"Bread Is Too Expensive" but "No Profit Left"?Ten Bakeries Close Daily [The Secret Behind Bread Prices]

3,591 Local Bakeries Closed Last Year Alone
Closure Rate Rises to 18.5%
Fierce Competition and High Labor Costs Persist
Despite Rising Bread Prices, Shops Continue to Shut Down

Editor's Note
According to the consumer price trends released by Statistics Korea, the price of processed foods rose by 4.1% year-on-year in May, while the price of bread surged by 6.4%. The bread consumer price index 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 beloved Korean snacks such as tteokbokki and fried chicken. Bread, once a snack enjoyed by everyone, has now become a luxury that is difficult to choose due to its high price. How did the price of bread in Korea climb so steeply and continuously?

Despite the burden on consumers from rising bread prices, neighborhood bakeries continue to declare, "There is nothing left after selling," and are closing down in increasing numbers. Last year alone, 3,591 bakeries disappeared. Even as bread consumption expands and desserts become more popular, making bread more expensive and increasing the number of new stores, fierce competition and high labor costs make it difficult for bakeries to survive.

3,591 Neighborhood Bakeries Closed Last Year Alone

According to local administration licensing data from the Ministry of the Interior and Safety, 1,747 bakeries nationwide closed between January and July of this year. After 3,591 closures last year-an average of 10 per day-this year is showing a similar trend. The bakery closure rate has risen every year, from 13.8% in 2022 to 15.9% in 2023, and up to 18.5% last year.

The main reason for the rising closure rate is the overheated competition within the bakery industry. In recent years, explosive demand for new bakery businesses has been driven by increased bread consumption and the dessert trend, quickly saturating the market. Last year alone, more than 700 new bakeries opened in Seoul, and as of last month, there were about 19,600 bakeries operating nationwide. As the number of new stores continues to increase, existing bakeries struggle to secure regular customers, which in turn fuels the rising closure rate.

Even bakeries considered local landmarks have been affected by the intensifying competition. 'Ops,' one of the three major bakeries in Busan, saw its sales drop by 2.2% year-on-year to 29.9 billion won last year, while Samsong BNC, which operates 'Samsong Bakery' in Daegu, also posted a 4.5% decrease to 18 billion won. The premium donut brand 'Knotted,' which once gained popularity on social networking services, is no exception. The operating company, GFFG, recorded sales of 63 billion won last year, a 6.7% decline from the previous year.

Major franchises are facing similar challenges. In 2023, the average annual sales per Paris Baguette franchise store was 710.76 million won, a 5.8% decrease from 754.74 million won the previous year. During the same period, Tous Les Jours saw its average sales drop by 1.2%, from 570.23 million won to 563.45 million won.

High Labor Costs... Lower Operating Margins Than Fried Chicken Shops

Citizens are looking at bread in a large supermarket in downtown Seoul. Photo by Asia Economy DB

A high dependence on raw materials is cited as the most significant challenge in bakery operations. Since most of the key ingredients for bread-such as wheat and white sugar-are imported, a rise in the won-dollar exchange rate leads to a sharp increase in import costs. When cost pressures mount, consumer prices inevitably rise as well. However, small bakeries find it harder to increase prices than large franchises, making them more vulnerable to management difficulties.

Additionally, labor and other operating costs further undermine profitability. According to the Fair Trade Commission's "Bakery Industry Market Analysis and Competition Impact Assessment of Major Regulations" report, bakery specialty stores require relatively more staff than fried chicken or coffee shops. For bakery specialty stores, 15.8% have 5 to 9 employees, compared to 4.5% for fried chicken shops and 12.5% for coffee shops. Stores with 10 to 19 employees accounted for 4.3%.

Bakery operating hours are also long, with 13.8% of stores open for more than 14 hours a day. Due to high labor dependence and extended hours, the operating cost burden is inevitably heavy. As a result, the operating margin for bakery specialty stores is only 6.3%, lower than that of fried chicken shops (9.5%) or coffee shops (7.2%).

The report analyzed, "Over the past year, the number of bread-selling outlets-including franchises and independent bakeries-has increased, and the cycle of existing stores closing and new bakery cafes opening has accelerated, speeding up changes in bread market trends."