CJ Freshway Joins '3 Trillion Club' for 2 Consecutive Years... Profitability Shows 'Red Light'

Sales Reached 3.2188 Trillion Won Last Year
Expected to Surpass 3 Trillion Won for Two Consecutive Years
Profitability Worsened Due to Sluggish Dining-Out Food Ingredient Distribution
Key to Profitability Recovery This Year... Depends on Dining-Out Industry Rebound

CJ Freshway, the No. 1 company in the domestic food ingredients and catering industry, appears to have maintained its '3 trillion won club' status last year due to a boom in the catering business, continuing its external growth. However, profitability is expected to decline due to sluggishness in the food ingredient distribution business for dining out. As domestic consumption has stagnated amid an economic downturn and the dining-out market has frozen, whether profitability improves this year will also depend on the food service industry.

Interior view of CJ Freshway's concession site 'Incheon Airport Gourmet Bridge Terminal 2 Central Branch'.

According to financial information company FnGuide on the 3rd, CJ Freshway's sales in the fourth quarter of last year are expected to increase by 7.1% year-on-year to 844.2 billion won, and operating profit is projected to rise by 8.6% to 26.5 billion won. With the improvement in fourth-quarter performance, the total sales for the entire year are estimated to increase by 4.7% year-on-year to 3.2188 trillion won. As a result, CJ Freshway is expected to maintain its 3 trillion won club status for the second consecutive year following 2023.

However, operating profit is expected to decrease by 4.0% compared to a year ago, to 95.3 billion won. While the group catering business continued to grow externally, sluggishness in the food ingredient distribution business for dining out due to the economic downturn and high inflation led to a decline in related sales, and selling and administrative expenses such as labor costs increased, resulting in an overall decline in profitability. In fact, in the third quarter of last year, the food service division's sales increased by 9.1% year-on-year to 586.6 billion won, driving total sales growth, but sales in the food ingredient distribution division only increased by 2.7%. In particular, the catering food ingredient division maintained a stable growth rate with a 9.0% increase, but the dining-out food ingredient division decreased by 2.9%, narrowing the growth margin of the food ingredient distribution division.

CJ Freshway plans to continue external growth this year to maintain its No. 1 position in the industry while also aiming to recover profitability, which was sluggish last year. First, the company is likely to continue expanding its scale this year. This is due to the commencement of operations for large companies previously secured, the base effect of hospital catering following last year's medical strike, and a new order strategy focused on secondary hospitals.

Additionally, the spread of a corporate culture that values employee welfare and the strengthening of catering operations in hospitals, military units, and welfare facilities provide a basis for expecting growth not only this year but also in the mid to long term.

Currently, the business division driving CJ Freshway's sales growth is food service, i.e., group catering. Although food service sales currently account for about 25% of total sales, it serves as the company's cash cow due to its higher profitability compared to the food ingredient distribution business. Food service division sales are expected to grow at an average annual rate of 12.5%, from 362 billion won in 2017 to 793.5 billion won last year.

Notably, sales, which decreased by 9.2% immediately after the COVID-19 pandemic in 2020, recovered with a 4.3% increase in 2021, and then grew by more than 20% in 2022 and 2023 due to reopening and strengthened order competitiveness. Last year, sales are also expected to have increased by about 10%, driving sales growth.

If the sales growth trend continues this year, the key to improving profitability ultimately depends on the rebound of the dining-out industry. The food ingredient industry estimates that about 70% of the total market supplies food ingredients to the dining-out sector, while about 25% is for catering. This highlights the importance of the dining-out industry, which is the upstream industry for the food ingredient distribution sector.

The dining-out industry grew at an average annual rate of 6.4% over four years since 2018 but has recently struggled due to high interest rates and sluggish domestic economy. According to Statistics Korea, the dining-out industry business condition index was 76.04 in the third quarter of last year, and the forecast for the fourth quarter was 83.65. The dining-out industry business condition index measures the trend of growth or contraction in the dining-out industry based on changes in workers' judgments and forecasts; a value below the baseline of 100 indicates contraction.

Considering recent economic forecasts, the outlook for the dining-out industry this year is not very bright. The Bank of Korea projected in its November economic outlook report last year that economic growth rates for 2024 and 2025 would be 2.2% and 1.9%, respectively. This is a 0.2 percentage point downward revision from the estimates in the August report. Although private consumption, which was sluggish last year, is expected to grow somewhat faster this year (1.2% in 2024 → 2.0% in 2025), export growth is expected to slow due to intensified competition with major countries in key industries and strengthened protectionist policies. This forecast does not reflect the presidential impeachment issue; if it were included, the economic growth rate this year is likely to slow further.

Meanwhile, according to FnGuide, CJ Freshway's annual sales this year are expected to continue growing by 7.4% from last year to 3.4559 trillion won. Operating profit is also projected to increase by 11.6% to 106.4 billion won compared to last year.

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