Low Birthrate, COVID-19, and Owner Risk Adversities... Namyang Dairy Products Widens Gap with Competitors

Prices of major ingredients frequently appearing on ordinary people's dining tables continue to rise, which is expected to increase the burden of preparing holiday meals for Chuseok, now just a month away. The photo shows citizens shopping at the Nonghyup Hanaro Mart Yangjae branch in Seocho-gu, Seoul, on the 17th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Lee Seung-jin] The gap between dairy industry rivals Maeil Dairies and Namyang Dairies is rapidly widening. As the birth rate has remained in the zero range for several years, leading to a decline in demand for white milk and infant formula, Maeil Dairies quickly diversified its business. On the other hand, Namyang Dairies has been held back in discovering growth engines due to owner-related risks.

According to the dairy industry on the 26th, the gap between Maeil Dairies and Namyang Dairies widened further in the first half of this year. Maeil Dairies recorded sales of 756.3 billion KRW and an operating profit of 42.9 billion KRW in the first half, up 5.7% and 5.4% respectively compared to the same period last year. Meanwhile, Namyang Dairies posted sales of 470.5 billion KRW and an operating loss of 34.9 billion KRW during the same period. Sales slightly decreased by 1.1%, and the operating loss increased by about 2.4 billion KRW.

The gap between the two companies was determined by market changes due to demographic shifts. Maeil Dairies launched the adult nutritional supplement "Selex" to foster next-generation growth engines. Last year, Maeil Dairies’ adult nutrition product sales reached 51.7 billion KRW, rapidly growing to about 3% of total sales. In particular, Selex can be distributed at room temperature, resulting in a relatively high operating profit margin. Additionally, premium product lines such as cup coffee and Sangha Farm continue to grow steadily.

In contrast, Namyang Dairies still relies heavily on sales of white milk and infant formula. White milk sales have yet to recover due to the contraction of the school meal market caused by COVID-19. Infant formula sales are also declining as the total fertility rate has remained in the zero range for three consecutive years, with the number of newborns decreasing year by year. Last year, the number of births fell below 300,000 for the first time.

The pressure to raise milk prices due to increased raw milk costs is also a negative factor for Namyang Dairies. The Dairy Promotion Association raised the price of raw milk, the main ingredient for milk, from 926 KRW per liter to 947 KRW per liter (a 2.3% increase) starting from the 1st of this month. If white milk prices increase, purchasing power will inevitably decline further, which is expected to worsen the performance of Namyang Dairies, where milk accounts for about 50% of total sales.

Although Namyang Dairies needs to reorganize its business portfolio, it has lost its center due to owner-related risks. Following controversy over the claim that the Bulgari product was effective in reducing COVID-19, Namyang Dairies Chairman Hong Won-sik announced his resignation in early May and signed an acquisition agreement with the private equity firm Hahn & Company. However, with only five days left until the contract termination date on the 31st, the merger and acquisition deal remains uncertain.

Chairman Hong still holds his position three months after his resignation announcement, and his two sons have returned as executives or been promoted, raising doubts about the management reform of Namyang Dairies. Especially after it was revealed that the law firm LKB & Partners was hired as legal counsel, speculation has grown that Chairman Hong is preparing for price renegotiations or legal battles with Hahn & Company. Recently, Hahn & Company appointed the law firm Hwawoo as their legal representative, raising the possibility of a court dispute.

An industry insider explained, "Despite numerous past controversies, this year is considered the biggest crisis for Namyang Dairies," adding, "With external adversities and ongoing internal controversies, the company’s efforts to discover new growth engines are being hampered, and the gap with competitors is expected to widen further."

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