With a domestic demand slump expected again this year and the Lee Jae-myung administration pushing hard for price stability, a sense of crisis is growing in the food industry that "it is difficult to hold out on the domestic market alone." The burden from high inflation and a weak won has increased, but raising prices has become harder.
In particular, with local elections coming up in Jun., pressure from the government to stabilize prices is expected to grow, leading the food industry to view overseas expansion as an essential survival strategy.
According to the food industry on the 17th, growth in Korea's food market has stalled. As high inflation and an economic downturn drag on, consumer sentiment has weakened, and food consumption remains focused on price and promotions rather than qualitative improvement. In particular, processed foods have many substitutes, so raising prices risks losing demand, making it inevitable that there are limits to improving profitability.
On top of this, the government's stance on price stability has added to the burden on the food industry. President Lee Jae-myung said at a Blue House senior secretaries' meeting on the 5th, "Use the price adjustment order system against corporations that raised prices through collusion." The system is based on Article 42 of the Monopoly Regulation and Fair Trade Act. It requires colluding corporations to cease and void collusion, withdraw collusive prices, and set new, legitimate prices. In 2006, the Korea Fair Trade Commission (FTC) imposed a 43.4 billion won penalty surcharge and ordered price redetermination on eight companies that colluded on flour supply and prices. The companies then cut prices on major flour products.
After the president's remarks, the government launched a special price management task force (TF) and began inspections focusing on everyday essentials such as sugar and flour. Across the industry, there is a sense that uncertainty over pricing policy has grown. A food industry official said, "With the local elections in Jun. bringing everyday prices to the forefront of policy, raising prices will be virtually impossible for the time being," adding, "Expenses such as materials and supplies prices, exchange rates, and logistics costs keep rising, but it is difficult to reflect them in prices."
In this environment, advancing and expanding K-food in overseas markets is widely seen as a de facto survival strategy. With the domestic slump entrenched and the policy variable of price stability added, a consensus in the food industry is that sustainability is hard to collateral on the domestic market alone.
In fact, looking at last year's performance trends of major food companies, there are many cases where overseas business cushioned weak results at home. CJ CheilJedang saw operating profit fall due to sluggish domestic demand and cost pressures, but overseas food sales hit a record high. Its overseas strategy led by Bibigo products such as dumplings and kimchi offset much of the burden on the domestic business.
Dongwon Industries saw sales increase on a consolidation basis last year. Overseas exports by food affiliates, including the tuna business featuring global idol group BTS member Jin as a model, home meal replacement (HMR), and pet food, drove overall sales growth.
Samyang Foods posted its first-ever 2 trillion won range in sales, backed by the global success of the Buldak brand. In particular, it is also accelerating capacity expansions to meet growing overseas demand. Nongshim is likewise making the expansion of its overseas share a core mid- to long-term strategy. It has increased investments in local subsidiaries and production lines mainly in the United States and Europe, and is operating export-only plants to strengthen its global supply chain.
The same goes for the liquor industry. As domestic alcohol consumption declined due to the economic downturn and a drinking culture among younger people who do not drink much, Lotte Chilsung Beverage is targeting overseas demand for K-liquor represented by fruit soju such as Soonhari.
Experts expect this trend to continue for some time. Park Sang-byeong, a professor at the Graduate School of Policy Studies at Inha University, said, "With the local elections in Jun. approaching, prices are the most palpable livelihood indicator, so it is inevitable for the government to push hard for price stability," adding, "With external variables such as a strong dollar-won exchange rate and higher raw material prices overlapping, the price stability stance is likely to continue well after the elections."
Seo Yong-gu, a professor in the Department of Business Administration at Sookmyung Women's University, said, "Korea has already entered a low-growth phase, so it is a natural structural shift for food corporations to turn to overseas markets with room to grow," adding, "An era will come when only corporations with a similar balance between domestic and overseas sales survive."