As LOTTE Wellfood set a goal to nurture Pepero, a chocolate snack, into a "1 trillion won global megabrand," it ran into the headwind of a rising won-dollar exchange rate (a weaker won).
According to the Seoul foreign exchange market on the 12th, the previous day's won-dollar closing rate was 1,463.3 won. It rose about 7.1% from the 1,358-won range at the end of June this year. As 70%–80% of Pepero's materials and supplies are imported, a higher exchange rate increases manufacturing cost pressure.
LOTTE Wellfood posted 4.0403 trillion won in sales on a consolidation basis last year. That was down 0.5% from a year earlier. Operating profit for the same period fell 11.3% to 157.1 billion won. LOTTE Wellfood is counting on a rebound in results from year-end peak-season sales that began on Pepero Day (Nov. 11) this year. A LOTTE Wellfood official said, "Operating profit fell in the third quarter due to one-off expense such as voluntary retirement," and added, "We expect a turnaround in the fourth quarter."
In this situation, the rising exchange rate is acting as a burden on LOTTE Wellfood. Although prices of cocoa and butter, core materials and supplies for Pepero, have recently stabilized, the high exchange rate is keeping cost pressures intact. The international cocoa price fell to $6,102 per ton as of the previous day from $12,565 per ton at the end of December last year. Over the same period, the international butter price also fell to $3,499 per ton from $7,058 per ton. A LOTTE Wellfood official said, "When the exchange rate rises, cost pressure increases," and added, "For key materials and supplies such as cocoa, butter, and palm oil, we adjust purchase timing using an AI (artificial intelligence)-based price forecasting system."
Expanding overseas marketing is also a factor that increases expense. This year, LOTTE Wellfood expanded Pepero Day marketing globally. It ran a social networking service (SNS) challenge for customers in the United States and Southeast Asia and introduced customized packages. It selected the K-pop idol group "Stray Kids" as its global ambassador. However, because most global campaign operations, marketing, and promotion expense are settled in dollar-based foreign currency, a rising exchange rate leads to higher expense.
Having produced Pepero only in Korea, LOTTE Wellfood opened its first overseas Pepero production facility in Haryana, India, in July. It invested more than 30 billion won with an eye to using it as an export base not only for India but also for the Middle East and Southeast Asia. However, the Indian plant's output still accounts for only a small share of total production.
Raising prices is also difficult. The government is monitoring price increases for everyday items such as snacks, dairy products, and ramen. The Fair Trade Commission and the National Tax Service are also examining prices of major food materials and supplies and the appropriateness of price hikes.
A food industry official said, "Some imported materials and supplies are on a stabilizing trend, but the sharp rise in the exchange rate is actually increasing expense pressure," and added, "Government pressure is also making it hard to raise prices." Lee Jong-u, a professor in the business administration department at Ajou University, said, "An exchange rate increase is an external variable that is difficult to control at the level of individual corporations," and added, "Producing overseas-customized products locally will be the key long-term strategy."