An empty Starbucks in downtown Seoul. Customers are required to enter personal details before ordering and chairs are stacked as customers are not allowed to drink inside the cafe. Photo: Andrew Salmon/Asia Times

Bar, restaurant and café operators in Seoul heaved a sigh of relief on Sunday as authorities downgraded strict social distancing measures that have, for the last two weeks, sucked the life out of this usually lively mega city.

The decision went down to the wire. As an indication of the agonizing choice facing authorities – cut public health risks or cut economic risks? –  they had initially been expected to announce whether to rescind or extend the measures on Friday.

But it wasn’t until mid-afternoon on Sunday that Prime Minister Chung Sye-kyun  announced the decision to ease restrictions in the capital area.

Even so, with the virus in the capital and its environs still not totally under control, the city – and the country – is clearly not out of the woods yet.

Moreover, Korea’s biggest national holiday, Chuseok – the Harvest Thanksgiving Festival – is due at the end of this month. During Chuseok, millions of families visit their hometowns and elderly relatives, the most vulnerable demographic, providing a perfect vector for he virus.

It is not yet clear what measures the government will take during the holiday.

Meanwhile, data from the second quarter of the year has shown the extent of the carnage surging through the Mom ‘n Pop economy as tens of thousands of small shops and restaurants go out of business.

But even as Seoul’s food and beverage economy reels, new and promising forms of commerce are emerging.

Small business, big damage

Many Seoul neighborhoods are depressing sights these days. Former shops, restaurants and cafes now gape empty, with imdae – “for rent” – signs posted in dark and dusty windows.

The economic impact of the virus, which first manifested itself in Korea in late February with a mass outbreak in the country’s southeast, is becoming frighteningly apparent.

While multiple data has already shown the pandemic’s effect on major sector and blue chips, new stats makes clear the impact Covid-19 has had on Seoul’s countless Mom ‘n Pop businesses.

The number of small shops in Seoul fell 5.4% in the second quarter according to a study by the Small Enterprise and Market Service, reported in the Joongang Daily newspaper. That means 21,178 small stores exited the market.
 
Over the same period, 10,040 restaurants went out of businesses, a 7.5% decline on quarter, according to the Joongang Daily, and the number of hair salons dropped by 3,473 stores, a 5.1% fall. In the travel agency, leisure and entertainment sectors, which includes karaoke rooms and cafés, 1,260 businesses shut for good, a 10.8% decline.

And third quarter figures are likely to look far, far worse as over the last two weeks, the capital was forced to endure the closest thing it has suffered to a lockdown.  

Even non-brand, independent cafes like this one have suffered during the “Level 2.5” social distancing regimen in Seoul. Photo: Andrew Salmon/Asia Times

‘Level 2.5’

South Korea has won global kudos for managing the pandemic thus far without any full lockdowns. The government has three levels of social distancing: 1 being the least onerous, 3 being the most severe.

“Level 2.5” measures were instituted in the greater Seoul as of midnight, on Sunday, August 30, in response to a rise in virus cases. Prior to August, new infections had been in the low double digits, but then shot up to the 200 and upper 300 ranges.

The restrictions were widespread.

Koreans suffer from a ferocious caffeine addiction and coffee shops are locations for social meetings as well as off-site work. But under the Level 2.5 measures, large franchise cafes such as Starbucks were only permitted to offer takeout services. Anyone entering had to register his/her personal details with pen and paper or with a QR code. The same was true for franchise bakeries and ice-cream parlors.

Oddly, however – and in a likely government nod to Mom ‘n Pops –  independent cafes were allowed to operate as usual.

Restaurants were permitted to serve “dine-in” customers until 9pm, and could offer only takeout services after that. Night clubs were shut and bars were also required to close at 9pm, a significant blow to a city that is known for its “dance-’til-dawn” social culture.  Bus services were also reduced after 9pm.

All indoor sports facilities – gymnasia, dance clubs, martial arts schools, yoga classes, pool halls, etc – were shuttered, and Seoul’s myriad pre- and after-school educational institutes were banned from holding classes for more than 10 students.

Meanwhile, companies were urged to encourage their employees to work from home and schools returned to online classes.

After two weeks of Level 2.5, Covid-19 cases over the last 10 days have dropped to less than 200 per day. The prime minister’s announcement on Sunday means a welcome return to normal operations for the above businesses as of Monday.

A sector writhes in agony

Voices in the industry had been plaintive.

Staff at a barbeque pork belly restaurant in the scenic, low-rise downtown neighborhood of Seocheon said the Level 2.5 measures had cost them 50% in sales.

In trendy Gangnam, popular bar-restaurant Baekgom Makgeolli – which serves makgeolli, a Korean rice brew and related side dishes in a converted villa – had not been hard hit by the virus until the Level 2.5 measures were instituted.

“The Gangnam district had not seen the spread of Covid-10, so we had more clients who were avoiding Itaewon and Hongdae,” said owner Lee Sung-hoon, referring to two of Seoul’s top nightlife districts on the opposite side of the Han River. “Our clients did not care about it – no fear!”

But just two weeks of Level 2.5 guidelines were disastrous as profits plummeted 65-70%.

“If the government announced that it would continue 2.5, then any restaurants and bars which sell alcohol would be in a deep and serious situation. Maybe, they’d close down for good,” Lee said.

He added that if the situation recurred, he would prefer the strictest Level 3 measures, where he and his competitors would be required to close for a month, but would not have to pay staff.

Even independent cafes – which might have been expected to be winners, due to the heavy restrictions placed upon the dominant franchise cafes – have been hit.

Dessert Café Flow, in the youth-centric district of Seongsudong, which serves European- and American-style desserts as well as coffees and teas, suffered a 30% decrease in clientele since the pandemic’s outbreak. Under Level 2.5 measures, they had 50% fewer customers.

“It was even more serious,” said owner-operator Kim Hyun-a. “People take away drinks or coffees but clients do not order dessert much.”

The news of the lifting of the restriction was music to the ears of one bar-restaurant operator.

“This is better!” said Go Hui-bong, who runs Dos Tacos, a friendly Tex-Mex restaurant set in an alley in the neon-lit nightlife are of Jongno. “Under 2.5, all the businesses in the area were closed as, for the last two weeks, there were no customers.”

However, Go was not surprised by the decision.

“If this 2.5 situation had gone on longer, then the economic situation would really have gone down,” he said. “The government needed to change it.”

New plays, new wins

But with crisis comes opportunity. Lee Tae-ha, who manages Seoul-based GSA Investment Advisory is seeing new trends emerging in food and beverage.

“Some businesses have doubled or tripled their business,” he said. ““Now everything can be delivered, restaurants have changed their way of cooking and packaging.”

Using a “regulatory sandbox” approach, regulations have been eased on packaging and kitchen sharing. “Kitchen Valley”, a leading business in the field, offers 30-40 kitchen units under one roof. The facilities can be rented by chefs in various time slots and the company takes care of delivery, online marketing and online payment.

This frees chefs to concentrate on cooking and focus their finances on sourcing the best ingredients as they don’t have to rent dining space, pay waiting staff or manage marketing operations.

“They just need to focus on cooking and making good food – that’s it!” Lee said. “These changes only happened because of Covid-19.”

Still, even the upbeat marketer admitted that the pandemic was a wrenching experience for the sector.

“Traditional restaurants that operate in the traditional way are in a crisis,” Lee said. “They are suffering, they are closing.”

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now.