As bakery franchises Paris Baguette and Tous les Jours both decided to cut bread and cake prices, the food industry is watching closely to see whether the trend will spread to processed food price cuts. As consumer prices, which had remained unmoved even after cuts in materials and supplies such as flour and sugar, started to fall, some in the industry say a full-fledged "game of chicken" over pricing policy has begun.
According to the retail and food industries on the 27th, the latest decision by Paris Baguette and Tous les Jours is the first case in which consumer prices were actually adjusted following cuts in materials and supplies prices by milling and sugar companies. Until now, the food industry had maintained that even if materials and supplies prices fell, it was difficult to adjust prices because the burden of fixed costs such as labor, rent and logistics was growing.
A food industry official said, "It is true that flour and sugar are key materials and supplies, but their share of total costs is limited," adding, "If anything, the strong won-dollar exchange rate has increased import materials and supplies expense, and the burden of fixed costs such as labor and rent remains, so it is not easy to lower consumer prices solely on the basis of cuts in specific materials and supplies prices."
This mood also carried over to the Korea Food Industry Association's regular general meeting held that day at Lotte Hotel in Sogong-dong, Seoul. Park Jin-seon, head of the Korea Food Industry Association, said, "The domestic market is shrinking while raw material prices and labor costs are rising, and demands for price stability are growing, leaving us facing the challenge of price adjustments," adding, "The management burden on food companies is increasing." At the venue, attended by the heads and executives of about 30 major food companies, attendees were said to have monitored developments following the bakery industry's price cuts and voiced concerns about the burden of investigations into collusion by the Korea Fair Trade Commission and pressure for price stability.
Behind the simultaneous price cuts by the No. 1 and No. 2 bakery franchises is pressure from the Lee Jae-myung administration for price stability. The government launched the "Task force for special management of people's livelihood prices," and the president noted that "the benefits must flow to consumers," signaling heightened pressure on the processed food industry.
So far, no one in the ramen, snack and beverage sectors has officially released consumer price cuts. Even after milling and sugar companies reduced materials and supplies prices, major processed food corporations have not offered a clear position on the possibility of price adjustments.
Inside and outside the industry, many see a "game of chicken" beginning over who will take the lead. That is because price cuts go beyond simple cost issues and are directly tied to the industry's overall revenue structure. A retail industry official said, "Ramen, snacks and beverages have more complex cost structures than bread, and marketing, distribution and logistics take up a larger share, so cuts in materials and supplies prices do not readily translate into consumer price reductions," adding, "We plan to watch a bit longer for moves by leading brands or additional messages from the government." In the food industry, pricing policies by leading companies often spread to competitors.
A confectionery industry official said, "It is true that social pressure to adjust prices has grown in line with declines in materials and supplies prices," but added, "Not all processed foods are under the same conditions, so whether prices actually fall, when, and by how much will inevitably vary by company."
Lee Jong-woo, a professor of business administration at Ajou University, said, "The decision by Paris Baguette and Tous les Jours has become a turning point for price cuts across the food industry. For the time being, a game of chicken over prices is likely to continue over who will move first." He added, "In particular, if corporations move to cut prices amid the government's price-stability stance, policy support should accompany them so they can shore up operating profit and sustainability through export expansion and entry into overseas markets."