Selling by the Slice at These Prices... Shocking Margins Revealed [The Secret of Bread Prices]

Cake Unit Sales Price Soars Tenfold in Two Years
Premium Cakes Show Relatively High Margins
Franchise Chains Also Raising Dessert Prices

Editor's NoteAccording to consumer price trends released by Statistics Korea, while the prices of processed foods rose by 4.1% year-on-year in May, bread prices surged by 6.4%. The consumer price index for bread reached 138.48, marking a 38.48% increase over five years compared to the base year of 2020 (100). This rise outpaces that of other popular Korean snacks, such as tteokbokki and fried chicken. Bread, once an affordable treat for everyone, has now become a luxury that is difficult for many to choose. How did the price of bread in Korea continue to climb so steeply?

In recent years, cakes have seen the largest increase in unit sales price among bakery items. In particular, some premium cakes are sold at prices much higher than their production costs, making them comparatively high-margin products. However, as prices have risen, the cost of a single slice of cake now exceeds 10,000 won, leading to growing consumer complaints that it is "as expensive as a full meal."

Image created using ChatGPT.

Mousse Cake Margin at 8,230 Won... Profitability of Premium Cakes Stands Out

According to a report titled "Market Analysis of the Bakery Industry and Major Regulatory Competition Impact Assessment," received by the Fair Trade Commission from Kongju National University Industry-Academic Cooperation Foundation on August 2, cakes showed the largest change in unit sales price among detailed bakery categories. The unit sales price for cakes was 1,414 won per kilogram in 2020, but soared to 13,381 won in 2022?a tenfold increase in just two years.

The report analyzed that, due to the impact of COVID-19 in 2020, reduced outings and gatherings led to increased demand for lower-priced products such as sheet cakes and small packaged cakes, resulting in a temporary drop in the average unit sales price of cakes. However, as the pandemic subsided, demand for premium cakes for special occasions and gifts recovered, causing unit sales prices to resume their upward trend.

The increase in unit sales prices was particularly pronounced for premium cakes such as mousse cakes and tiramisu. The unit sales price for mousse cakes rose from 6,080 won in 2020 to 24,337 won in 2022, a nearly fourfold increase. For tiramisu, the price went from 19,553 won to 25,401 won during the same period, an increase of about 1.3 times. As unit sales prices rose, profitability also increased. In 2022, the difference between unit sales price and production cost was 8,230 won for mousse cakes and 7,152 won for tiramisu. This is a higher level of profitability compared to other items such as donuts (2,546 won), castella (1,334 won), and pies (1,867 won).

Successive Dessert Price Hikes... Now Rivaling the Cost of Lunch

Franchise chains are also adjusting their prices due to rising demand for premium cakes and increases in raw material costs. Twosome Place raised the prices of 58 items, including cakes and beverages, by an average of 4.9% in March. As a result, the price of their signature "Strawberry Chocolate Fresh Cream" (Seuchosaeng) cake increased from 37,000 won to 39,000 won, and the two-tier version rose to 48,000 won.The prices of sliced cakes have also increased. The "Fresh Strawberry Milk Fresh Cream" cake is now priced at 9,500 won, nearly reaching 10,000 won, while the "Pave Chocolate Cake" and "Fresh Blueberry Yogurt Fresh Cream" cakes are each sold at 8,800 won.

The rising prices of cakes, now comparable to the cost of lunch, are increasing the burden on consumers. In fact, according to an analysis of 9 million mobile meal voucher transactions by NHN Payco in the first half of this year, the average lunch cost for office workers nationwide was 9,500 won. The average lunch price in the first half of the year has risen from 6,000 won in 2017, increasing by about 58% over the past eight years.

Cakes are displayed at a Twosome Place store in downtown Seoul. Photo by Yonhap News

Some franchise cafes are now offering desserts that cost more than a meal. Starbucks Korea released the limited summer "Shine Muscat Fresh Cream Cake" (12,500 won), as well as desserts such as "Melon Kuchen" (8,900 won). Hollys has also introduced desserts targeting consumer tastes, such as the "Apple Mango Round" (7,900 won) and the "Round Melon Dome Cake" (6,800 won).

However, some analyses suggest that high-priced desserts do not necessarily guarantee high profitability. Park Miseong, a researcher at the Korea Rural Economic Institute and an author of the report, said, "Products like mousse cakes or tiramisu contain cream, which means they have short shelf lives and require refrigeration during distribution and sales, which can drive up unit sales prices." She added, "However, considering distribution costs and sales risks, it is difficult to conclude that the margins are always high."

She went on to say, "Product prices are determined by a combination of factors, including supply and demand, raw material costs, and labor costs. While price increases may help expand profits for sellers, they can also lead to sluggish sales, so careful judgment is required."