[Exclusive] Shinsegae Food Secures 10,000 Daily Meal Orders... Acquires Peacock Consignment Sales Rights to Overcome Performance Fluctuations

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[Asia Economy Reporter Lee Seon-ae] Shinsegae Food recently secured a new contract for large-scale group catering services with a daily volume of 10,000 meals. Starting full-scale operations this year, the company plans to actively accumulate know-how and accelerate the acquisition of large-scale group catering contracts. Additionally, Shinsegae Food has obtained the external channel consignment sales rights for all products under the private label (PL) brand 'Peacock' from E-Mart, aiming to expand sales channels and overcome poor performance.

According to industry sources on the 16th, Shinsegae Food won the catering contract for SK Hynix R&D Center in Icheon, Gyeonggi Province, at the end of last year. Operations began this year, and the scale is a large workplace serving 10,000 meals per day. Shinsegae Food plans to escape the sluggish group catering business by focusing on contracts with large workplaces. Large workplaces not only have a bigger scale compared to general workplaces but also have premium meal prices, which help improve profitability. For small and medium-sized workplaces, the company plans to provide know-how consulting and supply food ingredients.

Shinsegae Food's sales amount to about 1.3 trillion KRW, of which group catering sales account for approximately 300 billion KRW. The domestic group catering market is worth about 5 trillion KRW, with seven companies including Wellstory, Ourhome, Hyundai Green Food, Pulmuone, Hanwha Hotels & Resorts, CJ Freshway, and Shinsegae Food occupying about 80%. Most contracts with clients are kept confidential. Compared to the top companies, Shinsegae Food has fewer large workplace contracts, so this recent contract is viewed internally as an encouraging development. A Shinsegae Food official stated, "We are accelerating the development of large-scale and high-profit workplaces by utilizing the portfolio from the Pyeongchang Winter Olympics catering," adding, "We will intensify efforts to secure large workplace contracts through the successful operation of the SK Hynix R&D Center."

Besides group catering, Shinsegae Food also plans to strengthen its food manufacturing and sales divisions. To this end, in June last year, it secured the external channel consignment sales rights for all 'Peacock' products from E-Mart. Currently, Peacock has about 1,000 products, of which Shinsegae Food manufactures around 130. The rest are produced through other manufacturers under Original Equipment Manufacturer (OEM) agreements. Until now, all Peacock products were sold by E-Mart. However, E-Mart judged that to grow Peacock into a national brand, it was necessary to secure external sales channels beyond group affiliates such as Shinsegae Department Store, E-Mart, and SSG.com, and designated Shinsegae Food as the entity responsible for systematic management. However, sales through group affiliates will still be handled by E-Mart. An E-Mart official explained, "The Peacock team had been handling external sales independently, but due to the small size of the organization, efficiency was low," adding, "Shinsegae Food has a systematic and organized external channel sales system, so we entrusted them with Peacock's external channel sales, expecting future synergies."

Starting this year, Shinsegae Food will focus on expanding Peacock's external sales channels in earnest. Currently, Peacock is mainly sold through online malls such as Hyundai Home Shopping online mall, Lotte Home Shopping online mall, and Market Kurly. A Shinsegae Food official said, "We have been continuously selling Olban home meal replacements through external channels, and now by actively expanding external sales of Peacock products, we plan to maximize profit synergies."

Through these efforts, Shinsegae Food aims to overcome its performance fluctuations. Shinsegae Food is a Shinsegae Group affiliate in which E-Mart holds a 46.87% stake, operating in the food and beverage business (group catering, dining out, bakery) and food distribution (food distribution, manufacturing distribution). Although the business structure is stable, performance has been declining.

In the third quarter of last year, Shinsegae Food's cumulative sales reached 981.4 billion KRW, a 1.7% increase compared to the same period the previous year, but operating profit fell by 25.8% to 16.7 billion KRW. The decline was driven by the food and beverage business sectors including group catering, dining out, and bakery. Amid a sluggish domestic economy, rising costs such as minimum wage increases and inflation have worsened profitability. In fact, the cumulative sales of the food and beverage business in the third quarter were 468.8 billion KRW, down 7.5% from the same period last year, and operating profit dropped 87.2% to 0.5 billion KRW.

Overall performance is also on a downward trend. Shinsegae Food's total sales slightly increased from 1.208 trillion KRW in 2017 to 1.279 trillion KRW in 2018, but operating profit decreased from 30 billion KRW to 27 billion KRW. The outlook for this year is not optimistic either. The securities industry expects sales to increase to around 1.3 trillion KRW, but operating profit to decline to around 24 billion KRW.

A securities industry official analyzed, "Although it will not be easy to recover profitability in the food and beverage business due to external factors such as domestic economic downturn and inflation, improving efficiency in the catering business focused on large workplaces will help enhance profitability. Additionally, since the food manufacturing sector has good profitability, expanding Peacock's external channel sales will increase other sales and improve profits."

This content was produced with the assistance of AI translation services.