Major domestic food companies are speeding up business restructuring, such as remerging spun-off subsidiaries and consolidating production bases. With high inflation and a prolonged slump in consumption, the move is seen as a strategy to cut management expense and simplify decision-making to improve profitability.
According to the industry on the 24th, Maeil Dairies said on the 6th that it would absorb and merge its subsidiary Maeil Health Nutrition. It comes about four and a half years after it spun off the Health and Nutrition sales division in Oct. 2021 to establish a separate corporation. Maeil Health Nutrition, a subsidiary specializing in health functional foods, has sold adult nutritional products such as "Selecs." Maeil Dairies said the purpose is "to reduce unnecessary operating expense such as expenditure and enhance management efficiency to strengthen business competitiveness."
Since it was established as a separate corporation, Maeil Health Nutrition's profitability has fallen short of expectations. The company posted sales of 94.3 billion won in 2022, 106.2 billion won in 2023, and then fell to 82.3 billion won in 2024. Operating losses were 4.6 billion won in 2022, 5.3 billion won in 2023, and 4.9 billion won in 2024.
The health functional food business tends to require heavy spending on advertising/marketing expense and distribution network building in the early market-settlement phase. The industry views the merger as a step to directly channel the solid dairy cash flow of Maeil Dairies into the health supplement business. The plan is to cut management expense that arise from running a separate corporation and cushion the expense burden by directly leveraging the headquarters' infrastructure. In the short term, it may weigh on overall profitability, but analysts say the company chose to regroup the organization into one to carry the health supplement business—its future growth engine—over the mid to long term.
Food affiliates of Lotte Group are putting the focus on production efficiency. Lotte Chilsung Beverage decided to close its Gwangju and Opo plants this year. After internal discussions since last year, it drew up a closure plan and decided to halt operations at two of its six plants nationwide, in Gwangju and Opo. Instead, it plans to turn the remaining four plants (Anseong, Anseong 2, Yangsan, Daejeon) into production hubs by increasing output or improving working conditions.
Lotte Chilsung Beverage said the plant closure decision is "aimed at promoting companywide improvements in working conditions through production efficiency." The strategy is not simply to stop operations but to retire aging facilities and concentrate production volume at proven, core hubs to maximize production efficiency. Park Sung-ho, an analyst at LS Securities, said, "We expect benefits from streamlining low-revenue categories, consolidating liquor plants, and reducing selling and administrative expense through lower labor costs," while adding, "The domestic beverage and liquor markets are in a downturn, so it is difficult to expect the operating environment to improve in the short term."
Lotte Wellfood is also streamlining its business structure. Since the 2022 merger of Lotte Confectionery and Lotte Foods, it has been pursuing production-facility efficiency and product mix adjustments for some overlapping production lines, such as bakery and ice cream. Early last year, it sold the Jeungpyeong plant of its bakery division and carried out a voluntary retirement program. It is also pushing to sell its China subsidiary.
Until now, food companies have used a strategy of separating detailed businesses such as health functional foods into independent corporations to bolster expertise and raise corporate value. But as market growth slowed more than expected, the fixed-cost structure of independent corporations began to act as a burden. An industry insider said, "Because separate corporations run duplicate HR, accounting, marketing, and logistics organizations, profitability is hard to improve unless sales scale grows sufficiently."
Sluggish consumption and rising costs are cited as the backdrop for these moves. With materials and supplies prices and logistics costs continuing to weigh, the need to improve expense structures has grown. In fact, Lotte Wellfood's consolidated sales hit a record 4.216 trillion won last year, but profitability deteriorated as the impact of soaring cocoa prices persisted. Last year's operating profit was 109.5 billion won, down 30.3% from the previous year.
On top of that, low birthrates and an aging population, which could depress long-term demand itself, are also influencing corporations' strategy shifts. The environment makes it hard to expect increases in sales volume.
An industry insider said, "In the past, the focus was on the number of products and expanding distribution networks, but now, as the food industry faces structural difficulties, operating efficiency and revenue structure management are also becoming key management factors," adding, "It is an important time to improve the fundamentals of existing businesses."