Dining Industry Struggles Due to COVID-19... Sales Gap Inevitable in Food Ingredient Distribution Sector

Due to the impact of the novel coronavirus infection (COVID-19), a temporary closure notice is posted at a restaurant in Jongno-gu, Seoul on the 4th./Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kum Bo-ryeong] It has been revealed that the dining-out industry is experiencing a downturn due to the novel coronavirus infection (COVID-19). Consequently, the food ingredient distribution industry is also going through a difficult period.

According to Samsung Securities on the 14th, as consumers avoid contact with outsiders due to COVID-19, not only in-person dining but also delivery demand is decreasing, suggesting that the downturn is likely to be greater than market expectations.

Researcher Cho Sang-hoon of Samsung Securities explained, "According to a recent survey conducted by the Korea Foodservice Industry Research Institute, the average daily number of customers at domestic dining establishments decreased by an average of 59% from February 25 to 28," adding, "The number of dining businesses deciding to close temporarily has been increasing this month, and the recovery period is expected to be longer than the 4 to 5 months seen during the Middle East Respiratory Syndrome (MERS) outbreak."

As a result, a sales gap in the food ingredient distribution industry seems inevitable due to the prolonged avoidance of dining out. Researcher Cho said, "We had initially assumed an 8-9% sales growth for the existing food ingredient distribution industry, but we have revised it downward to minus 10% for the first quarter." Additionally, the catering business, which had relatively higher margins, is also likely to experience a downturn due to client companies' production halts or telecommuting.

Once COVID-19 is resolved, CJ Freshway and SPC Samlip are expected to experience significant leverage effects. The stock prices of related companies have already been adjusted downward due to negative impacts on earnings estimates and valuations caused by COVID-19. Researcher Cho analyzed, "However, when the COVID-19 issue is resolved and deferred demand for dining out occurs, CJ Freshway, the number one food ingredient distributor, and SPC Samlip, which is increasing the proportion of new businesses, could show significant leverage."

CJ Freshway has increased its market share compared to competitors by securing large-scale orders and expanding manufacturing infrastructure even when the front-end business was sluggish. When the front-end business turns around, it is highly likely to enjoy a substantial leverage effect. SPC Samlip has diversified its business portfolio from its traditional bakery-focused operations to include fresh foods, meat processing, rest areas, and new businesses, thereby enhancing stability.