'Buldak' Hits Big, Everyone Copies... Lost Spirit of Challenge [K-Food Tight R&D]①

Nestle Invests 2 Trillion Won Annually in R&D
11 Leading Korean Food Companies Combined Spend Only 450 Billion Won
Copycat Competition Prevails... Lack of Innovative Products

Editor's NoteThe popularity of K-food is heating up worldwide. Korean food products such as ramen and dumplings sold nearly $10 billion (about 15 trillion won) in overseas markets last year, breaking export records every year. This is thanks to the great popularity of Korean content like K-dramas and K-pop overseas. However, there are concerns that the competitiveness of Korean food products riding on K-culture may not be sustainable and could end up as a fleeting trend. Asia Economy examined the current state of research and development (R&D) in domestic food companies and explored ways to secure the source of future food products.

Yonhap News

#Samyang Foods' Buldak Bokkeummyeon, which led the global K-food craze, has spawned a flood of 'Me-too products' with similar taste and packaging. The addictive spicy flavor has captured the taste buds of people worldwide beyond Korea, prompting domestic and international food companies to launch similar products riding on Buldak's popularity. For example, Harim Industry released 'Yonggari Bulbokkeummyeon' in September last year. This ramen, which boasts a strong spicy flavor with Vietnamese chili and habanero in the sauce, even has packaging that closely resembles Buldak's, featuring a black background with red product name. Earlier this year, in March, they introduced 'Yonggari Bulbokkeummyeon Carbonara' (cup) with the same pink package as Samyang Foods' Carbonara Buldak Bokkeummyeon. Previously, Paldo also launched 'Volcano Carbonara' in January this year.

Buldak Bokkeummyeon was created after Kim Jeong-su, Vice Chairman of Samyang Foods, saw young people enjoying spicy food deliciously with his daughter in Myeongdong in 2011 and decided to apply 'intense spiciness' to ramen. Kim personally visited famous spicy chicken, spicy gopchang, and chicken feet restaurants nationwide with marketing and research staff, spending one year developing 2 tons of spicy sauce and 1,200 chickens, resulting in the product's birth. However, most Buldak Me-too products simply replicated the spicy taste easily and jumped on the 'Buldak trend.'

Last year, major domestic food companies spent less than 1% of their sales on research and development (R&D). Although the scale of R&D has steadily expanded over the past decade, it remains small in absolute terms compared to global food companies. Moreover, most product development focused on imitating or renewing existing products rather than developing innovative products or technologies.

Nestl? 2 Trillion Won VS 11 Domestic Food Companies 437.5 Billion Won

On the 6th, Asia Economy analyzed the R&D status of 11 domestic food companies with sales exceeding 3 trillion won last year. The average R&D ratio to sales of these companies was 0.68%, up from 0.56% ten years ago. The total R&D expenditure of these 11 companies last year was 437.5 billion won, more than double the 190.8 billion won spent ten years ago.

However, only two companies, CJ CheilJedang and Daesang, had an R&D ratio exceeding 1%. CJ CheilJedang invested 218 billion won in R&D last year, but this was slightly less than 233.7 billion won in 2023.

Following were ▲Daesang 1.09% (47.9 billion won) ▲Pulmuone 0.9% (30 billion won) ▲Nongshim 0.9% (29.6 billion won) ▲Lotte Chilsung Beverage 0.74% (29.6 billion won) ▲Lotte Wellfood 0.7% (28.5 billion won) ▲Ottogi 0.7% (20.4 billion won) ▲Orion 0.52% (5.8 billion won) ▲Dongwon F&B 0.31% (13.3 billion won) ▲SPC Samlip 0.25% (9.7 billion won).

The scale of R&D in domestic food companies is far below the manufacturing industry average. The average R&D expenditure to sales ratio of domestic manufacturing companies is around 4-5%, making food companies' ratio about one-sixth of that.

Compared to global companies, domestic R&D investment is also relatively small in scale. Nestl?, the world's largest food and beverage company, invested $1.667 billion (about 2.391 trillion won) in R&D last year. This accounts for 1.8% of its sales of $91.354 billion (131 trillion won) last year. Over the past five years, Nestl? has consistently invested about 2 trillion won annually in research and development. Even the combined R&D expenditure of domestic food companies does not reach Nestl?'s level.

Competition Copying Blocks R&D Investment

A bigger problem is that the chronic practice of 'copying competitors' in the food industry is hindering the necessity of R&D investment. The food industry has traditionally entered the market by producing 'Me-too products' similar to the top-selling products. About 300 new products are launched annually in the domestic food market, but truly innovative products recognized by the market are few.

For example, Dongwon F&B, which has the lowest R&D investment ratio among comprehensive food companies, developed 186 general food products last year, including 13 types of canned tuna and 34 frozen foods. They also introduced 44 dairy products, 671 sauces, and 974 seasoning products. However, none of these were innovative products that left a strong impression on consumers.

At least CJ CheilJedang, the industry leader, has introduced new products such as Hetbahn Soritae Black Rice, Sobaba new products, Spam Single Chicken Breast, and Bibigo Boneless Flounder Grill by utilizing technologies developed through billions of won invested in R&D over the years.

The food industry cites low operating profit margins as a cause for stingy R&D spending. The average operating profit margin of these 3 trillion won club food companies last year was 5.6%. Excluding Orion, which has a high overseas ratio (17.5%), the margin was only 4.3%, below the manufacturing industry average of 6.2%.

The food industry is considered a typical low-margin industry. The burden of raw materials and labor costs is increasing, but growth is based on domestic consumption, making product price increases sensitive and limiting profits. Most raw materials are imported, and rising prices of key raw materials like cocoa and coffee, along with the rising won-dollar exchange rate, increase costs. A food industry official explained, "Although companies successful in overseas markets recently have improved operating profit margins, for most companies, surpassing the 10% margin is like reaching for the stars. When allocating budgets for new businesses or new products, they inevitably consider these factors."

Dependence on Monopoly Products like Hetbahn, Dongwon Tuna, and Shin Ramyun for Sales

However, criticism remains that food companies neglect research and development while relying on products that already dominate monopolistic markets. Long-established products such as CJ CheilJedang's Hetbahn, Dongwon F&B's tuna, Nongshim's Shin Ramyun, and Binggrae's Banana Flavored Milk consistently generate sales with overwhelming market share, leading to complacency. An industry insider said, "The idea that sufficient sales can be made without special R&D, so there is no need to develop new products, is widespread in the industry. It seems to have eliminated the 'spirit of challenge.'"

An anonymous securities analyst said, "In the early days of the domestic food market, overseas products from Japan and the U.S. were blindly imitated, and that culture still persists. Launching new products requires significant R&D costs and time, and the success rate is low, but renewing existing products and copying competitors' products bring immediate stable sales, so it is tacitly tolerated." He pointed out, "The lower the R&D focus, the less product diversification there is, which can reduce consumers' choices."