Full Reflection of Product Price Increase Effects... Food Industry Shows Q3 Performance Improvement

Ramen is displayed at a large supermarket in downtown Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Seungjin Lee] The food industry, which saw its operating profit halved in the first half of this year due to rising raw material prices, is rapidly recovering its performance in the third quarter. This is as the effect of product price increases is being fully reflected.

According to financial information firm FnGuide on the 4th, sales and operating profits of major food companies are expected to have increased in the third quarter of this year. In the second quarter, many food companies experienced a sharp decline in operating profit due to rising raw material prices. Additionally, sales continued to decline due to a negative base effect from panic buying demand caused by COVID-19 last year.

The company that showed the greatest performance recovery in the third quarter due to product price increases was Orion. Orion's operating profit in the second quarter fell 36% year-on-year to 55 billion KRW. On the other hand, its third-quarter operating profit grew 7.1% year-on-year to 116 billion KRW, more than doubling compared to the second quarter. Orion's operating profit increase is analyzed to be due to the price increase effect of Choco Pie at its overseas subsidiaries. Choco Pie's overseas sales ratio far exceeds that of domestic sales. In September, the prices of four types of pies at the Chinese subsidiary were raised by 6-10%, and last month, the Russian subsidiary increased prices of all products by an average of 7%. In the fourth quarter, the price increase effect of products at overseas subsidiaries is expected to be fully reflected, leading to a greater improvement in performance.

Nongshim is also quickly recovering from its second-quarter performance slump. Nongshim faced difficulties as its main product, ramen, saw a significant drop in operating profit margin due to rising prices of key raw materials such as international wheat and palm oil. In fact, its second-quarter operating profit plunged 58% year-on-year. In response, it raised the shipment price of major ramen products including Shin Ramyun by 6.8% in August. The price increase effect began to be reflected in the third quarter, with operating profit expected to record 25 billion KRW, down 15% year-on-year. The industry expects that the ramen shipment price increase will result in an annual sales improvement effect of about 90 billion KRW.

CJ CheilJedang, which quickly defended against performance decline by raising product prices since early this year, is also expected to have maintained solid performance in the third quarter. CJ CheilJedang's food division sales reached 2.544 trillion KRW, and operating profit was 187 billion KRW, both showing slight growth compared to the previous year. These figures also increased compared to the second quarter. CJ CheilJedang raised the price of Hetbahn by 6-7% in February this year, followed by a 7-8% increase in Hetbahn Cupbap prices in May. In July, it also raised the average price of about 20 processed meat products by 9.5%.

Pulmuone's operating profit in the third quarter of this year is expected to be 14 billion KRW, down 20% year-on-year. This is an improvement compared to the 37% drop in operating profit in the second quarter. While some product prices were raised early this year, leading to an upward trend in domestic performance, overseas subsidiaries in the US and Japan saw declines, reducing the overall improvement in performance.

A food industry official explained, "The effect of product price increases is expected to be more reflected in the fourth quarter," adding, "International grain prices have stabilized compared to early this year, so next year's performance is expected to improve more significantly."

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