[K-K-Food Tight R&D]② Overseas Results 'Polar Opposites'... The Counterattack of 'Last-Place Dongwon'

Analysis of R&D in Food Companies with Over 3 Trillion Won in Sales
Lower R&D Investment Leads to Lower Overseas Sales Ratio
Dongwon Group Restructures Governance for Global Expansion

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 success. 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 resources.

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"In the case of Dongwon F&B, it was not easy to establish a corporate value enhancement plan that meets market expectations and investor demands amid stagnant growth due to domestic consumption slowdown, intensified competition, and mid- to long-term population decline."

This is the background behind Dongwon F&B, the second-largest food company in Korea by sales last year, becoming a 100% subsidiary through a comprehensive stock swap with its holding company Dongwon Industries. In November last year, Dongwon Industries announced a value-up plan to enhance corporate value, judging that it would be difficult for Dongwon F&B to implement shareholder value enhancement policies such as dividend increases and share buybacks in a situation where domestic industry growth is slowing and global business expansion is inevitable.

In fact, Dongwon F&B has earned stable profits for over half a century since launching Korea's first canned tuna, but it has been neglectful in targeting overseas markets through product innovation.

Food Companies with Low R&D Investment Have the Lowest Overseas Sales Ratio

On the 13th, Asia Economy analyzed 11 food companies with sales exceeding 3 trillion won last year and found that except for Orion, companies with lower research and development (R&D) investment had a smaller proportion of overseas sales. CJ Freshway, which mainly focuses on domestic group catering and food material distribution, had the lowest R&D ratio to sales at 0.14% last year, with overseas sales accounting for only 1%. SPC Samlip, which spent about 0.25% of sales on R&D, had an overseas sales ratio of 2%.

In particular, Dongwon F&B, with annual sales reaching 4.5 trillion won, invested 13.3 billion won in R&D last year, which is only 0.3% of sales. Dongwon F&B grew by producing and selling canned tuna caught by Dongwon Industries, which started its deep-sea fishing business in 1969. It sells over 200 million tuna cans annually, holding more than 80% of the domestic canned tuna market share.

Although R&D investment increased significantly in absolute terms from 7 billion won ten years ago, the R&D ratio remains low compared to competitors. As a result, the overseas sales ratio of the company’s total sales was only 3% as of last year.

Dongwon Industries, the parent company, acquired Starkist, the largest tuna company in the U.S., in 2008, securing a majority market share locally and boosting overseas performance. However, on a standalone basis, the export ratio has been declining annually. Overseas sales reached 400 billion won in 2022, with an overseas sales ratio close to 40% (39.41%), but it shrank to 37.54% the following year and further decreased to 34.78% last year.

Therefore, Dongwon Group plans to incorporate Dongwon F&B as a 100% subsidiary of Dongwon Industries through this governance restructuring, launch food affiliates such as Dongwon Home Food and Starkist as a global food division, and integrate the group’s R&D centers to develop various products. To this end, they aim to raise the R&D investment ratio from the current 0.3% of sales to 1%, and increase the global food division’s sales from 5.7 trillion won last year to 30 trillion won by 2030. The overseas sales ratio of this division is also targeted to expand from the current 22% to 40%.

CJ CheilJedang Spent 200 Billion Won Annually... Overseas Sales Ratio Nears Majority

This goal is similar to the scale of sales and R&D of CJ CheilJedang, the largest food company in Korea. Last year, CJ CheilJedang’s sales excluding Korea Express were 17.87 trillion won, and it spent 218 billion won on R&D, accounting for 1.22% of sales.

For decades, CJ CheilJedang has spent more than 1% of sales annually on R&D, pioneering innovative products not found in domestic or overseas markets such as Hetbahn (instant cooked rice), Bibigo dumplings, and Sobaba chicken. It created a new instant rice market that allows Koreans to conveniently heat and eat their staple food, rice. Bibigo dumplings are selling like hotcakes, holding a 41% share of the frozen dumpling market in the Americas. Last year, CJ CheilJedang’s overseas sales ratio was 49%, the highest among large food companies except Orion.

Orion, which entered the 3 trillion won sales club for the first time last year, has long focused on global markets, with overseas sales accounting for 65%. As of last year, domestic sales were 1.0976 trillion won (35% of sales), less than China’s 1.27 trillion won (41%). Emerging markets such as Vietnam and Russia are also growing rapidly. However, Orion explained that the R&D investment ratio appears low because only standalone R&D spending in Korea is reflected.

The same applies to Samyang Foods, which has the largest overseas sales ratio. Samyang Foods’ overseas sales ratio expanded to 77% last year. Once on the brink of bankruptcy, Samyang Foods’ sales surged to 1.7 trillion won last year thanks to the global craze for Buldak Bokkeum Myun (Hot Chicken Flavor Ramen), which caused worldwide shortages after its launch in 2012.

Samyang Foods’ sales, which were around 300 billion won at the early stage of Buldak Bokkeum Myun’s launch, surged from 2016, and overseas sales surpassed domestic sales from 2019, making a 'quantum jump' every year. However, Samyang Foods’ R&D investment ratio was only 0.46% last year. Although R&D investment increased sixfold compared to 10 years ago when it was in the tens of billions, sales growth outpaced this increase.

An industry insider said, "Unlike other industries, in the food sector, the launch of a new product does not mean consumers stop buying existing products." He added, "With Buldak Bokkeum Myun’s global popularity, Samyang Foods is likely deeply considering its next product. R&D scale reflects consumer patterns and market conditions, but consistent investment is necessary to bear fruit."