Korea's major institutional food service companies continued to grow in size last year, but profitability diverged by company. With the burden of higher food material prices and labor costs mounting and concerns rising over the industry's growth limits due to low birthrates and an aging population, the industry is accelerating expansion into new businesses such as food material distribution, healthcare, and platforms.
◇ Scale grew, but profitability was mixed
According to the Financial Supervisory Service's electronic disclosure system on the 18th, Samsung Welstory's revenue rose 4.6% year over year to 3.3281 trillion won last year, but operating profit fell 1.5% to 153.3 billion won. The impact of higher food material prices and labor costs was reflected. OURHOME also achieved a record-high revenue as revenue grew 9.2% to 2.4497 trillion won on the back of increased new orders, but operating profit fell 9.4% to 80.4 billion won due to one-off expense related to the launch of a subsidiary.
By contrast, Hyundai Green Food and CJ Freshway continued to improve profitability. Hyundai Green Food's revenue rose 2.6% to 2.3296 trillion won last year, with operating profit up 10.5% to 106.8 billion won. CJ Freshway also posted record results, with revenue up 7.9% to 3.4811 trillion won and operating profit up 8.1% to 101.7 billion won from a year earlier.
In the institutional food service industry, "defending profitability" is cited as a common recent task. Prolonged high inflation and high oil prices have increased the burden of food material costs and labor costs. Because institutional food service is a sector with low operating margins, achieving economies of scale is seen as a key task. As a labor-intensive industry, fixed expenses such as labor costs are high, creating a structure in which the expense burden increases as scale grows. A food service industry official said, "Top-line revenue is generally growing, but the key is profitability management," adding, "Food service is stable, but the cost burden keeps rising, so each company is focusing on expense efficiency and business diversification."
The industry sees a high likelihood that institutional food service itself will enter a mid- to long-term stagnation phase. With the productive population declining due to low birthrates and an aging population, the number of meals served inevitably decreases. A structure is forming in which it is difficult to sustain growth in scale through new business site orders alone, as in the past. A food service industry official said, "The institutional food service market is not extremely competitive because each company has affiliated demand," adding, "It is hard to expect explosive growth with on-site cafeteria operations alone, so there is a trend to broaden portfolios into dining-out, ready-to-eat meals, and healthcare."
In practice, major companies are accelerating expansion into new businesses beyond simple meal provision. CJ Freshway strengthened online-based food material distribution by acquiring additional equity in Marketboro, the operator of the food material open market "Sikbom." First-quarter online business revenue this year rose 17% from a year earlier. Revenue in the kitchenless business, which provides meals without kitchen facilities, was 104.6 billion won last year, up 22% from a year earlier.
Hyundai Green Food is focusing on expanding care food and health management services. It operates the "Greeting Nutrition Care" service, which analyzes individual nutritional status to provide customized meal plans, expanding institutional food service into the healthcare arena. Samsung Welstory moved to strengthen its business in cooking automation and operational efficiency by expanding smart kitchen solutions. It aims to reduce the labor cost burden by using robotic cooking and artificial intelligence (AI)-based operational efficiency technologies.
◇ Riding the K-food wave to expand overseas business
Companies are also eyeing overseas business. In the past, growth was seen as limited because expansion mainly followed domestic conglomerates' factories or overseas offices, but recently it is drawing attention as a new growth engine as local demand increases on the back of the K-food boom.
Hyundai Green Food is increasing the share of Korean menu items at its business sites in Mexico and China, with the number of Korean meals served at overseas establishments rising 75% year over year from January to April this year. OURHOME also said the number of Korean meals served at its U.S. subsidiary rose 53.4% last year, and demand is strong at its Poland establishment, where about half of daily meals are Korean menu items.
Samsung Welstory is also moving to expand localized business at its Vietnam establishment, combining Korean menu items with K-culture experience events. A food service industry official said, "Overseas operations are mostly in the form of running on-site cafeterias at the factories or offices of domestic corporations," adding, "However, as interest in K-food and K-culture has increased recently, there is also demand among local employees, so overseas food service operations are becoming a new growth opportunity."
Another food service industry official said, "Expanding investment entails some financial burden, but in the long term this is the time to secure new growth engines," adding, "There is also a continued push for research and development of silver food in step with the aging era and for expanding dining-out businesses."