Earnings Plummet... Snack Prices Also Rising

Significant Drop in Q2 Operating Profit
Lotte and Haitai Confectionery Raise Prices
Weight Reduction Due to Cost Burden

A snack display at a large supermarket in Seoul. [Image source=Yonhap News]

[Asia Economy Reporter Seungjin Lee] The confectionery industry, which saw a significant decline in operating profit in the second quarter due to the surge in international grain prices, is set to raise snack prices. With packaging material prices also soaring, some companies that have yet to decide on price hikes are expected to increase prices by at least 10%.

Even Snack Prices

On the 12th, Lotte Confectionery announced that it will raise prices and reduce the weight of 11 major products including Custard, Lottem, Butter Coconut, Zec, Vegetable Cracker, Harvest, and Kkokkalcorn. The average increase is about 12.2% based on price per weight. The price hikes will be implemented sequentially starting from September 1.

A Lotte Confectionery official explained, "The continuous rise in prices of various food raw and subsidiary materials such as oils, whole egg liquid, sugar, and packaging materials has pushed the cost burden beyond a bearable level."

Haitai Confectionery also raised prices of major products starting this month. Prices of five main product lines including Home Run Ball and Matdongsan were increased by an average of 10.8%. This is to prevent worsening management due to the sharp rise in prices of various raw and subsidiary materials. Nongshim is also considering whether to raise snack prices following the increase in ramen prices. Orion stated that despite the increased cost burden, there are no plans to raise snack prices.

Second Quarter Slump Due to Cost Burden

The background for the confectionery industry's move to raise snack prices is the poor performance in the second quarter. Although demand increased as more people sought snacks during COVID-19, the surge in international grain prices caused continuous rises in major raw material costs, increasing the cost burden. The average prices of wheat and palm oil in May rose by 27% and 71% respectively compared to the same period last year. Wheat prices have risen to 2013 levels, and palm oil prices to 2008 levels. International wheat prices also increased by 30% over the year, leading to higher flour delivery prices.

Orion recorded consolidated sales of 501.7 billion KRW and operating profit of 55.1 billion KRW in the second quarter. These figures represent decreases of 2.6% and 36.1% respectively compared to the same period last year. For the first half of the year, sales slightly increased by 4.6% to 1.1038 trillion KRW, but operating profit fell by 14.2% to 157 billion KRW during the same period.

Lotte Confectionery also posted a second-quarter operating profit (consolidated) of 24.8 billion KRW, down 2.5% from the same period last year. This contrasts with the previous first quarter, where operating profit rose 41% year-on-year to 25.9 billion KRW.

Nongshim, which is about to announce its second-quarter results, is also expected to show poor performance. According to financial information firm FnGuide, Nongshim's second-quarter sales are projected to fall 4.4% year-on-year to 638 billion KRW. Operating profit is predicted to plunge 51%, remaining around 20 billion KRW.

A confectionery industry official said, "Due to the recent rise in international wheat prices, flour suppliers have been continuously requesting price adjustments," adding, "As major raw material prices have risen one after another, product price increases are expected to continue across the confectionery industry in the second half of the year."

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