[Record Domestic Cold Wave]③ "Next Year Is Scarier"... Over Half of Distribution Companies Adopt 'Tight Management'

Survey of CEOs from 22 Distribution Companies
"Plans to Cut Costs and Reduce Investments"
10 Companies Considering Price Increase Options

Nine out of ten CEOs in the distribution industry predicted that the economic outlook for next year will be much worse than this year. This is due to the impact of the economic recession and increased political uncertainty surrounding recent emergency measures and the presidential impeachment battle. Domestic demand remains sluggish due to frozen private consumption sentiment, and there are significant concerns that rising exchange rates will drive up raw material prices.

On the 18th, Asia Economy conducted a survey on the 2025 economic outlook targeting CEOs of 22 major companies in the distribution industry. 91% of respondents expected that "next year's economic situation will be worse than this year." Among the multiple-choice options?'very bad (5 points),' 'generally worse (4 points),' 'similar to this year (3 points),' 'better than this year (2 points),' and 'relatively well (1 point)'?14 chose 4 points, and 6 chose 5 points, totaling 20 CEOs with a negative outlook.

9 out of 10 Distribution Company CEOs Say "Economy Will Worsen Next Year"

Only two respondents expected the situation to remain at this year's level, and no CEO viewed the outlook relatively optimistically.

This outlook is also reflected in the Consumer Confidence Index (CCSI) by the Bank of Korea, which comprehensively assesses private consumption sentiment. The Consumer Confidence Index peaked at 103.6 in July this year but barely exceeded the baseline of 100 for four consecutive months starting in August. The Consumer Confidence Index is a composite index standardized from six major sub-indices: current living conditions, living condition outlook, household income outlook, consumption expenditure outlook, current economic conditions, and future economic outlook, used by the Bank of Korea to comprehensively assess consumers' perception of the economic situation. A value below 100 indicates negative consumer expectations about the overall economy.

The food and beverage industry, which has sought to find a way out through exports and imports amid sluggish domestic demand, generally expressed concerns about changes in the business environment due to rising exchange rates. As the Korean won depreciates, the price of imported food raw materials rises, which inevitably stimulates inflation and affects the real purchasing power of domestic consumers. One industry CEO said, "Unstable exchange rates affect export and import prices and increase inflationary pressures. Especially if the won's weakness continues, import prices will rise, and the trade deficit will widen." He added, "Due to international instability such as the Russia-Ukraine war and US-China tensions, supply chain disruptions, rising raw material prices, and global economic recession are expected to continue, negatively impacting South Korea's economy." There were also opinions that after Donald Trump's presidential inauguration next year, the US will strengthen its own-first policy, worsening the global trade environment.

Half of CEOs "Entering Tight Management"... Considering Cost Reduction and Investment Cuts

More than half of these CEOs (13 companies) plan to tighten their belts next year through cost reduction and new investment cuts. Three companies are weighing the possibility of tight management, and six companies have no such plans. The most frequently cited specific tight management measure (multiple responses) was cost reduction (75%). Next was investment reduction (25%) to improve cost efficiency.

Sales channels highly dependent on domestic demand have already proactively entered emergency management systems. They are reducing labor costs by 'streamlining organizations' and cutting back on personnel. Lotte, a distribution powerhouse, reduced its executive size by 13% compared to the end of last year in a recent personnel reshuffle following the declaration of an emergency management system. Emart, the number one large mart operator, is currently accepting voluntary retirement applications this month. This is the second time this year since the first voluntary retirement application was accepted in March, the first since its founding in 1993. One food company CEO said, "The recent business environment is complexly intertwined with issues in consumption, finance, and international affairs, and the majority opinion is that this is likely to be prolonged. Our company is also taking the current situation seriously."

Some companies have already begun considering price increases as exchange rates continue to rise amid recent domestic and international turmoil. Among the 22 companies, 10 CEOs responded that "prices may be raised next year." These responses were especially from food and fashion manufacturers highly dependent on imported raw materials in the production process. One food manufacturer CEO said, "We are enduring as much as possible to ease the burden on consumers, but beyond this level, there is no other choice but to raise prices." A cosmetics manufacturer CEO said, "If the situation continues next year as it did this year, we will have to consider price increase measures."

Previously, food and cosmetics manufacturers began raising prices one after another from the second half of last year, citing raw material price increases. In particular, alcoholic beverages rose by about 7% on average, and cosmetics by about 5-10%. Price increases continued this year as well. Dongseo Food raised prices of instant coffee and Maxim coffee mix by an average of 8.9% starting last month. Ottogi raised prices of 24 products, including ketchup, sesame oil, and roasted sesame, by up to 15% since September. Pulmuone raised seasoning products like Chadol Doenjang Jjigae seasoning from 2,000 won to 2,500 won, and Maeil Dairy's Sangha Milk Pint and other ice cream products increased by an average of 10.4%.

Most CEOs plan to defend next year's performance through such tight management. Regarding next year's business performance, 9 out of 22 companies expect sales and operating profit to be "similar to this year," and 6 expect it to be "better than this year." Only 5 CEOs predicted it would be "worse than this year." One CEO each said it was "difficult to predict" or that "specific business plans and outlooks have not yet been established." One food industry CEO said, "We plan to focus on efficient management for domestic business and set more aggressive goals for overseas business to boost sales and profits." Another CEO said, "Sales are expected to grow to some extent, but operating profit will decline compared to this year due to increased raw material and various cost burdens."