"Is Price Increase Inevitable?".. Most Food Companies See Operating Profit Rise by 30%

Most Major Listed Companies' 1Q Outlooks Increase

34 of 35 Essential Consumer Goods Rise YoY
Factors Driving Price Hikes Like Global Food Price Decline Decrease
"Labor and Transportation Cost Pressures Remain," Counterarguments Persist

As major domestic food companies continue to raise product prices, their operating profits in the first quarter of this year mostly increased compared to the same period last year. They have appealed that price hikes were inevitable due to rising raw material costs amid changes in the international situation, such as the COVID-19 endemic (periodic outbreaks of infectious diseases) and Russia's invasion of Ukraine. However, it seems difficult to avoid criticism that the burden has ultimately been passed on only to consumers.

6 out of 8 ‘3 Trillion Won Sales Club’ Companies Show Profit Improvement

On the 8th, an analysis of the first-quarter performance of eight listed food companies with sales exceeding 3 trillion won last year, based on data from securities information firm FnGuide and company reports, as well as the average consensus estimates from domestic securities firms, found that six companies saw an increase in operating profit compared to the same period last year. Dongwon F&B, which has already disclosed its first-quarter results, recorded an operating profit of 43.4 billion won, up 34.7% year-on-year, while Lotte Wellfood posted 18.6 billion won, a 36.5% increase. Additionally, operating profits for Nongshim (45.6 billion won, up 32.9%), SPC Samlip (15.4 billion won, up 13%), and Ottogi (62.5 billion won, up 5.9%) are expected to rise compared to the previous year. Hyundai Green Food, a food service company affiliated with Hyundai Department Store Group that underwent a spin-off in March, also exceeded its average quarterly operating profit last year (18.65 billion won) with a forecast of 19.7 billion won for the first quarter.

The increase in operating profits for these companies is generally attributed to higher overseas sales and expanded online and offline distribution channels, leading to increased revenue. On the other hand, there is also a considerable opinion that profitability improved due to product price hikes and a decline in international raw material prices compared to last year. In fact, a survey by the Korea Consumer Agency on 35 essential daily items in the first quarter found that prices for 34 items, excluding eggs, rose by an average of 12.5% compared to the same period last year. Among these, cooking oil, mayonnaise, flour, soybean paste, and tofu handled by Ottogi and CJ CheilJedang saw price increases of around 20-30% year-on-year, while tuna and seasoned seaweed, Dongwon F&B’s main products, rose by more than 10%. Prices for items such as ham, ramen, snacks, and sesame oil also increased by about 15-20%.

In contrast, prices for raw materials used by food companies are on a downward trend. As of March this year, the Food and Agriculture Organization (FAO) of the United Nations reported the global food price index at 126.9, down 2.1% from 129.7 in February. Since reaching a peak of 159.7 in March last year, it has declined for 12 consecutive months. By category, prices for grains and oils have dropped significantly, while prices for meat and sugar have risen but not by much. The Korea Consumer Agency stated, "The causes such as rising raw material prices, which food companies claimed were unavoidable when raising prices, are being resolved," and urged, "Price freeze decisions should be expanded and extended, and furthermore, price reduction policies should be implemented to share consumers’ difficulties."

Burden Remains Despite Price Hikes... Government Support Measures Needed

There is also a strong voice in the industry that product price increases do not directly translate into improved profitability. Among the ‘3 trillion won sales club,’ CJ CheilJedang’s first-quarter operating profit consensus is expected to decrease by 31.9% year-on-year to 296.9 billion won. Daesang’s first-quarter operating profit is also forecasted to drop 28.2% year-on-year to 30.7 billion won. Both companies raised prices of their main product lines by around 20% compared to the same period last year. For CJ CheilJedang, the price hikes led to sluggish sales, and the bio sector faced headwinds due to falling lysine prices (an essential amino acid used in feed). Daesang is also expected to see a decline in operating profit due to falling lysine sales prices and market share, with the materials sector dragging down performance.

An industry insider said, "There is strong pressure to raise costs in almost every area, including public utility fees such as gas and electricity, labor costs, transportation, and packaging," adding, "Even with product price increases, these cost pressures cannot be fully offset." Some voices criticize the government for imposing unilateral burdens on companies under the pretext of curbing inflation. Earlier, at the emergency economic and livelihood meeting held in January, the government issued a price stabilization measure that effectively requested the food industry to freeze prices. Subsequently, the Minister of Agriculture, Food and Rural Affairs asked CEOs of 12 food companies to "cooperate as much as possible to stabilize prices by refraining from price hikes in the first half of this year."

An industry representative argued, "With ongoing increases in public utility fees and continuous imposition of taxes such as tariff quotas, it is not a good situation to tighten the screws on companies by only demanding restraint on price hikes," and insisted, "The government needs to prepare support measures for companies, such as various tax benefits, and make efforts to share the pain."

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