[The Editors' Verdict] Goddoki's Ramen Price Cut

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Ottogi lowered the price of some ramen products earlier this month. The price of the convenience store-exclusive Jjashulren instant noodles was reduced from 1,400 won to 1,200 won, a 200 won (14.29%) decrease. Given the series of price hikes across various products since the COVID-19 pandemic, Ottogi's ramen price reduction was very welcome news. Ottogi explained that it adjusted prices in certain channels to ease the burden on consumers. This move was seen as befitting the nickname "Goddoki (God + Ottogi)" as a benevolent company.

According to the half-year reports of the three major domestic ramen companies this year, Ottogi was the only one to slightly lower the price of noodle products. Ottogi's noodle product price was 2,788 won per unit in the first half of this year, down 0.96% from 2,815 won during the same period last year. Nongshim, the number one ramen company, lowered the factory price of its flagship product Shin Ramyun to 668 won per unit last year and kept it frozen through the first half of this year. Similarly, Samyang Foods has maintained the factory price of Samyang Ramen at 660 won since last year.

The price of wheat flour, the main ingredient in ramen, dropped more than 10% compared to the beginning of the year as of the 16th. The Chicago Board of Trade wheat futures price fell from $236 per metric ton last year to $217 per metric ton in the first half of this year. The price of palm oil, used for frying ramen, remained stable. With the key raw material prices for ramen falling, there has been much criticism about the stagnant product prices. Therefore, Ottogi's move to lower noodle product prices stands out as quite natural.

However, a closer look reveals a twist. Jjashulren, launched in April 2022, has been rapidly expanding its market share in the jajang (black bean sauce) ramen market dominated by Nongshim's Chapagetti. Ottogi, ranked second in the ramen market, has expanded its market share by leveraging price competitiveness, and this seems to be part of that strategy. Ottogi lowered prices only in the convenience store channel.

Moreover, Ottogi raised prices across major products except for noodle products in the first half of this year. Powdered products such as Ottogi's signature curry increased from 17,376 won per kilogram in the first half of last year to 18,922 won in the same period this year, and vinegar prices rose by more than 20%. Sauces and dressings saw price increases close to 10%. This was due to a rising trend in raw material prices, except for soybean oil and starch syrup, which dropped more than 20% this year.

Ramen accounted for about 27% of Ottogi's total sales in the first half of this year. Compared to competitors like Nongshim, whose ramen sales ratio is 81%, and Samyang Foods at 91.85%, Ottogi has diversified its business. This means that Ottogi is less affected by performance hits due to ramen price fluctuations compared to its competitors.

Although ramen raw material prices are declining, the earnings of the three ramen companies in the second quarter show that all except Samyang experienced a drop in profitability. Nongshim's operating profit fell by more than 18.6% in the second quarter, and Ottogi's decreased by 4.6%. This is partly because the impact of last year's price increases remains due to futures trading of raw materials, and the high exchange rate has persisted.

During this period, Samyang Foods' operating profit more than doubled, driven by a surge in overseas exports of the globally popular Buldak Bokkeum Myun (Hot Chicken Flavor Ramen). However, the domestic popularity of Buldak Bokkeum Myun, which recently led the ramen market boom, has somewhat declined. Samyang Foods' overseas sales of noodle snacks reached 600 billion won in the first half of this year, doubling compared to the same period last year, but domestic sales shrank from 159.7 billion won in the first quarter of last year to 136.2 billion won. This is likely why the ramen industry has not embarked on bold price cuts amid the global K-ramen craze.