With raw material prices rising from the Middle East, efforts to cut expense are continuing at consumer-facing sites. As logistics uncertainty around the Strait of Hormuz persists due to the deadlock in U.S.-Iran talks, the prices of packaging and various consumables have gone up. Some franchise restaurants are even restricting packaging for dessert drinks.
According to mid-sized business circles on the 23rd, some Outback Steakhouse locations stopped packaging coffee, green tea, and other items served as dessert after war broke out in the Middle East. With the cost burden of disposable packaging such as paper cups and plastic lids increasing, and higher logistics costs piling on, they adjusted operations to focus on in-store consumption to reduce operating expense.
According to the Ministry of SMEs and Startups and export support centers, unit prices for petrochemical-based subsidiary materials have increased three to four times. There have also been cases where the receipt of base materials and materials and supplies was completely halted due to suppliers' refusal to accept orders.
A survey by the Korea Plastics Industry Cooperative Federation also found that 92.1% of domestic plastic processing companies received notices of materials and supplies price hikes. The average increase in polyethylene (PE) prices was 13%. PE is a petrochemical material used for inner coatings of paper cups and for plastic lids and plastic bags.
On the ground, as the costs of PE used for paper cup inner coatings and of plastic lids, straws, and packaging containers rose together, the burden of disposable item expense has grown. Some self-employed business owners also took steps to reduce the use of garbage bags. As instability in the supply of naphtha, a basic feedstock of petrochemical materials and supplies used in garbage bags, overlapped with rumors of price increases, there was a period of hoarding of volume-based trash bags.
The government moved to quell concerns by saying there were no problems with the supply of garbage bags, but some self-employed business owners chose to minimize the use of garbage bags as a way to lower fixed costs. They are guiding customers to discard bulky trash that is not receipts or film plastic at home.
A self-employed person who sells baby products said, "If plastic cups or sanitary items are thrown away, the garbage bag inevitably fills up quickly, so we posted a related notice in the store," and explained, "It's a measure to save even small expenditure while fixed costs such as rent and utilities remain in place."
Tensions remain high in the Middle East as talks between the United States and Iran stay deadlocked. With logistics uncertainty around the Strait of Hormuz not fully resolved, volatility in international oil and naphtha prices continues. The possibility that higher ocean freight rates and petrochemical materials and supplies price burdens will drag on cannot be ruled out.
An official at the Korea Federation of Micro Enterprise (KFME) said, "As prolonged tensions in the Middle East increase volatility in petrochemical-based materials and supplies prices and logistics costs, the burden is also mounting at self-employed business sites."
The official added, "In the past, the expense burden centered on labor and rent, but recently we also have to pay attention to fixed expenditure that repeatedly occurs in operations, such as packaging, consumables, and waste disposal costs," and "Because it is hard to pass higher fixed costs on to product prices, we are moving to cut expense even in areas that are not immediately noticeable."