Unable to Raise Ramen Prices... Earnings Halved Due to Cost Burden

Nongshim Holds Half of Ramen Market
Q1 Operating Profit Expected to Plunge 42%
Ottogi Down 14%·Samyang Down 30%
Raw Material Palm Oil Doubled
Wheat and Soybean Prices Up 50% in a Year

Ottogi Tried to Raise Prices in February
But Withdrew Amid Public Backlash
Industry Cautious Despite Cost Burden

[Asia Economy Reporter Seungjin Lee] The ramen industry, which enjoyed a boom last year due to the impact of COVID-19, is facing a gloomy outlook for the first quarter of this year. Since last year, the continuous rise in raw material prices has increased cost burdens, leading to forecasts that operating profits in the first quarter will plummet by more than 40% compared to the previous year. However, raising prices on main ramen products is not easy.

Nongshim’s Operating Profit ↓ in One Year

According to financial information firm FnGuide on the 3rd, the operating profits of the top three domestic ramen companies?Nongshim, Ottogi, and Samyang Foods?are all expected to decline in the first quarter of this year compared to last year. Compared to 2019, before COVID-19, both sales and operating profits are expected to decrease.

Nongshim’s operating profit for the first quarter of this year was recorded at 36.9 billion KRW, a 42% sharp drop from the previous year. Sales are forecasted to decrease by 3% to 670.1 billion KRW, with noodles accounting for more than half of total sales. Nongshim holds about 56% of the Korean ramen market share.

Ottogi’s operating profit for the first quarter is expected to fall by 14.1% to 49.2 billion KRW. Sales slightly increased by 0.3% to 647.6 billion KRW. Samyang Foods is also expected to see a sharp decline in operating profit for the first quarter. Samyang Foods’ sales for the first quarter are expected to decrease by 6.2% to 146 billion KRW, and operating profit is forecasted to drop by 30% to 18.7 billion KRW.

The poor first-quarter performance of the ramen industry is due to the recent sharp rise in prices of key raw materials such as wheat, soybeans, and palm oil, which determine ramen production costs. As of the 26th, May palm oil futures traded on the Malaysia India Commodity Exchange (MCX) were priced at 1,189 ringgit per 10 tons, double the price from a year ago.

As of the 29th of last month, wheat and soybeans traded on the Chicago Board of Trade were priced at $268 and $552 per ton, respectively, both rising about 50% over the past year. According to the U.S. Wheat Associates, international wheat futures prices reached their highest level since December 2014 on the 22nd of last month.

Only Hesitation on Price Increases Due to ‘Common People’s Food’ Perception

Although the situation calls for price increases, it is not easy. Last year, Korean ramen enjoyed a brief benefit from COVID-19, resulting in good performance, and all three companies are cautious due to consumer price burdens.

In February, Ottogi sent official letters to large supermarkets announcing a 9.5% price increase for Jin Ramen. However, as soon as the price hike plan became public, public criticism followed, and the price increase was withdrawn after five days. Nongshim’s Shin Ramyun prices have been frozen since 2016, and Ottogi has not raised Jin Ramen prices even once since 2008. Samyang Foods has not increased prices since raising Samyang Ramen prices in 2017.

Competition with latecomers is also a factor blocking ramen price increases. Recently launched new products reflect increased raw material costs and are nearly twice as expensive as products whose prices have been frozen for years. For example, Pulmuone’s ‘Jeong·Baek·Hong’ launched last year costs over 990 KRW per pack, while Jin Ramen is only in the 520 KRW range.

As market competition intensifies, there is a concern that raising prices could significantly undermine the competitiveness of existing products, so established companies are hesitant to implement ramen price increases.

A ramen industry official said, "The entire ramen industry is facing a significant increase in cost burdens, but Ottogi’s precedent has made it difficult to easily bring up price increases. Since consumers’ ramen choices are based on familiar tastes, brand loyalty is important, making it difficult to use the price increase card easily."

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