Some food companies have cut prices in line with the government's inflation-control stance, but the dining-out sector is tending to raise or freeze prices. Unlike manufactured goods, they say they must consider the circumstances of franchise owners and other self-employed operators. Some restaurant chains are rolling out ultra-low-price menu items one after another, effectively lowering prices.
According to the food industry on the 18th, recently, processed food companies such as ramen, cooking oil and confectionery joined a price-cutting drive at the government's request after meeting with the Ministry of Agriculture, Food and Rural Affairs. Major ramen makers including Nongshim, OTOKI, Samyang Foods and Paldo Co. decided on average price cuts of 4% to 14%, and the bakery and confectionery sector also lowered prices on some products. The food industry says pressure to cut prices is strong because of the government's price-control policy and the sector's nature of being directly affected by prices consumers feel.
By contrast, price increases have continued in the dining-out sector in recent months. Major burger franchises such as KFC, McDonald's, Burger King and Mom's Touch recently raised prices on some menu items or carried out price adjustments. Earlier, KFC raised prices on 23 chicken and burger items by 200 to 300 won. McDonald's and Burger King increased prices of major burger items by about 100 to 400 won. Mom's Touch also applied an average increase of 2.8% on a total of 43 single-item offerings. Some brands, including KFC, raised prices again in less than a year since the last hike.
Industry officials say it is realistically difficult to cut prices because fixed costs such as not only ingredients but also labor, rent and delivery platform fees take up a large share. The structure centered on self-employed owners also makes it hard for the government to intervene directly in pricing, a key difference from the food manufacturing sector.
In fact, the Korea Fair Trade Commission met with seven major restaurant companies on the 27th of last month. Rather than direct pressure to cut prices, it stopped at signing an "agreement on providing information such as price increases," which requires companies to notify consumers in advance if they plan to raise prices or reduce portion sizes.
A chicken franchise industry official said, "In dining out, the burden of labor and rent has grown, piling up factors for price hikes, and considering franchisees' circumstances, it is not easy to lower menu prices," adding, "The government appears to have taken these circumstances into account and chosen to sign an agreement on providing information about price increases rather than directly pressuring for price cuts."
Some restaurant companies, instead of cutting prices, are offering ultra-low-price menu options to ease the burden on consumers. As the pace of dining-out inflation continues to outstrip overall consumer prices, demand for low-priced menus has been expanding. According to the February consumer price trends that the Ministry of Data and Statistics (MODS) released on the 6th, the dining-out inflation rate rose 2.9% from a year earlier, outpacing the overall consumer inflation rate of 2.0%.
Restaurant franchises such as burger, dosirak and sandwich chains have been launching 2,000 to 5,000 won menu items in succession to capture value-for-money demand. No Brand Burger of Shinsegae Food recently strengthened its lineup of burgers priced in the 2,000-won range. It is also running a promotion through the 22nd of this month to sell five popular set menus for 5,000 won during lunchtime. Subway launched a new item, "Pizza Sub," priced at 4,300 won. The dosirak franchise Hansot Dosirak is promoting 3,000-won-range items such as its "Mayo series."
E-Land Group's E·land Eats sells Pizza Mall's pizza by the slice for 2,990 to 3,990 won each. Until transfer it mainly operated buffet-focused stores, but since Jan. last year it has been selling pizza by the slice mainly at specialty stores in large discount stores. Low-priced coffee brands COMPOSE COFFEE and MEGA MGC COFFEE are keeping takeout iced Americano prices at around 1,800 to 2,000 won.
A burger franchise industry official said, "Consumers have become more price-sensitive about expenses related to essentials and meals that require fixed expenditure," adding, "With consumption depressed, companies are continuing to launch ultra-low-price menus to attract consumers."
However, there are concerns that ultra-low-price competition, while drawing crowds in the short term, could lead to worsening franchise profitability and damage to brand value amid high labor and logistics costs. Lee Jong-woo, a professor of distribution marketing at Namseoul University, said, "When consumption is sluggish, using ultra-low-price products as loss leaders to induce spending is a good strategy," adding, "But lately, consumers have strong resistance to high dining-out prices, so they may buy only the loss leader and not be induced to make additional purchases. A strategy is needed to attract customers and then connect it to set sales, and so on."