[Record Domestic Cold Wave] ① Even Ramen Is a Luxury... Export-Dependent Food Companies Say "Worst Recession"

K-Food's Soaring Growth Major Food Companies
Domestic Sales Decline in Q3...Profitability Worsens
Only Soju, a Typical Recession Consumption Product, Sold Well

"The worst in the last 10 years"

The CEO of a major domestic food company evaluated the domestic demand felt in the second half of this year as such. Due to several years of high inflation and high interest rates, consumers have reduced their spending on food because of their thinning bank accounts. The CEO expressed concern, saying, "If the economic recession continues and exports are hit by the impeachment crisis, a vicious cycle will repeat where domestic demand becomes difficult again."

Major domestic food companies have been held back by domestic demand stagnation in the second half of this year. While the popularity of 'K-Food' in the global market has continued to drive external growth, the crisis became fully apparent once overseas export performance was excluded. Sales have declined across the board, regardless of product categories such as ramen, snacks, and beverages. As the economic downturn shows signs of prolonging and the impeachment crisis triggered by President Yoon Suk-yeol's declaration of martial law has struck, the food industry is deeply sighing as it becomes difficult to expect a rebound next year.

On the 18th, Asia Economy analyzed the domestic sales performance of leading food companies in various sectors such as CJ CheilJedang, Nongshim, HiteJinro, Lotte Chilsung Beverage, and Kyochon F&B, and found that most companies' growth trends, which had continued from 2019 to the first half of this year, turned downward from the third quarter of this year.

From Bibigo Dumplings to Ramen... Collapsed Domestic Sales

A representative company is CJ CheilJedang, the largest food company in Korea. According to the company's IR report, domestic food business sales in the third quarter of this year were 1.569 trillion KRW, down 6% from 1.6708 trillion KRW in the same period last year. CJ CheilJedang had shown sales growth in recent years as instant rice 'Hetbahn' and 'Bibigo Dumplings' became steady sellers, but sales began to slightly decline (-0.76%) from last year and recorded a sharp decrease in the third quarter of this year.

CJ CheilJedang was evaluated to have relatively held up after its transactions with Coupang, the largest domestic e-commerce platform, were suspended due to delivery price conflicts starting in the second half of 2022. The two companies resumed transactions from August this year, but the third quarter, which reflected these results, saw a larger sales decline. A CJ CheilJedang official explained, "Despite growth in overseas markets, domestic food business faced setbacks due to sluggish domestic consumption and cost burdens."

Nongshim, which leads the domestic ramen and snack markets with 'Shin Ramyun' and 'Shrimp Crackers,' is in a similar situation. For ramen, which accounts for the largest sales proportion at Nongshim, third-quarter sales this year were 389.2 billion KRW, down 1.1% from 393.4 billion KRW a year earlier. Ramen is a typical recession-resistant product that tends to sell better during economic downturns, but even ramen's growth momentum has weakened.

The decline in snack sales was even greater. Third-quarter snack sales were 103.9 billion KRW, down 6.6% from 111.2 billion KRW in the same period last year. A Nongshim official explained, "This is the result of the overall domestic market size shrinking due to the economic slowdown."

Samyang Foods, which led the global K-Food craze with the surge in demand for Buldak Bokkeum Myun (Hot Chicken Flavor Ramen), also saw domestic sales growth until last year but received a shrunken report card in the third quarter of this year. Samyang Foods' cumulative ramen sales until the third quarter this year were 206.3 billion KRW, down 10% from 238.9 billion KRW in the same period last year.

Profitability Not Saved Even by Price Increases

More serious than the sales decline is the deterioration of profitability. Analyzing the performance of Nongshim Co., Ltd., which handles domestic and some exports to Europe and Southeast Asia, operating profit on a cumulative basis until the third quarter of this year was 72.6 billion KRW, down 28.4% from 101.4 billion KRW last year. This was the result of fierce marketing competition to open consumers' wallets in a harsh environment. A Nongshim official said, "Operating profit decreased due to increased promotional expenses in response to the domestic market slump."

In the beverage market, even price increases failed to prevent sales decline. Lotte Chilsung Beverage's domestic sales on a cumulative basis until the third quarter of this year were 1.9682 trillion KRW, slightly down from 1.9684 trillion KRW a year earlier. Lotte Chilsung raised the shipment prices of six beverage items, including Chilsung Cider, Pepsi Cola, Gatorade, Hot6, and Del Monte Juice, by an average of 6.9% starting June 1, but considering this, it failed to defend sales through price increases.

In fact, Lotte Chilsung's domestic beverage sales volume is clearly declining. According to Lotte Chilsung's quarterly report, carbonated beverage sales were 777.71 million cases in the third quarter last year but only 774.38 million cases in the third quarter this year. A case refers to a box unit, not individual products, and quantities vary by product and capacity.

During the same period, coffee sales also decreased from 237.76 million cases to 232.57 million cases, and juice sales dropped from 98.46 million cases to 94.19 million cases. A Lotte Chilsung Beverage official explained, "In the context of domestic consumption slowdown, prolonged rainy season, rising raw material costs such as sugar and oranges, and ongoing business expenses, most sales and operating profits in the carbonated, coffee, bottled water, and juice categories declined."

The dining-out sector, which was hit directly by the economic recession, managed to defend sales by raising prices but could not prevent operating profit deterioration. Kyochon F&B, which operates Kyochon Chicken, recorded cumulative sales of 328.9 billion KRW until the third quarter this year, up 6.1% from 310.1 billion KRW in the same period last year. However, cumulative operating profit was 9.7 billion KRW, down more than 45% from 17.7 billion KRW last year. Although one-time costs increased significantly due to the franchise regional headquarters' direct management conversion, it is also analyzed that marketing costs increased due to intensified chicken competition amid the recession.

Spread of Recession-Resistant Consumption... 'Soju' Sales

On the other hand, sales of typical recession-resistant products slightly increased. HiteJinro, which mainly produces soju, achieved cumulative sales of 1.7823 trillion KRW until the third quarter this year, up 4.3% from 1.7097 trillion KRW last year. Domestic sales of HiteJinro soju recorded 971 billion KRW cumulatively until the third quarter this year, growing 6.18% from 914.5 billion KRW a year earlier. During this period, domestic beer sales also rose from 605.2 billion KRW to 623.2 billion KRW. For Lotte Chilsung, sales of soju (254.5 billion KRW → 271.2 billion KRW) and beer (60 billion KRW → 67.7 billion KRW) both increased.

Tobacco domestic sales were virtually flat. KT&G's cumulative domestic sales until the third quarter this year were 1.6725 trillion KRW, slightly up from 1.6668 trillion KRW in the same period last year.