Industry SME and Small Business Sentiment Index Hits Record Low
Consumers Spending on Dining Out Also Decrease
Concerns Over Collective Closure of Self-Employed Businesses Rise from June at the Earliest

On the 30th of last month, as the wrinkles of small business owners and self-employed people deepened due to the impact of COVID-19, a merchant in Hwanghak-dong Kitchen Street, Seoul, is unloading used items purchased from a closed restaurant from his car. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Choi Saeng-hye] The impact of the novel coronavirus infection (COVID-19) spreading domestically in South Korea has been clearly verified in numbers across the entire dining-out industry. This is because consumers who avoid going out due to fears of COVID-19 infection have surged, and the frozen economy has led many to close their wallets altogether. Since dining-out industry indicators were first published in 2014, a series of record-low levels have appeared.

According to the April dining-out industry statistics from the Korea Foodservice Industry Research Institute on the 3rd, the business outlook index and market business trend index for small and medium-sized enterprises and small business owners related to the dining-out industry hit record lows in February, when the COVID-19 impact became full-scale. The domestic dining-out industry statistics provided by the Korea Foodservice Industry Research Institute compile various major statistical indicators disclosed by national institutions such as Statistics Korea, containing multiple indicators that reflect not only the overall domestic economic trends but also the dining-out industry’s economic conditions.

Among the business outlook indices for small and medium-sized enterprises, the 'Accommodation and Food Service' index plunged to 44.5 in February from 72.8 in January before the COVID-19 spread. This is the lowest level ever recorded in comparable public statistical indicators. An index above 100 indicates that more companies expect the economy to improve next month than those who do not, while below 100 indicates the opposite. Considering that the Accommodation and Food Service index was 86 during the Middle East Respiratory Syndrome (MERS) outbreak in 2015, this represents a significant contraction to about half that level.

The market business trend index for small business owners operating restaurants is even more severe. An index above 100 indicates improvement, while below 100 indicates deterioration; the February index was 29.8, about half of January’s 60.9. This also marks the lowest level ever recorded in comparable public statistical indicators.

Self-employed restaurant owners in traditional markets have also suffered serious damage. Their market business trend index dropped from 62.4 in January to 23.9 in February. This is due to increased consumer concerns about group infections in crowded markets.

Consumer sentiment indices have also frozen. This index shows that if it is above 100, consumers’ subjective expectations about the economic situation are more optimistic than the past average (Q1 1999 to Q2 2008), and if below 100, more pessimistic. The index was positive at 104.2 in January but fell to 96.9 in February. Consumers opening their wallets have also decreased. Consumption expenditure outlook dropped from 110 in January to 106, and dining-out expenditure outlook decreased from 92 in January to 89.

Experts predict that from as early as June, the reality of small business owners’ closures will become apparent due to COVID-19. Jeong Eun-ae, a research fellow at the Small and Medium Business Research Institute, expressed concern, saying, "If confirmed cases continue to increase at the current level, the closure rate could peak in 3 to 4 months."

In fact, according to the distribution industry and the Seoul Open Data Plaza, 1,600 food hygiene businesses in Seoul closed between the 1st and 20th of last month. Compared to 1,468 closures in the same period last year, this is a 9% (132 businesses) increase. By industry, Korean restaurants (food service) accounted for the largest number at 274, followed by coffee shops and cafes at 108.

According to a survey conducted by the Korea Foodservice Industry Research Institute, the average daily number of customers at domestic dining-out businesses decreased by 59% in the last week of February and by 66% in mid-March. Samsung Securities researcher Jo Sang-hoon forecasted, "The number of dining-out businesses deciding to temporarily close is increasing recently, and the recovery period is likely to be longer than the 4 to 5 months seen during MERS."