Price Increase for Rice and Bread ‘＋’, Frozen Prices for Ramen ‘－’

Food Industry's Mixed First Half Results

CJ Raises Price of Hetbahn and Cupbahn Early This Year
Sales Increase... Growth Expected in Q3
SPC Samlip Operating Profit Up 61%

Ramen Prices Frozen Despite Soaring Costs
Nongshim and Ottogi Both Decline
Performance Improvement Seems Difficult

[Asia Economy Reporter Seungjin Lee] The food industry’s fortunes in the second quarter are expected to diverge sharply. The performance gap between companies that reflected soaring raw material costs in product prices and those that did not has widened significantly. Raw material prices are predicted to continue rising in the second half of the year, prompting companies that have yet to raise prices to accelerate their price hikes.

If prices were raised, second-quarter performance also held up well

According to the food industry on the 13th, CJ CheilJedang’s second-quarter performance outlook is bright. With the continued spread of COVID-19 increasing food demand, and the company raising prices of Hetbahn and Cupbahn by 6-7% earlier this year, both sales and operating profit were able to grow.

CJ CheilJedang’s second-quarter sales are expected to rise 5% year-on-year to KRW 3.6458 trillion, and operating profit is forecast to increase 13% to KRW 341.9 billion. Considering the food stockpiling demand during the second quarter of last year due to COVID-19, these are solid results. This month, prices of processed meat products including Spam were also raised by about 9%, so steady growth is expected to continue into the third quarter.

SPC Samlip, which raised prices of about 20 types of mass-produced bread by approximately 9% in March, is also expected to report good second-quarter results. SPC Samlip’s sales for the second quarter of this year are predicted to increase 9% year-on-year to KRW 67.5 billion, with operating profit soaring 61.1% to KRW 1.5 billion.

These companies raised product prices citing the sharp rise in raw material costs that began last year. The price of rice, the main ingredient in Hetbahn and Cupbahn, started soaring last year and has maintained a price about 25% higher than the previous year for half a year, exceeding KRW 60,000 per 20kg for the first time.

International grain prices are also on a continuous upward trend. International wheat prices have reached their highest level in seven years. According to the Chicago Board of Trade, wheat prices last month traded at $246 per ton, nearly 40% higher than the same period last year. Palm oil prices rose even more sharply, reaching their highest level since 2008. Last month’s price surged up to 70% compared to the same period last year.

‘Anxious’ Ramen Industry

With major raw material prices such as wheat and palm oil soaring, the ramen industry, which failed to raise product prices in the first half, faces a bleak second-quarter performance outlook. The ramen industry, which saw first-quarter results decline due to cost burdens, is expected to experience an even greater performance setback in the second quarter due to the fading COVID-19 effect.

Nongshim’s second-quarter sales this year are forecast to decrease 4% to KRW 64.1 billion, and operating profit is expected to drop 53.5% to KRW 1.9 billion. Nongshim has not raised the price of its flagship product ‘Shin Ramyun’ for five years. Ottogi, which has kept ‘Jin Ramen’ prices frozen for 13 years, also faces a gloomy second-quarter outlook. Ottogi’s second-quarter sales are expected to rise 3.1% to KRW 66 billion, but operating profit is forecast to fall 24% to KRW 4 billion. Samyang Foods is expected to record second-quarter sales and operating profit declines of 5.7% and 34.8%, respectively, to KRW 16.4 billion and KRW 1.9 billion. ‘Samyang Ramen’ has also not raised prices since 2017.

Ramen is strongly perceived as a ‘common people’s food,’ making price increases difficult. Ottogi announced plans to raise Jin Ramen prices earlier this year but withdrew the price hike after public backlash. Ottogi minimized performance decline by raising prices of cup rice instead, but with ramen prices frozen for 13 years, improving performance remains challenging.

Raw material costs account for 50-60% of ramen product costs, so price hikes are expected to be implemented in the second half of the year. Raw material prices have risen more than 30% in the past year alone, creating a factor for at least a 10% increase in ramen prices.

Regarding this, a ramen industry official said, “The entire industry shares the recognition that ramen price increases are necessary, but the issue is who will ‘take the lead.’ Due to cost burdens, all companies will have no choice but to raise prices in the second half.”

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