On the 3rd, the won-dollar exchange rate remained in the 1,500-won range for the 34th straight trading day since May 15, marking the longest stretch since the foreign exchange crisis. As the strong dollar persists and the cost of imported food ingredients snowballs, big-box retailers are scrambling to defend "table prices" by moving beyond their main sourcing regions to cheaper alternatives and even switching the settlement currency. Recently, salmon and cheese have joined mackerel and beef on the list of items targeted for diversified sourcing.
◇ Switching settlement currency and even bulk buying
E-MART picked Chile as an alternative sourcing region for salmon, which had relied on Norway. With the import price of chilled salmon at 17,463 won per kilogram in May, up 32% from a year earlier, the company test-sold Chilean salmon in limited quantities in December and officially launched "Aqua fresh salmon sashimi" (250g) in January. At regular price, the per-100g price is 5,992 won for Chilean salmon, about 14% cheaper than Norwegian salmon (6,980 won). For Norwegian salmon imported frozen, E-MART eased the burden of a rising exchange rate by agreeing with a partner late last year to switch the settlement currency from dollars to the local currency, the krone.
Traders T-Cafe also switched the sourcing region for its cheese. It had used New Zealand mozzarella, which had cost advantages for pizza and spaghetti toppings, but moved to find alternatives as local milk prices rose. E-MART, confirming through its local subsidiary that U.S. cheese has gained price competitiveness as export volumes increased, switched at the end of May to U.S. product that is more than 10% cheaper in cost than New Zealand product.
Lotte Mart is also responding by finding alternative sourcing regions and signing advance contracts. With high exchange rates pushing U.S. beef prices up 10%–15% from a year ago, it has increased volumes of Australian beef, which is about 10% cheaper than U.S. beef, by 10% from last year. For salmon, in July last year it became the first in the domestic retail industry to secure raw product through advance contracts by designating a salmon farm in Chile. Through this, it brings in about 1,000 tons of Chilean salmon at up to 15% below international prices. For Norwegian salmon sashimi, whose prices rose about 10% over the past year, it is minimizing the price increase by importing processed raw product directly by air from the source without intermediate distribution.
Examples of riding out exchange-rate waves through advance bulk securing are also seen in live lobsters. Lotte Mart signed an advance contract with a local partner in Canada to secure about 150,000 lobsters in advance and sold them in May and June. The volume is about 20% higher than a year earlier, and through bulk purchases it brought them in about 10% cheaper than local market prices. With high exchange rates, higher air freight, and reduced local supply all overlapping, live lobster prices are up about 12% this year.
Items that have already secured alternative sourcing regions are also expanding their shelf space. The prime example is mackerel. The retail price of "mackerel (imported, salted, whole)" averaged 11,054 won as of the 1st, up 28.3% from last year (8,616 won). E-MART began full-scale sales on the 25th of last month of Chilean chub mackerel, which is about half the price of Norwegian product. The company said that, as it is the same chub mackerel species as domestic mackerel and is selected mainly in the medium-to-large size range (600–800g per fish), which has high domestic demand, the selling weight is about 20% greater than domestic mackerel. It plans to fill 20%–30% of imported mackerel volumes with Chilean product.
For beef, Irish product has been added to frozen beef that used to be dominated by U.S. and Australian sources. Priced about 30% below market, Irish beef is becoming duty-free starting this month and is said to become 5%–6% cheaper than Australian beef. Among E-MART's imported fruits, mango—ranked among the top five in sales—has also seen its share rise to 10% by tripling, in December last year, the volume of Australian Calypso mangoes that can be settled in Australian dollars instead of U.S. dollars.
◇ "Dollar-flation is the new normal"
Retailers are also expanding product lines that are less sensitive to exchange-rate swings. For E-MART, frozen fruit is a representative example. From late February, when oil prices and shipping costs rose due to the Middle East war, through now, E-MART's frozen fruit sales are up 22.5% from the same period last year. E-MART aims to newly develop at least five kinds of frozen fruit that can be stored long term this year and increase sales 20% from a year earlier.
Still, there are expectations that consumers will find it hard to avoid higher costs despite such defenses. Seo Yong-gu, a professor in the business administration department at Sookmyung Women's University, said, "Retailers that are targets of price comparisons, such as big-box stores or Coupang, are actively defending prices by finding alternative sourcing regions and avoiding dollar settlement," but added, "As 'dollar-flation (inflation caused by a strong dollar)' has become the new normal, consumers' price burden for imports appears inevitably long-term."